When the Senate Judiciary Committee met on Wednesday to consider the potential merger of Comcast and Time Warner Cable, the senators had questions about the size of cable bills, the number of providers choices available to consumers, and even, in the case of Committee chairman Sen. Patrick Leahy (D-Vt.), the rise of binge-watching. While the hearings made clear that senators do not have better cable service than the rest of it, it also clarified an important point: the problems in the cable and internet businesses are less about the size of a single company, than the choice to let these companies be in multiple kinds of businesses.
Comcast has been been in the cable business since 1963, but it is comparatively new to providing home internet service. The company started providing internet service in 1996 in partnership with a company called Excite@Home, which also worked with AT&T and Cox Communications. At the time, competitors volleyed criticisms of Comcast that sound awfully contemporary: “They don’t do cable very well, so I don’t know how they’ll do Internet very well,” Andrew Clark, then CEO of Clark Internet Services (which was shuttered in 2003), told the Baltimore Sun. When Excite@Home went bankrupt, Comcast switched subscribers onto its own network in 2002.
That convergence of services, complicated further by Comcast’s 2011 purchase of NBCUniversal, rather than the size of a proposed merged company, was the real issue in many of the objections and questions raised by critics of the merger in Wednesday’s hearing.
Take, for example, Leahy’s invocation of the deal Netflix cut with Comcast to improve the speeds at which Netflix’s content loads for Comcast users. If Comcast was just an internet provider, it might still be working with Netflix and other high-traffic companies to try to figure out who is going to pay for infrastructure improvements that will make its network faster when usage surges. But since Comcast sells cable service, too, a division that makes and distributes content that competes with Netflix’s raises the specter that Comcast is trying to triage its lines of business at the expense of consumers and competitors.
Similarly, questions from Sens. Richard Blumenthal (D-Conn.) and Mike Lee (R-Utah) about the prices Comcast might charge other companies for NBC content, and the rates it might or might not negotiate on behalf of its subscribers are partially about the overall size of Netflix. But they are also about the fact that Comcast now is pulled in two directions by its different businesses. It has a mandate both to get the most money it can for NBC shows, and to pay as little as possible for content from elsewhere, negotiations that may be directly affected by the deals it cuts for shows Comcast produces in what is now a very large house.
The clearest link between the range of Comcast’s lines of business and the size of its footprint came from two critics of the merger. In written testimony, Gene Kimmelman, the president and CEO of the non-profit Public Knowledge noted that the bigger Comcast gets, the more influence it has on new channels that want to get into the market. “No program supplier will be able to obtain the critical mass of ‘eyeballs’ necessary to successfully launch or sustain a program or channel without placement on the post-merger Comcast systems,” he wrote. In other words, as Comcast gets larger, it has more power as a cable provider to lock out competitors to the networks that it runs as part of its content business.
And James Bosworth, the CEO of an upstart golf-focused cable channel, Back9Network, argued specifically that if Comcast (which owns the competing Golf Channel) is allowed to expand into the Los Angeles and New York territories where Time Warner Cable presently operates, it will gain power to lock new networks out of the markets where they need to prove they can succeed in order to get picked up elsewhere.
“The combined entity would be the dominant pay TV provider in all ten of the top-television markets, including New York and Los Angeles (which are disproportionately important ot the ability of a cable network to attract advertisers and compete for programming rights,” he wrote. “With DirecTV and DISH’s bandwidth constraints, the ability of a new independent network to launch will essentially require negotiation for carriage from a combined Comcast/Time Warner Cable.”
During the hearing, David Cohen, an executive vice president for Comcast, told the senators that his company actually has a meeting on the books about picking up the Back9Network. But Bosworth’s point is an intriguing one that only heightens the larger issue of Comcast’s vertical integration. As Sen. Lee put it during the hearing, “This is a complicating factor for a large distributor of video content and broadband internet that’s seeking to become larger…I think it’s important for Congress to continue to monitor the competitive state within these markets throughout the country.” That may be putting it mildly. And as these discussions continue, they should continue to address not just the size of Comcast’s service area, but the range of its businesses.