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FCC Comments regarding the Comcast-NBCU Joint Venture

Submission Date: 
06/21/2010

 

SUMMARY 

Announced last December, the $30 billion combination proposed by Comcast Corp., ("Comcast"), NBC Universal, Inc. ("NBCU"), and the General Electric Company (jointly the "Applicants") is an unprecedented marriage of key ("must have") programming assets controlled by Comcast and NBCU and the substantial distribution assets of Comcast. In these comments, the American Cable Association ("ACA") demonstrates that the combination of these assets will result in Comcast and the new Joint Venture gaining significant additional market power, providing them with the incentive and ability to charge supra-competitive prices or otherwise exercise their market power to harm multi-channel video programming distributors ("MVPDs"). The public interest harms will be greatest for the smaller cable providers that comprise the ACA's membership and for those areas where NBC's Owned-and-Operated ("O&O") stations and Comcast's Regional Sports Networks ("RSN") both are supplied, although the harms also will be felt by MVPDs serving many other areas of the country. Because these harms are so significant, the Commission cannot approve the proposed combination without adopting specific and meaningful relief. The relief proposed by the Applicants, which indicates they are aware that the proposed combination involves at least some competitive problems, either does not address these harms or, if it does, is inadequate.

The following sections summarize the horizontal and vertical harms of the proposed combination and then review the critique of the remedies offered by the Applicants.

Horizontal Harm. The proposed combination creates horizontal competitive concerns because key programming assets now separately owned by NBCU and Comcast will be joined post-transaction in a joint venture. More specifically, today NBCU and Comcast each own video programming assets - NBCU's 10 O&O stations and its block of national cable programming and Comcast's nine RSNs. The FCC has concluded that the O&O stations and the RSNs are "must have" programming for MPVDs. That is, if these networks are withheld from an MVPD, it would have a competitively significant effect on the MPVD through a material loss of customers. In addition, because NBCU's block of popular national cable networks exhibits characteristics similar to that of other "must have" programming, the block would confer comparable amounts of market power.

Under standard economic theory, if two different programmers own two different networks (or blocks of networks) that each create market power, combined ownership of both will generally create significant additional market power. That is what would occur from the proposed combination of NBCU's and Comcast's programming assets, which would allow the new Joint Venture to charge much higher programming fees. These fee increases will be substantially passed through to subscribers in the form of higher subscription prices. In these comments, the ACA offers evidence in support of this claim and the magnitude of the harm.

The retransmission consent market supplies the best available evidence on the effect of combined ownership or control on programming fees. This is because retransmission consent markets are local and the extent to which multiple Big 4 stations in the same market are jointly owned or controlled varies from market to market. The available evidence suggests that joint control or ownership of multiple Big 4 stations in the same DMA can increase retransmission consent fees by 20% and possibly much more. This level exceeds the threshold for harm in the Horizontal Merger Guidelines used by the United States Department of Justice and the Federal Trade Commission.

The greatest threat of horizontal harm from this proposed combination occurs in regions of the country served by an NBC O&O and a Comcast RSN. In such regions, NBCU's control over retransmission consent for the NBC signal and control over its popular national cable networks will be combined with Comcast's control over its RSN. Approximately 12% of all TV households in the United States, spread over six different metropolitan areas, are located in DMAs with these characteristics. These are Chicago, IL, Philadelphia, PA, San Francisco-Oakland-San Jose, CA, Washington, DC, Miami-Fort Lauderdale, FL, and Hartford and New Haven, CT.

The transaction also threatens horizontal harm in regions served by a Comcast RSN but not served by an NBC O&O. In such regions, NBCU's control over its popular national cable networks will be combined with Comcast's control over its RSN, enhancing the Joint Venture's ability to raise programming fees. Approximately 28% of TV households are located in DMAs with these characteristics. Therefore, regions containing approximately 40% of all TV households are threatened with the horizontal harm from this transaction.

Vertical Harm. Vertical harm will arise from the proposed combination when the programming assets of NBCU are combined with Comcast's ownership of the country's largest cable company. This union will increase Comcast-NBCU's ability to command higher programming fees from MVPDs that compete with Comcast. These fee increases will be substantially passed through to subscribers in the form of higher subscription fees.

The economic theory underlying the ACA's analysis is as follows. So long as the joint venture and Comcast are able to coordinate their actions to take advantage of opportunities to maximize their combined profits, the Joint Venture and Comcast will collectively make decisions to maximize their combined profits. The reason that programming fees will rise is because the Joint Venture will seek to recoup through its negotiations for programming the opportunity cost of not acquiring new customers from rival MVPDs through the permanent withholding of programming. Increases in opportunity cost have the same impact on programming fees as increases in direct costs. In the absence of other information, a standard and well-accepted practice in economic theory is to predict that the negotiated price between a buyer and seller will rise by half the amount of any cost increase.

The impact of the transaction will be most significant in DMAs served by an NBC O&O where Comcast has a significant presence as the incumbent cable provider. Approximately 12% of all TV households in the United States, spread over six metropolitan areas, are located in such DMAs. These are Chicago, Philadelphia, San Francisco-Oakland-San Jose, Washington, DC, Miami-Fort Lauderdale, and Hartford and New Haven, which happen to be the same markets that will also suffer the most significant horizontal harm from the transaction. Under plausible parameter values, the retransmission consent fees charged by NBC O&Os will increase by approximately 100% in these DMAs.

The transaction also would have a significant impact on the fees that the joint venture charges for NBCU's national cable networks. Under plausible parameter values, the fees for this programming will increase by approximately 18-20% for large, national pay-TV providers who compete against Comcast, such as DirecTV, DISH Network, Verizon's FiOS and AT&T's U-verse.

Cable overbuilders will experience higher programming fee increases to the extent that Comcast passes a greater fraction of their subscribers. Under plausible parameter values, if Comcast passes almost all of an overbuilder's customers, the overbuilder's retransmission consent fees will increase by 100% and its fees for NBCU's national cable networks will increase by 44%. However, cable overbuilders will still experience significant price increases even if the share of their customers passed by Comcast drops to much more modest levels. ACA has identified 40 of its members who are Comcast rivals in all or some of their service areas.

The Applicants' Proposed Conditions Will Not Remedy the Harms. First, the Applicants propose no conditions to address the horizontal harms demonstrated herein. In addition, neither the Applicants' proposed voluntary conditions nor a process to resolve disputes through arbitration - a requirement imposed by the FCC in previous transactions with vertical competitive harms - is an adequate remedy - particularly for smaller and medium-sized operators. The Applicants' suggestion that the FCC's program access rules, even when extended to retransmission consent negotiations, are adequate to ensure fair dealings are unpersuasive because these regulations place no restriction on quantity discounts, provide no automatic right to continued carriage of programming during the pendency of a complaint, cannot address arbitrary internal transfer pricing, and may not apply to online distribution of programming. Moreover, binding arbitration has proven not to be a cost-effective option for smaller and medium-sized pay-TV providers.

AttachmentSize
2010 06 21 ACA Comcast NBCU Comments MB Docket No 10-56 FINAL as filed.pdf1.55 MB

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