Comcast pursues Time Warner

Several suitors have been pursuing Time Warner over the last few months.  It looks like Comcast is the likely winner, offering to purchase the second-largest cable operator for $45 billion.

But the deal is more about broadband than cable.  The addition of Time Warner broadband customers would give Comcast more than 33 million broadband subscribers and what amounted to $18 billion in subscription revenues in 2013.  That's about half of current broadband subscribers.  And broadband revenues are growing faster than cable video, with higher profit margins (around 90 percent).  The cable side, in fact is in trouble, losing customers and facing and increasing profit squeeze.

The deal is also about positioning Comcast for the future and the likely radical transformation of the video signal delivery business.  Local stations and cable networks keep pushing licensing fees higher and higher in search of revenues to replace stagnant (although still quite large) TV advertising dollars.  And then there's the continuing advances in IP video streaming, and changing audience habits.   Comcast is one of the few TV companies doing R&D - in fact, they have the largest R&D presence in the industry - and much of that effort is geared towards positioning the firm for the developing IP streaming, digital broadcast innovations (such as Aereo and multicasting), and mobile video explosions.

Those under 25 are spending less time watching traditional live TV - considerably less.  Delayed viewing and consumption of IP-video streams from an increasing variety of high-quality online video services (i.e. Netflix), as well as gaming, are eating up an increasing share of viewer's attention.  Advances in mobile, in the meantime, are creating new opportunities for TV viewing - although delays in implementing "TV Everywhere" has slowed cable's ability to tap into that new market.  Experts are now expecting a major transformation in TV viewing, even while unsure just what kind of TV market will eventually emerge from the growing chaos.

I'd be remiss, though, if I didn't point out the regulatory roadblocks in the way of the merger.  After all, the deal would combine the two largest cable system operators in the U.S., each of whom also owns a wide range of other media outlets, including broadcast networks, cable networks, film & video production and distribution outlets, publishing, etc.  Both are often listed among the world's 10 largest media conglomerates.  While there's not a lot of direct competition between the two cable and broadband operations (they're more local monopolies, increasingly challenged by telco and broadband operators like AT&T, Verizon, and Google), media is an area where just being large is considered problematic.  More problematic on an anti-competitive basis would be many of the other media components, which are arguably more directly competitive with one another.  And then there's the issue of Comcast's data caps and their interference with (slowing down) of unaffiliated video streaming services - the one glaring anti-competitive behavior fueling Network Neutrality debates. There's lots of reasons the deal might not be approved and consummated.

Even if the FTC doesn't knock the deal down in terms of sheer size and concentration, there will need to be a lot of negotiations and deals to meet the antitrust concerns of all the various markets and media elements in play.

(Let me also point interested readers to Ken Doctor's analysis of the deal and the fundamental issues confronting cable systems like Comcast and Time Warner Cable.  The Newsonomics of Comcast's deal and our digital wallets)

Sources -  If Comcast buys Time Warner, TV could change forever,  GigaOm
The Comcast-Time Warner Cable merger is not a marriage made to last, The Guardian

edited to add last graph and link (2/17/14)

Nielsen/Arbitron deal edges closer

Nielsen's purchase of Arbitron is still not official - the FTC has yet to formally sign off on whether the merger would be anti-competitive.
  But the deal edged a bit closer as a Federal Court 2011 ruling in an anti-trust suit brought against Nielsen was upheld in appeal.  The 2011 decision found that while Nielsen was a monopoly in the US TV ratings business, it wasn't behaving in an anti-competitive manner.  That finding was just confirmed on appeal.

“Neither party disputes that Nielsen exercises monopoly power over the television audience measurement services industry, both nationally, for the United States as a whole, and for all 210 markets.”

However, the court ruled that on the specific allegations of the suit - that Nielsen had acted to prohibit other audience measurement services from entering the Miami market - that there was no evidence of specific anti-competitive behavior.  If such evidence had been forthcoming, it would likely have had a significant impact on the FTC's ruling of whether the Nielsen-Arbitron deal would be anti-competitive.

  Another factor in Nielsen's favor is that while Nielsen and Arbitron had once been fierce competitors in the U.S. TV and Radio ratings business, there is limited direct competition between the two today.

From 1978-1989 as Arbitron went head-to-head with Nielsen in the local TV ratings business, 60% to 80% of clients subscribed to both, the appeals court said. Those days are long gone -- Arbitron pulled out of that arena in 1993 -- much to the dismay of many in the advertising business.

As such, the purchase of Arbitron is seen primarily as a way for Nielsen to expand into additional areas of audience behavior measurements, and not as a means to remove a rival.  If that perception holds true, the FTC could still approve the deal, even if Nielsen is technically a monopoly.



Source -  Confirmed: Nielsen Is A Monopoly -- But Court OK With It,  TVBlog

Cable Fee Blame Games Begin

If recent news stories are any indication, it's time for The Cable Fee Blame Games to begin.

  It's no surprise that cable (and other multichannel provider) subscription rates are going up.  Programming license fees keep rising, the number of channels increase, and the last round of retransmission consent negotiations didn't go well for the multichannel industry.  And the increases look to be even higher this year - perhaps enough that the industry is looking for others to blame.  Many licensing deals require system-wide carriage of top channels, and are often sold in conjunction with new or less-valuable channels. So now some cable execs are talking about possibly breaking the basic tier into mini-bundles, even as public interest groups raise the prospect of a la carte pricing.
  It's come to the point where Cablevision launched an anti-trust suit against Viacom, accusing it of forcing the cable MSO to carry (and pay for) less popular Viacom cable networks in order to get MTV and Nickelodeon.

"Without the 'take it or leave it' requirements of bundled programming packages at a wholesale level, cable companies could tailor smaller and lower-priced packages that could offer flexibility and have great appeal to specific interests and audiences," said Charlie Schueler, spokesman for Cablevision.

   Other multichannel providers are experimenting with partial unbundling.  Verizon's offering a basic mini-bundle that drops expensive sports channels and knocks $15 off monthly fees.  Mediacomm has been advocating a hybrid model with the most expensive channels offered a la carte on top of a basic bundle.
   And now the broadcast networks are talking about wanting to get big license fees from multichannel distributors, either directly or indirectly, by grabbing a big share of increased retransmission consent fees for affiliates.  Some of the amounts I've been hearing are unreasonably and exorbitantly high - but between what the broadcast nets are talking, and sports channels passing through sky-rocketing coverage rights fees, coming jumps could be as high as $25-$50 a month, as they can't afford not to have high-demand content in an increasingly competitive environment.  Thus, cable needs to try to put the blame for big rates increases elsewhere.


Here's some other recent headlines and highlights.

• Cable One is going public with what it says is AMC's demand for a 520% increase in license fees.  AMC has seen significant gains in viewing due to a number of successful original series.
  Cable One claims AMC is demanding 520% increase in license fees,  FierceCable
• Dish Network gets $4.86 million jury award from ESPN, after alleging it wasn't getting the "best licensing rates" its contract provided.  That's about 3% of the damages Dish claimed.  Don't expect anybody's rates to go down.
  Jury orders ESPN to pay Dish Network $4.86 million, FierceCable
• In 2012, Mediacom Broadband average video subscription revenues up 12%, subscribers down 7%. Mediacom LLC saw average video sub revenues up 10%, subscribers down 7%.
  Mediacom Broadband increases average video subscriber revenue by $14 in 2012, FierceCable

Sources -  Imagining a Post-Bundle TV World, Wall Street Journal

EU on E-book Price-Fixing

Apple made news a few years ago by conspiring with major publishing houses to fix prices for all E-book sales.  Last spring, most of those involves settled a U.S. antitrust case by agreeing not to set minimum prices for the sales of E-books.  Antitrust regulators in the EU have now reached a similar deal.
  Apple and major E-book publishers have agreed to allow retailers to set their own prices, and allow them to offer discounts - at least for the next couple of years.

While this is a good first step, there's a caveat.  In both settlements, their promise to not conspire to price-fix is temporary.  US and EU regulators are likely to have to restart their anti-trust probes and lawsuits in a few years.

Source -  Amazon Trumps Apple In E-book Battle, OnlineMediaDaily

ICANN Antitrust Case Moves Forward

A Federal  antitrust lawsuit filed against ICANN (Internet Consortium for Assigning Names and Numbers) has passed the first hurdle, with a Federal Judge ruling that ICANN, while a nonprofit, may still be engaged in the kinds of commercial activities covered by U.S. antitrust laws.  The Judge handling this preliminary hearing ruled that "ICANN's argument about its charitable purpose is "irrelevant to an analysis of whether ICANN's activities are commercial."
  A publishing company filed the suit

against ICANN last November, shortly before the rollout of a new ".xxx" top-level domain. ICANN said that companies or individuals could pay the registry ICM -- tapped to manage the .xxx domain -- to prevent their names from being registered with an .xxx at the end, but that doing so would cost $150.
(The suit argued) that companies or individuals who wanted to prevent their names being used by others in a .xxx domain should not have to pay a fee of $150. The company said the fee was artificially high and reflected price gouging, monopolistic conduct and other anti-competitive practices.

The ".xxx" domain was established expressly for porn and other "adult" sites, in part to facilitate the ability of filters to distinguish adult from more general-interest sites.
  When the case was filed, the Association of National Advertisers said the suit illustrated the issues that is likely to emerge from ICANN's plans to allow companies purchase the rights to use their brand names or other words as part of their top-level domain names (the text-based URL).

Source -  Judge Allows Antitrust Lawsuit Against ICANN,  Online Media Daily

Senators concerned over Universal-EMI merger

A bipartisan group of Senators on the Anti-trust subcommittee have asked the FTC to examine the proposed merger between Universal Music, a division of Vivendi, and British-based EMI (now owned by Citigroup, which took over debt of around $4 billion).  Last November, Citigroup made deals to sell the music portion of EMI to Universal Music for $1.9 billion, and the music publishing arm to Sony/ATV for $2.2 billion.
  Prior to the sale/merger, EMI was ranked as #4 of the "Big Four" companies that dominate the retail music industry, and Universal Music Group was ranked #1.  The combination of the two labels would arguably dominate the US music industry, accounting for about 40% of the US market.  Artists signed to the two labels accounted for 51 of Billboard's Top 100 songs for 2011.
  The letter from the Senators express concerns that that level of dominance might give the merged labels the economic power to set prices or act as a gatekeeper for new online music services.

"The music industry has undergone a transformation in the last two decades as consumers access music through new online forms of distribution and as the market faces the challenge of piracy," the senators wrote. "Yet, in this as in other industries, robust competition remains the key to restraining prices, ensuring new and innovative forms of distribution, and maintaining diversity of choice available to consumers."

  Universal Music has argued that the online accessibility of music (legal and pirated), effectively limits the ability to manipulate prices; still they indicated that they were working with the FTC to address any concerns.
  The proposed merger is also under scrutiny from EU regulators, and Universal has given them indications that they might be willing to sell off some assets to reduce concerns.

Source -  Senators warn Universal-EMI deal poses 'significant competition issues,'  The Hill (Hillicon Valley blog)