Analysis of Changes in Bargaining Power in DOJ/FCC Review of Comcast/Time Warner

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Jamillia Padua Ferris, Amanda Wait, Apr 14, 2014

On February 13, 2014, Comcast announced that it had entered into a definitive agreement to acquire Time Warner Cable for more than $45 billion. Concurrent with the announcement of the deal, Comcast executives publicly touted the transaction’s efficiencies, including a larger and more efficient national platform that would benefit from economies of scale and scope. Almost as quickly, competitors, consumers, and legislators began expressing concerns about the combination. Since that time, both the Antitrust Division of the Department of Justice and the Federal Communications Commission have confirmed reviews of the transaction-DOJ under an antitrust/consumer welfare standard and FCC under a “public interest” standard, which also considers competitive effects of the transaction.

Much of the initial reaction to, and criticism of, the proposed transaction has focused on the post-merger size of the combined company in terms of the number of subscribers. However, as Comcast was quick to note, while Comcast and Time Warner both serve pay television and broadband internet customers, they do not compete with each other for customers in any of the same zip codes anywhere in the United States.

Given this absence of a horizontal overlap in the companies’ existing distribution footprints, the DOJ and FCC likely will focus their reviews of potential anticompetitive effects from the proposed merger on how the expansions of the pay television and broadband networks affect Comcast’s incentives in dealing with content providers, i.e. a bargaining theory analysis. Since 2011, Comcast has controlled pay television and broadband internet distribution networks, as well as access to NBC Universal content (such as NBC, CNBC, and The Weather Channel, among others), making it both a competitor to-and upstream distributor for-other content providers.

The agencies likely will consider the effect of Comcast’s expanded pay television network (after the merger) on Comcast’s leverage in future negotiations with downstream content providers. In addition, the agencies likely will investigate whether the expansion of Comcast’s broadband network increases its incentive and ability to thwart competition and stymie innovation by competitor Online Video Distributors (“OVDs”) such as Netflix and Amazon Prime.

 

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