Problems in achieving the merger
Essentially the critics presented 2 arguments against the acquisition of NBC universal by Comcast. Firstly they proposed the competitive harm from a Vertical Transaction. A vertical merger can harm competition by facilitating exclusion or collusion. Free Press argued that Comcast’s collaborative effort with NBC would stifle competition in online video (TV Everywhere model) by restricting where, the vast amount of “must-see” NBC-owned content can be offered, and charge higher rates to television providers for accessing NBC-owned networks. Thus rising to the level of an antitrust violation by way of intentionally discouraging competition and acting as concierge to content on the Web.
Second argument was that Comcast
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and Time Warner were dividing the market and unlawfully tying their new product to existing services. The division of markets argument, although seemingly a direct violation of antitrust laws, was merely in effect the result of the companies’ different geographical service areas. The U.S. Department of Justice Antitrust Division (DOJ) worked side by side with the Federal Communications Commission (FCC) to thoroughly examine the competitive effects of the transaction. FCC hindrance The FCC is not a court but is an independent agency that issues adjudicative decisions concerning acquisitions within its jurisdiction based on an administrative record. The main criteria of evaluation of such transactions is a “public interest standard”, which ruminates the consequences of the transaction on competition—the same apprehensions as are at issue under the antitrust laws—as well as other aspects of communications policy. Reasons for FCC review The FCC has jurisdiction by the virtue of approving license transfers that will be required to be made as part of the deal. This is because, Time Warner Cable holds licenses issued by the FCC for a variety of wireless functions, all of which would be transferred to Comcast; local authorities have power over pay TV franchises, now held by TWC, that would also be transferred. For this reason, Comcast has to prove actual public benefit in any way. When it comes to vertical mergers, there is a potential gap in the treatment of these mergers in the antitrust law reviews. There aren’t many judicial opinions embracing the economic learning and antitrust commentary on exclusionary conduct. In such a scenario, the FCC’s review and take on the acquisitions stands particularly important. The public interest standard is mostly ambiguous. The FCC will need to limit the scope of its analysis to the needs and interests of the public. The Commission must also recognize the restrictions placed on its capacity by the courts when reviewing the cable communications. Most importantly, as the current and emerging market in which the Commission is charged with upholding the public interest is changing the public interest analysis must take place through the lens of this new media marketplace in action. Roadmap of review process Elements to be evaluated during the review process: (1) Competition (2) innovation (3) diversity (4) media localism In its methodology to review the acquisition, the committee customized an analytical framework employed in antitrust law, by probing, in separate phases, exclusion, harm to competition, and whether the transaction’s benefits were likely to predominate over those harms. Exclusion of Rivals: The FCC considered whether the acquisition would increase the ability and provides incentive to the integrated firm to exclude the competitors at issue being Comcast’s downstream competitors in video distribution. Comcast had an increased potential to handicap some or all of its video distribution competitors through exclusion, resulting them to reduce their competitive effectiveness. The 3 possible exclusionary strategies in which Comcast might engage are: 1. Permanently cutting off an MVPD (multichannel video programming distributor) rival from access to joint venture’s video programming 2. Temporarily withholding that access These could be done, as the Joint Venture after the acquisition would control important “marquee programming” with lack of good substitutes from other sources. Without having an access to variety of crucial broadcast and cable networks, which would then be controlled by the joint venture, either individually or in blocks, “other MVPDs likely would lose a very substantial number of subscribers to Comcast. This would then substantially negatively impact these rival MVPD’s that compete with Comcast in video distribution.” 3. Raising rivals ‘costs by increasing the price of programming video distribution competitors FCC also found that after the acquisition, the joint venture would have an incentive and the ability to raise the price of joint venture programming, enabling them to increase the costs in programming for the competitor video distributors because the transaction would improve the new venture, which is, formed post merger, bargaining position in negotiating the sale of its programming. Harm to Competition: Next what FCC had to ensure was that whether the exclusion of rivals would lead to decrease in the intensity of the competition at that level? This step would be satisfied if the foreclosed rivals compelled the pricing of the remaining firms, but it would not be satisfied if, for example, the excluded competitors were collectively small and had limited ability to expand. The committee found that each and every MVPD rival that shared along with Comcast in each relevant market “purchased most if not all” of the new joint venture’s programming. Though the integrated firm could exclude all video distribution rivals, this disadvantage to all competitors was not a necessary condition for determining harm to competition amongst them in the relevant market. The harm to competition would be indicated by the exclusion of some but not all rivals in the market of MVPDs operating with Comcast. After a far-reaching economic analysis, the FCC came to the conclusion that permanent and temporary withholding strategies would be profitable in many markets. Evaluating Potential Benefits: The next most important step was to evaluate the competitive benefits of the transaction claimed by Comcast/NBCU and compare them with the harms to competition. In the purview of evaluating potential benefits, the FF has a broader mandate. In case of a antitrust tribunal, it would be concerned only with protecting competition, hence it would study the competitive benefits of the proposed transaction with harms to competition before considering remedies for the case when harms predominate benefits. Whereas the objective of the FCC was to determine in the affirmative, whether the joint venture had enough public interest contributions. Apart form competition it had to consider- • Advancement in other communications policy objectives brought out through this joint venture • Ensuring a diverse set of information sources and viewpoints are available to the public • Accelerating the private-sector deployment of advanced telecommunications services For the review of public interest benefits, FCC analyzed: • Claims that the merger would reduce costs and thus enhance innovation • Cost savings said to be rising from the elimination of the double marginalization of programming costs These claims were analyzed and evaluated using a range of economic analysis methods. It finally allowed the transaction between Comcast and NBCU to advance but only subject to conditions. These conditions are: 1. The Joint Venture must provide access to its programming to the MVPD rivals 2. The new integrated business should take steps to protect the development of online competition 3. This integration must also give access to Comcast’s distribution systems 4. Lastly, it should take steps to protect diversity and local concerns These conditions were carefully conditioned to ensure the competition drove innovation in the emerging online video marketplace, which is in the best interest of the public. Apart form the conditions laden on Comcast; it volunteered to undertake few steps to safeguard the public interest, such as commitments to broadband adoption and deployment, localism, children’s programming, programming diversity, including governmental, educational, public programming. Legal Blockades Antitrust attorneys from the Department of Justice prepared a proposal under Section 7 of the Clayton Antitrust Act, to block the deal, which was then deliberated by Renata Hesse, the deputy assistant attorney general assessed the transaction.
There was an apprehension that if Department Of Justice opposed the deal then Comcast would have had to fight a lawsuit aimed at blocking the acquisition. This would have led to abandoning its proposed merger, almost similarly as AT&T surrendered its efforts to buy T-Mobile in 2011 when regulators signaled they would block that deal.
Forsaking its bid to acquire NBCU from Time Warner Cable, however, would have been a enormous setback for Comcast and would have ended a potential boom period for telecom consolidation.
The transaction under the review by department of justice forged a uniquely vertically integrated media and entertainment company that aimed at controlling both the largest cable programming distribution network in the US and one of the largest creators of television programming and feature films in the US. The primary concern of the antitrust attorneys was related to the vertical issues, as horizontally both parties were aligned and were contributing programming assets to the venture. The issue revolved around the effect on competition caused by the ownership of a significant programming content partner by a large cable
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company. Factors the Department of Justice elaborated before reviewing the deal: • Identify whether the integrated firm will change the company’s incentives to serve competitors of one or both parties. • The steps that Department of Justice will take to correct the perceived potential harm in vertical transactions included Divestitures (way for a company to manage its portfolio of assets) and adopt certain behavioral remedies. • The antitrust attorneys aim to take action to protect competition even in nascent markets • The antitrust merger sanction would increasingly demand remedies which are aimed at specifically addressing the key issues of specific competitors in the market who have taken a catalytic role in the review process of the merger The Antitrust Review Process The Dept. of Justice and FCC both extensively consulted with each other throughout the review process to make sure that there was no harm to competition and actual benefits for the public were brought out, along with creating effective efficient and consistent remedies for the same. The major potential manifestations of vertical harm in the Comcast-NBCU contract are: 1. The incentive to the large cable programming distribution network company to discriminate against the Online Video Distributors and impede their development through several corners such as a. Charge more license fees for the much important NBCU programming b. Have different terms for itself and other rivals in the programming negotiation deals c. Comcast might withheld the NBCU content completely Another key concern area was the 32% stake of NBCU in Hulu, which was the direct competitor of Comcast’s cable subscription business.
The integrated firm would enable Comcast to deter the development of Hulu’s business by hampering major strategic actions. There was an impeding threat from Comcast to significantly stifle the OVDs in their nascent stages of business, before they even have a chance to be able to become significant competitors to Comcast.
2. The already existing competitive MVPDs (Multichannel Video Programming Distributors) were also on the edge of being adversely affected by the transaction. When NBCU was a under GE, it had greater incentive to make its “most wanted” content available in maximum ways (cable, satellite, online) so as to increase its licensing fees and achieve greater advertising revenues. But with the Joint venture in place, this incentive would be replaced by the profit maximizing strategy of withholding important content with rivals or charge extra/ premium super competitive fees from them.
Dept. of Justice issued its consent decree almost in sync with the FCCs order of approval. The FCCs conditions took the case of MVPDs remedies in detail, with proving for arbitration process. So DOJ focused on the OVDs
protection. Conduct Remedies and Divestiture: 1. Licensing to OVDs must under two situations: “economically equivalent” to the terms of that of MVPDs; Also economically equivalent to those offered to other OVDs by the rivals of NBCU content providers. 2. Provisions for the protection of Hulu: Comcast to surpass its managerial rights in Hulu; NBCU to continue to provide content to Hulu in proportion to its other content providers; No sharing of competitive information between any firm 3. Prohibition of the joint venture from, retaliating against, punishing or discriminating against any content provider, production studio, broadcast network, affiliate, or cable programmer for licensing their content to OVDs 4. Adherence to Net Neutrality provisions enforced by the FCC
In December 2009, Comcast announced its intent to acquire a majority stake in the media conglomerate NBC Universal from General Electronic. “our decision to acquire GE’s ownership is driven by our sense of optimism for the future prospects of NBC universals and our desire to capture future value that we hope to create for our shareholders” says Comcast CEO Brian Roberts( 2009): The planned acquisition was scrutinized by activists and government officials; their concerns primarily was the potential effects of the vertical integration that the acquisition could create, as Comcast is also greatly involved in cable television and internet services in a vast amount of the media markets.
Robert Zimmerman, the senior vice president of business development, for American Cable Communications (ACC) was in the process of looking for a potential acquisition target for ACC. In December 2007, Zimmerman remember a presentation that was made recently by Rubinstein & Ross (R&R). R&R was a boutique investment bank that was well known for doing deals in the media and telecommunications area. During this presentation it was suggested that ACC buy out AirThread Connections (AirThread) which is a large regional cellular provider. The current industry of these companies were moving more toward bundled service offerings and by adding AirThread it would help ACC cover an area of service it does not currently offer. In order to determine if the acquisition should be done an analysis needs to be done.
Growing from a small provider of a few thousand, the company has grown to be a massive conglomerate encompassing far greater than simply cable services. Now owning NBC Universal, Comcast exerts great power within the market, employing a variety of strategies to expand itself and remain profitable. When it attempted to merge with Time Warner cable, several strongly opposed when considering the massive power it already possessed. In addition, growing sentiment against cable providers has resulted in the reduction of subscribers. Despite this, Comcast is in a high period of expansion within the business cycle. However, it should remain cautious of the changing environment of how consumers obtain television
...ns especially when it came to deregulating the telecommunications industry. The new law was expected to bring radical changes to the communications industry, providing high quality services to the masses at minimal cost. The act was also designed with the specific purpose of ensuring that advanced telecommunications will be available to every citizen as part of the policy for universal service. The FCC and the states, as the regulatory bodies, implement the law. Its been over three years since the law was passed and most critics have claimed that nothing worthwhile came out of the act besides the mergers of course. Ultimately however, the services brought to the public will depend on the providers of those services and their success in the marketplace.
Michael Parenti (2002) declares media in the United States is no longer “free, independent, neutral and objective.” (p. 60). Throughout his statement, Parenti expresses that media is controlled by large corporations, leaving smaller conglomerates unable to compete. The Telecommunications Act, passed in 1996, restricted “a single company to own television stations serving more than one-third of the U.S. public,” but is now overruled by greater corporations. (p. 61). In his opinion, Parenti reveals that media owners do not allow the publishing of stories that are not beneficial and advantageous. Parenti supports his argument very thoroughly by stating how the plutocracy takes control over media in multiple ways: television, magazines, news/radio broadcasting, and other sources.
After watching Charlie Rose’s interview with Jim Collins; where Collins explains his recent book How the Mighty Fall, presented me with an opportunity to reflect over recent companies that were staples in my childhood and early adult memories and now are non-existent. In this paper, I will look, analyze and relate Blockbuster Video and their history to Jim Collins’ five stages of an organization.
The proposed merger between Comcast and Time Warner Cable would make it the largest provider of cable in America and give it unprecedented market power and allow it to continue to pursue profits and the cost of consumers. While it would not be a monopoly, it would be giving the company dangerous power. Already Comcast has control of one of the largest media providers in America, NBC. It has significant control of internet as well, and has made Netflix pay Comcast to have faster speeds. The question now isn’t if the merger will be bad for business, it is if the United States government will make the right choice for
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In fact, some of the biggest threats to the company’s growth are the government’s regulation that increases the risk to the underlying business. In addition, the risk of losing the exclusive contract for the iPhone would be a major loss for AT&T. Most of the consumers choose AT&T because of their exclusive contract for the iPhone. Hence, this loss of business will significantly influence the AT&T's profitability and revenue. Moreover, the antitrust authorities play an important role on approved the merger of AT&T.
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In the early 1970s, the FCC continued it's restrictive policies by enacting regulations that limited the ability of cable operators to offer movies, sporting events, and syndicated programming. The freeze on cable's development lasted until 1972, when a policy of gradual cable deregulation led to, among other things, modified restrictions on the importation of distant signals.
“the most prominent pro-competitive effect of a vertical integration is the elimination of pre-merger double marginalization which arises when both the upstream and downstream markets exhibit some degree of economic market power, and thus firms at each level mark up their prices above marginal cost” (Meyer and Wang, 2011).
The year is 1952 and a young John Rigas purchased a cable company for a mere $300 in Coudersport, Pennsylvania with high hopes of building the company into a successful family owned and operated business (AICPA, 2005, para. 3); a business that would remain unparallel to the rest of its competition. In the late 1990s his dreams came to fruition; John Rigas, along with a few close family members and investors, purchased Century Communications for $5.2 billion and merged the companies together becoming the 6th largest cable company serving more than 5.6 million subscribers (AICPA, 2005, para. 4). Ensuring that the majority of Adelphia’s voting stock and control of the board remained in the hands of f...
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