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ACA: Comcast-NBCU's To Hit Consumers With $2.4 Billion Bill

In a new economic study released Nov. 8, the American Cable Association found that consumers over the next nine years will pay at least $2.4 billion more for pay-television service as a result of unrestrained pricing power that will flow from the combination of Comcast Corp. and NBC Universal, an unprecedented media transaction awaiting regulatory approval from the Federal Communications Commission and the Department of Justice.


"It is clear that the Comcast-NBCU deal will send monthly cable bills higher by billions of dollars over the next decade, underscoring ACA's view that regulators must protect consumers and competition from a transaction whose benefits are vastly outweighed by its harms. Without meaningful and cost effective conditions on the Comcast-NBCU transaction, regulators also run the risk of crippling effective competition in the pay-TV distribution market," ACA President and CEO Matthew M. Polka said.


ACA's study was conducted by Dr. William Rogerson, professor of economics at Northwestern University, who served as the FCC's Chief Economist for the 1998-99 academic year. Rogerson's study concluded that the transaction will allow Comcast-NBCU to raise programming fees way above levels the two would be able to command as separate and independent companies, and that these fee increases will largely be passed through to subscribers in the form of higher subscription prices. According to Rogerson, the quantifiable consumer harm of the transaction ($2.566 billion) is more than 10 times greater than the quantifiable consumer benefit ($204 million) claimed by Comcast-NBCU.

In his detailed analysis, Rogerson found that the consumer harm will manifest itself in two ways. The first is vertical harm arising from the combination of NBCU national cable programming networks and NBC owned-and-operated broadcast television stations with Comcast's cable distribution assets. This alignment will permit Comcast-NBCU to raise the fees it charges for NBCU programming to Comcast's cable and satellite rivals, including nearly 40 ACA member companies, such as RCN, WOW!, Wave Broadband, Broadstripe, and SureWest.

The second harm is horizontal, or control over key programming assets which will permit Comcast-NBCU to raise prices from the market power derived by jointly negotiating NBCU's suite of highly rated NBCU national cable programming networks and/or NBC O&O TV stations with Comcast's key programming asset: Regional sports networks (RSNs). This combination would allow Comcast-NBCU to demand higher fees from all pay TV providers operating in markets served by a Comcast RSN.

In breaking down the harms by category, Rogerson calculated the vertical harm at $1.43 billion and the horizontal harm at $1.14 billion over the next nine years. Of note, both types of harm are relatively equal in magnitude.

In breaking down the harms by programming, Rogerson shows that the transaction will cause $1.6 billion of harm through its effect on the fees charged for NBCU national cable networks, $651.2 million of harm through its effect on the fees charged for Comcast RSNs and $355.6 million of harm through its effect on the retransmission consent fees charged for NBC O&Os. Professor Rogerson's analysis shows that by not imposing conditions on NBCU's national cable networks, the government would leave nearly two-thirds of the transaction's harms unaddressed.

Although the quantifiable consumer harms of the transaction will be felt by consumers across the country, locations hit the hardest will be those markets where Comcast has a significant cable presence and owns the RSN in addition to the NBC O&O. Markets matching that profile include Philadelphia, Chicago, San Francisco, Washington, D.C., and Hartford, Conn.

Professor Rogerson - in his analysis of the quantifiable cost reductions Comcast could expect post-transaction - shows that Comcast has vastly overestimated the savings that it will realize through joint ownership of NBCU programming assets. Even taking into account savings from the reduction of double marginalization highlighted by Comcast's economic experts, the truth is that any potential consumer cost reductions are swamped by the quantifiable vertical and horizontal consumer harms from the transaction that ACA has identified.

Unveiled last December, the $30 billion Comcast-NBCU transaction is an unprecedented union of key programming and cable assets, providing Comcast-NBCU with the incentive and ability to use its control of "must have" content -- which includes 10 NBC TV stations, 9 Comcast RSNs and about 20 Comcast-NBCU national cable networks - to reap windfall profits by manipulating and overcharging pay television providers, including small and medium-sized operators who make up ACA's membership.

In August, ACA unveiled an array of conditions designed to ameliorate the transaction's vertical and horizontal harms, especially for small and medium-sized operators who have found baseball-style commercial arbitration unaffordable.

ACA conditions state that:

• All pay television providers, including bargaining agents, that cannot reach a mutual agreement with Comcast-NBCU for any of its programming may submit a dispute to binding baseball-style commercial arbitration. This arbitration remedy shall apply not only to Comcast-NBCU's NBC stations and RSNs, but also to its national cable networks.
• For smaller operators who cannot afford binding baseball-style commercial arbitration, Comcast-NBCU shall be prohibited from requiring any pay-TV provider with 125,000 video subscribers or fewer locally to pay a fee for an NBC station or RSN that is 5% greater than the lowest fee paid by any other local pay-TV distributor for that market's NBC station or the area's RSN.
• The general conditions applicable to all pay-television providers and the special conditions for smaller ones shall be available to all providers that negotiate for programming with Comcast-NBCU, not just those operators that compete head-to-head with Comcast's cable distribution systems.
• Comcast-NBCU must sell its NBC broadcast stations and RSNs on a stand-alone basis to all pay-TV distributors, meaning each NBC station and RSN cannot be bundled with carriage of any other video programming network.

"Comcast's suggestion that because ACA has proposed similar remedies in prior program access rulemaking proceedings, no form of these remedies could now be transaction specific in a deal that involves vertically integration is incorrect and self-serving," ACA's Polka said. "The FCC has never applied such a standard. ACA's remedies will be judged by the FCC based on their merit in lessening the documented harms of the transaction."

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