Question

1. How was the Comcast-NBC Universal meger a vertical merger? Explain in detail.

2. How was the Comcast-NBC Universal merger anticompetitive? Explain in detail.

Answer 1

A review by federal agencies should give a hard look at the extent to which a merger between the nation’s No. 1 cable operator and residential broadband provider and a major content network threatens competitive rivalry and diversity in the video marketplace. A Comcast/NBC combination would wield enormous market power. Notwithstanding the growth of competition in the multichannel video distribution space, cable remains the dominant platform for the distribution of paid video content, holding a market share of about 60 percent — more than twice that of the closest rival technology. Similarly, the major television networks continue to be the dominant brand names in national video markets, accounting for well over half of all TV advertising. Even looking more broadly at electronic advertising (TV, radio, Internet), broadcast television is the largest component, with over one-third of the total. Removing the competitive tension between a major multichannel video program distributor and a major video content producer, such as Comcast and NBC, would eliminate the hard bargaining for distribution and content that has historically occurred between these two entities. Instead, a Comcast/NBC cable provider would pay itself for its own content. In essence, it would simply take money out of one pocket and put it into another. Furthermore, a merged company would certainly leverage its control over content to charge rivals, such as DirecTV or Verizon Fios, anticompetitive rates to access Comcast/NBC programming. Of course, these costs would ultimately be passed onto the subscribers of Comcast/NBC’s competitors, resulting in higher fees for consumers. Not only would the merger increase costs for consumers, it would also substantially increase Comcast/NBC’s market power, while decreasing the overall diversity of media ownership. Post-merger, Comcast/NBC would own three distribution platforms — TV stations, cable systems and broadband Internet services — reaching all or part of the population in 11 TV markets, including New York, Chicago, Philadelphia, San Francisco, Boston, Washington, D.C., Houston, Miami, Denver, Hartford and Fresno. This would lead to an unacceptable level of concentration of video distribution and advertising market power at the local level. A vertically integrated Comcast/NBC would not only control marquee television and movie content, it would also control the primary avenues for distributing that content: a major television broadcast network, a major cable system operator and a major broadband Internet access provider. Because the merged entity would control both content and distribution, it would have both the incentive and the market power to limit the access of competing content to the distribution platforms it controls. It would also have the power to enforce anticompetitive bundling and pricing of its own programming, or in some cases, to deny its competitors access to its programming altogether. Far from being a cakewalk, this merger raises the most basic antitrust issues in an emerging space that the Obama administration has declared to be of particular importance. Moreover, given President Obama’s criticism of the Justice Department’s weak antitrust record during the previous administration,1 vigorous oversight of anticompetitive conduct — particularly of that involving vertical mergers and innovation focused industries — should be expected. Additionally, to the extent that this combination involves broadcast and cable issues, the Federal Communications Commission is also likely to scrutinize the public interest and competitive impact of the merger.