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Comcast: The New Forces at Work

comcast logoMy op-ed today in The Hill (see “The Winter of Our Content,”) argues against those who want to derail the merger of Comcast and NBC Universal.  I don’t know enough to say whether the deal makes good business sense—that’s for the companies’ shareholders to decide in any case.  But I do know that every media or communications merger of the last twenty years has been resisted for the same reason—that the combined entity will both have and exercise excessive market power to the detriment of consumers.

That argument has turned out to be wrong every time.  It will be here as well.

Under the terms of the agreement, Comcast will get a 51% interest in NBC, Universal and several valuable cable channels including MSNBC and Bravo.  Comcast already owns E!, the Golf Channel, and other content, as well as being a leading provider of cable TV access, Internet access and, more recently, phone service.

A wide range of public advocacy groups have already objected that the new Comcast will be too powerful, and will have “every incentive” to keep programming it controls off the Internet, including new services such as Hulu, which is 33% owned by NBC.  Consumer groups also fear that Comcast will dismantle NBC’s broadcast network, all in the service of pushing American consumers onto paid cable TV subscriptions.

Why Comcast would want to use its leverage in the interest of only one part of its business I don’t understand.  But even if that was the goal, I very much doubt that goal would be achievable even with the new assets it will acquire.

As is typical in industries undergoing wrenching and dramatic consolidation and reallocation of assets, the urge to merge is a function of three principal forces, first introduced in my earlier book, Unleashing the Killer App. These forces—globalization, digitization, and deregulation—are themselves a function of the profound technological innovation that all of us know as consumers of devices, services, and products that didn’t exist just a few years ago.

There are several technologies involved here, including standards (the Internet protocols as well as compression and data structures for various media), software (the Web et al), hardware (faster-cheaper-smaller everything) and new forms of bit transportation, including cable, satellite, and fiber.  It’s the combination of these that makes possible the dramatic ascent of new applications—everything from Napster to YouTube to the iPhone to TiVo.  It’s why there are now hundreds if not thousands of channels of available programming, increasingly in high-definition and perhaps soon in 3D and other innovations.

With the advance of digital technology, driven by Moore’s Law and Metcalfe’s Law, all content is moving at accelerating speeds from analog to digital forms of creation, storage, and transport.  (This includes media content a well as user content—email, phone calls, home movies and photos.)  See my earlier post, “Hollywood:  We have met the enemy…”

That fundamental shift has made it easier to create global markets for content use and in turn has put pressure on regulators to open what had been highly-parochial approaches to  protecting the diversity of content.  Until very recently,  in the U.S. that diversity was represented by a whopping three choices of television programming—that of ABC, CBS, and NBC.

As globalization and digitization advance, the pressure to deregulate increases.  Caps and other artificial limitations of media ownership have been falling away over the last twenty years.  Clear rules separating who can transport data versus voice versus video make less and less sense, and have been removed.

Each of these changes has been resisted by consumer groups.  One long-forgotten change to the media industry occurred even before the rise of digital life, in the stone age of 1995.  That was the year the FCC eliminated the “financial syndication” rules, or finsyn, which had been adopted in 1970 to limit the power of the three broadcast networks.  (See Capital Cities v. FCC, 29 F.3d 309 (7th Cir.1994)).

Finsyn, among other controls, limited the ownership in prime-time programming the networks could obtain, and prohibited them from selling the programming they owned directly.  Once a program, say "Gilligan’s Island," finished its prime-time network run, the networks could only syndicate it through third party syndicators.  The goal was to protect non-affiliated stations (mostly on the UHF band), who might not get a chance to buy syndicated programs at all if the networks kept control.  The networks might have only syndicated to their own affiliates.

Cable TV, which made the weak UHF signal stronger, along with the rise of Fox as a fourth network and independent producers who self-syndicated (particularly Paramount, which produced several made-for-syndication Star Trek series), made clear that the finsyn rules were no longer necessary.  The independent stations and consumer advocates fought to retain them anyway, and lost.

Of course we now have more diversity of programming than anyone in 1995 would have ever imagined possible.  Not because finsyn was repealed, but in spite of that fact.  Technology, left alone, achieved multiples of whatever metric regulators established for their efforts.

Those who object to the reallocation of industry assets see these deals entirely as efforts by vested interests to resist change inspired by what I called “the new forces.”  In part these deals are surely trying to hold back the flood.  They may even be motivated by the belief that consolidation translates to control.

But it never works out that way.  Consumers always get what they want, usually sooner than later, and regardless of what entrenched industry providers may or may not want.  Artificial limits on who can do what do more to hold back the technological inevitability than they do to protect consumers.

Resistance here is not only futile, it’s counter-productive.