What to fear from a Comcast-Time Warner Cable merger

There are plenty of reasons for regulators and other players in the TV ecosystem to be wary of Comcast’s proposed acquisition of Time Warner Cable, but they’re not the ones that are grabbing most of the headlines.
Some critics of the deal have focused on its potential to raise prices for consumers by reducing competition among cable TV providers. But Comcast has a point — albeit a perverse one — when it argues that the merger won’t reduce competition because there isn’t really any competition between cable operators to begin with. Nothing from nothing is still nothing.
Others see the deal as a potential threat to net neutrality. But Comcast already operates under net neutrality rules it agreed to in the NBC merger and has committed to extending those rules to the TWC systems it acquires. In a conference call with reporters following the announcement of the deal, Comcast executive VP and chief lobbyist David Cohen went so far as to say Comcast would support the FCC reinstating net neutrality rules under its current statutory authority as long as the agency does not try to reclassify broadband as a Title II common carrier service, which would bring a host of other restrictions with it.
Other analysts have focused on the deal’s potential impact on content owners from the combined Comcast’s increased leverage in retransmission consent and carriage deal negotiations. But those negotiations have gotten pretty lopsided in favor of the content owners recently. Just ask Time Warner Cable. A little rebalancing of the scales is unlikely to be highly disruptive.
That doesn’t mean other programmers have nothing to worry about from the deal, though. In fact, they may stand to be the deal’s biggest losers in the long run.
Comcast is already a major programmer in its own right thanks to its acquisition of NBC Universal. In addition to the NBC and Telemundo broadcast networks it owns more than a dozen cable networks, including USA, Bravo, Syfy, CNBC and MSNBC. Like most network owners, NBC Universal would love expand its footprint on pay-TV platforms to grab as much gross audience share as possible.
Launching new cable networks is expensive and difficult, however, even for a company with powerful bundling capabilities such as NBC Universal. The rule of thumb in the industry is that it takes roughly 30 million subscribers for a network to be financially viable because that’s the threshold needed to be rated by Nielsen — a prerequisite to attracting advertisers. As it happens, post-merger Comcast would have about 30 million subscribers, even after spinning off the 3 million households it has promised to unload.
That would give Comcast-NBC a platform for launching and standing up new channels even before it signs a carriage deal with a single other distributor. That’s the kind of muscle no other programmer can match. If any of those new channels were a hit, it would also give NBC additional leverage with non-Comcast distributors to add them to their own platforms — at the cost of additional carriage fees to NBC Universal.
Like a lot of non-satellite program distributors, Comcast would also love to offer a nationwide over-the-top subscription service. The problem for those who have tried and failed, from Intel to Apple to Google, has always been securing the necessary rights at a reasonable cost. While most programmers would welcome the additional distribution, they are loath to undercut the incumbent pay-TV operators who currently provide the distribution fees on which the programmers depend.
With its cloud-based X1 platform and its own CDN, Comcast is in a better position than its peers to launch an OTT service outside its physical footprint. And as BTIG Research analyst Rich Greenfield noted in a blog post this week, the acquisition of Time Warner Cable will enable Comcast’s Xfinity to become even more of a national brand, helping lay the foundation for a nationwide OTT launch.
Even without securing any third-party rights, Comcast just might be able to coble together enough of a bundle from the NBC Universal stable of networks to get an OTT service off the ground, especially as Comcast’s expanded physical footprint gives NBC additional leverage to launch new channels.
A self-sustaining Comcast OTT service could change the calculus for other program owners with respect to broadband distribution and could ultimately force them into a position of choosing between alienating their traditional distribution partners and leaving a lot of potential OTT revenue on the table.
None of those scenarios is likely to play out in the near term, of course. But the 30 million household footprint Comcast would have post-TWC merger, when combined with its other assets, feels like a tipping point, which could put Comcast on a trajectory to becoming a very scary competitor, for other programmers as well as other distributors.