The No. 1 operator has shown a "willingness to meet and enhance competition through innovation and investment," Comcast said in its public-interest statement with the Federal Communications Commission about the proposed deal. "Added scale will make that innovation go faster and that investment go farther."
But if Comcast is successful with the $45 billion takeover, programmers large and small will face even fiercer negotiations with an entity that will serve 30% of the pay TV market.
Media congloms don't want to publicly oppose Comcast -- their most important customer. In 2013, Comcast spent $9.1 billion on programming (up 8.6%), while Time Warner Cable video expenses rose 3.5% to $4.8 billion. Together, that $14 billion chunk means networks will be forced to play ball with "Comwarnercast," with less room to maneuver.
Regulators are generally expected to OK the deal, albeit with certain restrictions, and media companies are putting together game plans for how to proceed. "Yes, it's a game-changer," says a senior exec at a major TV programming group. "When you have someone that huge, who controls access to millions of households nationwide and in major markets, it changes the equation."
Comcast counterargues that programmers historically have had far more leverage. The MSO claims programming costs have soared 98% in the past decade while cable bills have gone up only half as much. Some analysts agree that Comcast-TW Cable will simply partially level the playing field.
"All the evidence is that content companies have consistently gotten the better of the deal in negotiations over the last few years," says MoffettNathanson Research senior analyst Craig Moffett. "I don't see any reason that would change as a result of this deal."
The most painful ripple effect will hit smaller operators and networks. As Comcast, which already pays the lowest programming costs in the biz, extracts lower rate hikes from nets, that stands to drive up costs for other pay TV distribs. Meanwhile, indie programmers will feel the urge to merge with big media congloms to ensure a better future in the Comcast lineup.
"My biggest concern with the Comcast argument that 'We have to be big to compete with the big guys on the other side of the table' is it leaves out the small guys -- the smaller, innovative programmers and small independent distributors that operate in rural and small-town markets," says Southwestern Law School professor and antitrust expert Warren S. Grimes. If they approve the merger, the FCC and Dept. of Justice are expected to impose strict program-access conditions on Comcast's NBCUniversal properties and regional sports networks (which would include TW Cable's Lakers and Dodgers regional sports networks in L.A.).
And then there is broadband.
With Comcast potentially controlling 40% of the U.S. broadband market, analysts think regulators may limit the company's ability to thwart online video competitors such as Netflix. That could include stronger provisions for how the company licenses programming to over-the-top aspirants (above and beyond what Comcast agreed to in 2011 with the NBCU deal), as well as new rules dictating the terms under which MSOs must provide network access to over-the-top rivals.
"The FCC has an opportunity to regulate through transaction," says RBC Capital Markets media analyst David Bank. The extent to which the government regulates Comcast's terms to video services for broadband access, he adds, "is the most interesting question."
Programmers say it's in their interests to foster an o.t.t. market. Dish Network's recent deal with Disney/ESPN, under which the satcaster gained online-distribution rights for five linear nets, is the first concrete example of what may become a credible alternative to traditional pay TV services. "We like competition," says a top negotiator at a large media company.
But Comcast, if left unchecked, "can make it extremely difficult for other o.t.t. competitors to compete against them," the exec says. "They would have a huge advantage in terms of programming costs and the infrastructure to deliver it."
In the end, no matter how things play out, networks will be forced to tangle with Comcast in one way or another.
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