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Telling a media company to not buy content is like telling a car company to not buy tires

Earlier today The Wall Street Journal reported that AT&T may close on a deal to buy Time Warner. Time Warner (not to be confused with Time Warner Cable) is a content play with popular properties HBO, CNN, and Warner Bros. in its inventory. AT&T has seen the light flowing from convergence and is rapidly becoming a media company, an exciting move away from being just a broadband access provider.

The boo birds are out, providing the usual “this is bad juju” arguments against a merger should merger talks go just beyond speculation over the weekend. Michael Copps, former member of the Federal Communications Commission, reportedly refers to talks of merger as an action that would result in monopoly power, a power that is “incompatible with democracy.”

Last time I checked, democracy was simply about the masses having the ability to enter a ballot box and choose the lesser of two political evils.  Mr. Copps is conflating a supposed monopoly on content with freedom of expression. If there is a merger, freedom of expression and democracy would not be harmed. To use such arguments is like saying that a car company shouldn’t be allowed to buy a certain tire for its SUVs and refrain from marketing its SUVs as using such tires. AT&T is a media company and should be able to establish an inventory or library of content that reflects its brand. I would argue that it would be undemocratic to stop it from choosing the content that best expresses what type of media company AT&T wants to be,

Besides, there is no monopoly harm here. AT&T won’t get the most out of its content if it does not make it available to as many outlets as possible. Also, the merger doesn’t stop any other content producer or media company from producing and distributing their own branded content.

Content is near infinitesimal in its creation and distribution. This makes the argument of favoritism toward one’s own content ridiculous. What the favoritism argument really indicates that protesters don’t have the talent to compete on quality of content and could do us all a favor by sitting down and taking a chill.

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Comcast and Time Warner would like regulators to joint the 21st century

I just finished listening to a hearing in front of the U.S. House Sub-committee on Regulatory Reform, Commercial and Anti-Trust Law.  Eight panelists tried to persuade the committee that the proposed merger between  Comcast Corporation and Time Warner Cable was either great for the delivery of innovative products and services to consumers or would harm consumers with higher prices and restriction on the availability of content.  What I barely heard was any analysis regarding what type of companies Comcast and Time Warner actually are today.

Based on most of the questions posed by the sub-committee members, their constituents look at Comcast and Time Warner as either 20th century cable companies, sitting somewhere with a huge dish catching satellite signals from HBO, Cinemax, or Disney and sending their programming down some cable wire into a consumer’s home or the company’s that connect us to the Internet.  And the discussion regarding whether the merger will be harmful to competition seemed to center on competition in broadband access or the last mile.

Comcast and Time Warner don’t appear to look at their relevant market as just last mile or broadband services.  From the near beginning of their joint testimony Comcast and Time Warner describe their proposed combination as creating a “world-class communications, media, and technology company.”  Not only are Comcast and Time Warner responding to and servicing the commercial activity generated by online companies such as Amazon, Apple, Google, Facebook, and Netflix, but they are now competing against these companies as these edge providers enter the world of digital voice and broadband access.

The question the U.S. Department of Justice will have to answer is why should we treat the services of each company as a silo such that we carve out one relevant market by which to analyze two companies that operate in multiple markets based on the multiple services they provide.  If the Justice Department identifies a relevant market, then can they say that there is a monopoly in the relevant market and was that monopoly power abused?

Yes, Comcast is already a monster of a company.  It has two main businesses; Comcast Cable and NBC/Universal. Assuming that the Justice Department finds that the relevant market is a national one, can the DOJ conclude that Comcast would have a monopoly in cable services?  How about in content production?  In theme park ownership?  In broadcast television station ownership?  In broadband?

Speaking of broadband, will the merger mean no more deployment of broadband facilities?  Probably not.  It would be highly irrational for a going concern that invests in a DOCSIS 3.0 digitized platform to not squeeze the last ounce of value out of it by not selling broadband services to more consumers.  For this reason alone I don’t see broadband adoption being harmed by the merger.

Cries of the big bad broadband wolf by the opponents of the merger tells me that they are still living in the late 1980s.  Comcast and Time Warner aren’t cable companies anymore.  Ironically it is because they have grown beyond their original core cable service and gotten larger in the process that they are able to escape antitrust concerns, assuming regulators admit they are in the 21st century.

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Dear Al Franken. You’re missing the globe for the bushes

The U.S. Senate Judiciary Committee met today to give their thoughts about the proposed merger between media companies Comcast and Time Warner Cable.

Wait a minute.  Did I say media companies?  Yes I did.  Comcast and Time Warner Cable provide end-users with access to content, whether they purchase that content from programmers such as ESPN or produce that content themselves, such as through their regional sports networks or other entertainment networks.  The questions posed by most of the senators displayed either their ignorance or fear of Comcast and Time Warner’s new roles as content providers.  Their unique position as owners of video distribution pipes that go into the homes of consumers shouldn’t lessen their primary roles as content providers nor should ownership of transmission mediums be the primary determinant of the legal and regulatory framework for their oversight.

Senators like Al Franken, Democrat of Minnesota, have the tendency to focus on small issues that generate the most political excitement and this tendency results in myopic analysis of the issue in front of them.  The senators rather focus on consumer issues of increased prices for ESPN and sports blackouts.  They would rather cater to testimony from content providers complaining about their inability to get their products displayed the digital version of a grocery store shelf, complaining that the store brand is getting the prime spot in the middle of the eye level shelf.

Take for example the testimony of James Bosworth, chief executive officer of Back9Network Inc.  Back9Network provides video programming that promotes the golf-lifestyle.  Mr. Bosworth argues that for independent programmers like his company, it will be near impossible to compete against similar programming provided by Comcast.  Mr. Bosworth would like the merger halted because he believes his firm will not be able to compete with Comcast’s other golf and/or lifestyle programming.

Could the real issue be that programmers such as Back9Network don’t bring much value to the end-user much less the “digital grocery store” that is Comcast to put it in a deserving position for more eyeballs?  In an industry allegedly valued at $177 billion with approximately 26 million golfers, maybe Back9Network, still an infant having been in business only since 2010, hasn’t come up with that compelling business model that Comcast’s David Cohen admits is necessary for the company to place a network in its network line up.  Maybe programmers need to focus on creating something that people want to see in the first place.

But there is something more fundamentally telling in this debate over the merger of Comcast and Time Warner.  If there are so many independent programmers out there jostling for room on a media company’s platform, maybe it’s time for programmers to explore technological alternatives for getting their products into market.  For example, why couldn’t independent programmers combine their content, establish a network, and distribute their programming to end-user laptops, tablets, and smartphones via Roku devices similar to the services provided by Aereo.

Mr. Franken and other senators would rather see the media bottleneck forcibly widened by denying mergers like the proposed Comcast-Time Warner combination.  Instead, politicians and policymakers should promote alternative methods of distribution, especially for content providers who are still trying to make a compelling case that their content provides consumer markets sufficient value.

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Regarding Comcast, what would be the best scenario for content providers?

How would entrepreneurs, providers of information and services via the internet, be disadvantaged by this deal? Would they see any difference in terms of access to their consumers? Probably not. The current monopolist would be replaced by another monopolist.

Should content providers have to pay broadband providers to carry their content to consumers? In an ideal world, broadband providers should pay to acquire content and then resell it to their subscribers. Unfortunately that would mean either paying every rinky-dink content provider in the known universe or providing access to much fewer content providers.

The best option for the content provider would be for Comcast to enter into Time Warner Cable’s local franchise areas and compete head-to-head. That scenario could reduce content provider cost of access and increase a content providers profits.

Unfortunately for Comcast or other broadband providers they must face onerous and costly local franchise authority requirements just to enter a market.  A company of Comcast’s size is well aware of the franchising process and used to how long it takes, but this is not the issue of the day.  For Comcast it is about better leverage over programmers and reducing costs.

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The FCC Doesn’t Need Any More Encouragement

Law professor Susan Crawford wrote a post for Wired.com arguing that H.R. 3309 would take the FCC in the wrong direction by gutting the agency’s power. After giving a brief history of deregulatory efforts and market entry spawned after the signing of the Telecommunications Act of 1996, Professor Crawford concluded that,

“You’d think that Congress would want to have an empowered regulator able to do something to protect the country from the rational, profit- seeking depredations of our new generation of monopolists.”

According to Professor Crawford, that new generation of monopolists includes Comcast and Time Warner for high-speed internet access; and AT&T and Verizon for wireless services.

The last thing the FCC needs is any more encouragement to follow an increased interventionist scheme. Just yesterday, T-Mobile USA announced the closing of seven call centers and the layoffs of hundreds of workers. The FCC was asked to consider a projection of job losses and call center closings in its review of the request to transfer licenses from T-Mobile to AT&T.

Instead, the FCC decides to play merger expert and, along with the Department of Justice, forced AT&T and T-Mobile to abandon their merger plans. Just like its net neutrality rules, the FCC never considered market impacts of its decisions. They refuse to carryout and document a market failure analysis before implementing decisions. This is not type of agency that anyone wants to have greater regulatory control.

It should stick to its number one priority: ensuring access to public resources such as spectrum and rights-of-way.