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Comcast Buyout of Time Warner Cable Is All About Preserving The Cable Bundle

This Is One Reason Why Comcast And Time Warner Cable Are Merging.When Comcast announced it was going to throw $45 billion in stock at Time Warner Cable and create one giant cable company, you could barely contain the groans across the Internet — and with good reason. Here are two of the most hated companies in America attempting to form like Voltron into one giant behemoth of consumer contempt, and Comcast’s argument about cable companies not competing with each other won’t convince any cable customers that this deal is a good idea.

The most curious thing about this merger announcement, though, might be its timing. About six hours prior to the announcement, Bloomberg published this piece about a potential set-top-box partnership between Time Warner Cable and Apple.

Apple Inc. (AAPL) is planning to introduce a new Apple TV set-top box and is negotiating with Time Warner Cable Inc. (TWC) and other potential partners to add video content, according to people with knowledge of the matter.

Apple is aiming to unveil the device by April and have it available for sale by the Christmas holidays, though the release date could change because the company is still in the process of securing new agreements with programming and distribution partners, said two people, who asked not to be identified because the plans are private.

The new device, which plugs into a television set, will have a faster processor than the previous version and an upgraded interface to make it easier for customers to navigate between TV shows, movies and other online content, one person said.

Suffice to say, Comcast wants no part of this. Apple has this nasty tendency to disrupt established markets, and with more than $150 billion in the bank, Apple would be nigh-unstoppable once it got started. Buying Time Warner Cable would allow Comcast to prevent Apple from getting any sort of foothold in the market.

It would also be a bad deal for would-be cord cutters, because Comcast’s broadband policies are designed to discourage cord cutting. Time Warner Cable does not have data caps on its broadband service; Comcast does. Those caps are designed to limit consumers’ ability to watch streaming video over services like Netflix, Hulu Plus, Amazon Prime, and YouTube, thus keeping people tied to cable for video. That benefits Comcast-owned NBC Universal, which owns a bevy of cable networks, including CNBC, MSNBC, NBC Sports Network, Golf Channel, USA Network, Bravo, E!, SyFy, and a few others that cable customers probably don’t even realize they’re paying for. Comcast wants to ensure those channels all have a guaranteed revenue stream, regardless of whether anyone is watching any of them.

Of course, other media corporations want to keep the bundle together as well, but a larger Comcast spells trouble for them, too — especially for Disney, which owns ESPN. Over the past few years, ESPN has paid huge sums of cash to pro sports leagues and college conferences in order to keep them away from NBC Sports Network. Some have suggested that ESPN helped Fox create Fox Sports 1 in order to prevent Comcast from becoming a legitimate competitor.

…ESPN effectively picked the winner between News Corp. and Comcast when it chose to work with Fox in winning the Pac-12 rights against NBC last year.  Once that occurred, it established (or maybe just reflected) a fascinating bond between Disney (ESPN) and News Corp. (Fox) along with Time Warner/Turner (TBS/TNT): no matter how much they might have hated each other, they all hated Comcast even more and showed that they would rather work together to squash NBCSN than let the fledgling network gain any traction.  ESPN and Fox have partnered on the new Big 12 TV deal, while Turner is going to pay twice as much as it does now for MLB rights for half as many games (with virtually all of the games that they’re losing heading over to Fox).  From the perspective of these media companies, it makes complete sense.  Comcast is the largest source of subscriber fees for all of the top cable networks, which means that a Comcast-owned sports network that has enough top tier properties to be used as leverage in carriage fees negotiations is much more dangerous for ESPN, Fox and Turner than any other potential competitor.  So, for ESPN, it was much better for them to allow Fox to rise up as its primary competition than Comcast/NBC.  It’s a classic “the enemy of my enemy is my friend” situation.

ESPN and Fox also overbid for the next MLS contract in order to pull another property away from NBCSN. It’s expected to do the same for the next Premier League contract, leaving NBCSN with little more than hockey, auto racing, and cycling.

A Comcast-Time Warner Cable merger shatters that strategy. With a customer base of 31 million homes, nearly a third of the pay-TV market, Comcast has all the leverage it needs to force ESPN and Fox to lower its subscriber fees. What’s more, with data caps on broadband and control over peering agreements — one of the reasons Netflix performance has degraded for Comcast customers — Comcast would make ESPN and Fox think twice about abandoning the cable bundle for streaming. So not only could Comcast preserve the bundle, but it could force other media giants to cave on subscriber fee increases and keep smaller media companies from succeeding.

Little wonder, then, that both Free Press and Public Knowledge have come out against the merger.

If Comcast takes over Time Warner Cable, it would wield unprecedented gatekeeper power in several important markets.  It is already the nation’s largest ISP, the nation’s largest video provider, and one of the nation’s largest home phone providers.  It also controls a movie studio, broadcast network, and many popular cable channels. An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content.  By raising the costs of its rivals and business partners, an enlarged Comcast would raise costs for consumers, who ultimately pay the bills. It would be able to keep others from innovating, while facing little pressure to improve its own service.

Meanwhile, the fact that a former cable industry lobbyist is now in charge of the FCC doesn’t hurt Comcast’s chances of getting this merger approved. However, Comcast will likely have to offer some concessions in order to get the merger past regulatory hurdles. What those concessions will be remains unclear. Comcast could be forced to sell some markets to competitors; Charter Communications, whose bid for TWC was rebuffed, might have a say in this deal yet. Comcast could also be forced to abide by net neutrality rules — which it might have to do anyway — or remove data caps from its broadband service. That might even be enough to stop the merger from going forward.

For now, though, Comcast looks set to become a monster. What You Pay For Sports will continue to cover this story as it progresses.

5 Responses to Comcast Buyout of Time Warner Cable Is All About Preserving The Cable Bundle

  1. Keep in mind, Charter had been trying to buy TWC for a while (including in a tag-team with Comcast) before Comcast stepped in. It’s not like Comcast swooped in with a preemptive strike the instant they smelled TWC getting friendly with cord-cutting.

    • True, but chances are all parties have known about the negotiations between Apple and TWC for a while. The timing of the announcement basically kicked Apple right out of the news cycle before anyone noticed they were even there. The fact that Comcast and TWC have VERY different views on streaming services like Netflix doesn’t help Comcast much here, either.

  2. You guys know that Time Warner Inc. is in talks to buy the YouTube network Fullscreen Inc., Time Warner could end up paying a price similar to the $500 million that The Walt Disney Company (DIS) shelled out last month to buy Maker Studios, another popular YouTube network. See More: http://bit.ly/1qyenLM

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