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How Comcast Buying Time Warner Cable Could Impact You — And The Entire Entertainment Industry

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"How Comcast Buying Time Warner Cable Could Impact You — And The Entire Entertainment Industry"

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Comcast Cable President and CEO Neil Smit.

Comcast Cable President and CEO Neil Smit.

CREDIT: AP Images/Evan Agostini

Today, Comcast, already the country’s largest provider of cable television, announced that it would spend $45 billion to buy the company that is second to it in the rankings, New York-based Time Warner cable. It’s an enormous business proposition, and it comes at a time when the cable business is more unsettled than ever.

And it’s a deal that brings up huge issues for consumers, even those of us who don’t get our cable from one of these two giants. In the future, how fast will we be able to access streaming services like Netflix? What does the deal mean for the future of set-top devices like the Apple TV? And while it’s easy to dream that cord-cutting and services like Aereo will bring down the cable model, is Comcast actually preparing us for a day when almost everything worth watching will migrate behind the cable paywall?

It’s important to note that this deal only means that Comcast is buying Time Warner Cable, rather than the suite of Time Warner entertainment businesses, which includes a number of magazine properties, cable networks like HBO, CNN, TNT, and CBS. Given the rate at which content companies are consolidating under a few corporate banners–Disney’s ownership of both Marvel and the Star Wars franchise is one, whale-sized example–that’s a good thing. Different companies managing content production will have different priorities and specialities. And on a more practical level, it’s hard to imagine that the federal government would have signed off on a cable network acquiring control over that much television and film content.

At CNN Money, Brian Stelter notes that the deal will still attract careful scrutiny from federal regulators, because the takeover means that Comcast will provide cable service to a third of American households. Finalizing the purchase could take a year or more. During the multi-year process to complete Comcast’s acquisition of NBCUniversal, which includes both production companies and distribution outlets, Comcast entered into a settlement with the U.S. Justice Department that placed some limits on its actions. The company committed not to make competing cable and online outlets pay more than Comcast does for access to NBCUniversal content, gave up its role in managing the streaming video service Hulu, and promised not to slow down content consumers streamed from competitors like Apple TV over Comcast internet service, among other restrictions that it accepted on its business.

Under the terms of the agreement, Comcast has to stick with its promise not to slow down content until 2018, even though the Court of Appeals for the D.C. Circuit struck down the Federal Communications Commission’s ability to maintain so-called net neutrality in January. At Gigaom, Stacey Higgenbotham speculated that federal regulators might demand that the Time Warner Cable subscribers be subject to the same promise. “Yes,the conditions would only protect the segment of the population that ends up a Comcast customer, and would only be in place for a limited amount of time, but it would let the agency feel like it was taking action,” she wrote.

On an immediate logistical level, the merger might not actually change very much for cable subscribers, at least in terms of narrowing their options in a marketplace where consumers already have few choices. The New York Times’ Dealbook has a map of Comcast and Time Warner’s service areas. Comcast is concentrated in New England, Philadelphia, Florida, Atlanta and other Southern and Midwestern metropolitan hubs, San Francisco, and the Pacific Northwest. Time Warner has strongholds in New York, Maine, Ohio and the Carolinas. Dealbook also reported that Comcast will limit its footprint in the merger by offering to spin-off three million Time Warner Cable customers, but whether to a new entity or another company isn’t yet clear.

The more interesting question might be how the deal affects conversations between cable providers and the network. Time Warner Cable customers lost access to CBS, Showtime, and CBS Sports for a month last summer after Time Warner wouldn’t agree to the increases in fees that CBS wanted for its content. In a preview of what these fights could look like in years to come, Time Warner dropped the CBS channels, and CBS retaliated by blocking Time Warner customers from accessing episodes of their shows online if they tried to do so over Time Warner-provided broadband. The deadlock was broken when Time Warner had to face the possibility that its customers wouldn’t have access to football games that aired on CBS: CBS got the fee hikes it wanted, and Time Warner got more access to the company’s streaming content. Whether the deal ends up being a model for future negotiations between networks and cable companies remains to be seen, but these sorts of conflicts will certainly happen again.

As Martin Peers cautions at the Wall Street Journal, that doesn’t mean that Comcast should go looking for an excuse to use its power in the market. “Comcast has to tread carefully,” he wrote this morning. “Slowing rising program fees could hurt its NBCUniversal business. And squeezing programmers too hard could hold it open to the charge of hurting rivals to NBCU. Moreover, even with 30 million subscribers, how easily Comcast can blackout a network carrying live sports or a major event like the Academy Awards remains up in the air.”

And the move also comes at a time when the cable business is highly unsettled. The cable market isn’t yet in any sort of free fall, but cord cutting–the phenomenon of viewers ditching their cable subscriptions in favor of streaming content from services like Netflix, comfortable in a new media environment where you can catch up on programming by binge-watching–is a real phenomenon. And it’s one that cable companies would be smart to hedge against.

Comcast is citing competition from the internet as a justification for the merger: David Cohen, executive vice president of the company, wrote in a memo on the proposed sale that “In today’s market, with national telephone and satellite competitors growing substantially, with Google having launched its 1 GB Google Fiber offering in a number of markets across the country, and consumers having more choice of pay TV providers than ever before, Comcast believes that there can be no justification for denying the company the additional scale that will help it compete more effectively.”

Broadening Comcast’s customer base means the company takes less of an overall hit when some consumers cut the cord. But Comcast is in the business of providing internet access, too. So the deal with Time Warner also means that Comcast is broadening its internet customer base, so if those cord cutters decide that they still want broadband at home, Comcast can hold on to at least part of their business.

And it’ll be very interesting to see if, after the sale goes through, Comcast continues Time Warner Cable’s work with Apple. There had been reports of discussions to produce an Apple TV that would let Time Warner Cable subscribers access streaming content through a portal tied to their subscriptions. Currently, cable subscribers using Apple TV or Rokus must set up streaming services that are included in their cable packages on an outlet-by-outlet basis.

And all of these issues could become even more complicated pending the Supreme Court’s decision this summer in ABC TV v. Aereo. The court announced on Monday that it would hear arguments in the case on April 22. As Michael Phillips explained it earlier this year in the New Yorker:

Local television stations, like WNBC New York, are allowed to transmit programming over valuable public airwaves on the condition that the signals are free for the public to pick up with an antenna. Aereo has built large antenna arrays, comprising thousands of dime-sized, adorable antennae, in order to capture those signals. Each antenna receives, and transmits over the Internet, the signal for a single Aereo subscriber, who can then watch live over-the-air broadcast television—or record it with cloud storage, which Aereo provides, to view later—on a computer, tablet, or smartphone.

The company is arguing that it’s just making it easier for consumers to do what they’re supposed to be able to do: pick up broadcasts over public airwaves, but using the technology that they prefer. At issue is whether Aereo is violating copyright laws that networks say should require the company to pay to retransmit their programming, just like they do.

If Aereo wins at the Supreme Court, it might make cable subscriptions unnecessary if you want to pick up what’s being broadcast over public airwaves. But what will be left? Sports broadcasts are increasingly migrating to cable, where football does a huge business, and TBS broadcasts the Major League Baseball playoffs, though the Championship contests and the World Series return to broadcast on Fox. And it’s not just sports, the most financially secure sector of television programming that could migrate to cable. Asked about Aereo at the Television Critics Association press tour this summer, Fox president Kevin Reilly said his company might be willing to forsake the public airwaves.

“[News Corp president] Chase Carey was very open in his remarks last year, at the [National Cable and Telecommunications Association], I think, that if that were to come to be, which would potentially eviscerate our business, we’d have to take some drastic measures, including becoming a cable network,” Reilly said. “It’s something we don’t plan on or want to do, but we would be prepared to do. We’re not going to sit back and have our business destroyed with something that we think is unconstitutional, frankly.”

In other words, if Fox and other networks pulled up stakes and decamped for cable, a cable subscription could become more valuable than ever before. Comcast’s deal with Time Warner Cable is an attempt to make sure that no matter what happens, and no matter whether it becomes a technology company or a content company, it’s covered. Whether the same is true for consumers who want affordable access to good programming is another question entirely.

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