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The Daily Wildcat

The Daily Wildcat

 

    Comcast buys Time Warner

    Earlier this month, Comcast announced it had agreed to buy Time Warner Cable for $45.2 billion. The deal will have to be approved by the federal government, which is no guarantee. Comcast Chief Executive Brian Roberts said he expects that the merger will be approved. But no changes would be immediate, as the regulatory review process generally takes a long time to complete. For example, Comcast acquired NBCUniversal in 2009, but the regulatory review process took 13 months.

    According to Bloomberg Businessweek, the merger would increase Comcast’s subscriber base from 22 million to 33 million homes, an increase of 50 percent. It would also make Comcast the largest residential broadband provider in the U.S.

    Reaction has been mixed in the days following the announcement. It has long been thought that the cable industry would benefit from more competition, not less of it. However, the two companies largely operate in different U.S. markets, so the merger likely wouldn’t be the monopolistic competition killer some are fearing. But there are legitimate concerns about unsatisfactory service.
    Cable companies notoriously struggle with consumer satisfaction. With a giant merger like this, there would be many moving pieces — especially early in the process. Consumers would likely experience short-term hiccups in service until the dust from the merger settles, but given Comcast’s vast resources, there is no reason why it shouldn’t be able to improve customer service.

    There are also concerns about whether already rising prices would skyrocket, now that the mega-company owns a vast majority of the cable and broadband markets. But again, the two companies primarily serve different geographic locations. Cable and broadband prices have been increasing for years and that’s likely to continue, but it’s unknown whether that increase will accelerate.

    Cable’s biggest competitors right now are online subscription services like Netflix and Hulu Plus. Comcast has its own online streaming service, Xfinity TV, which will now be accessible to 50 percent more subscribers. As the market shifts, Comcast has done well to change its business strategy. However, Xfinity TV and its on-demand services are clunky and are not held in high regard by consumers. With many new subscribers potentially gaining access to these services, the company is likely to significantly improve them — or at least to try. Comcast may not undercut competitors like Netflix and Amazon, but it won’t be left in the dust, either.

    Comcast’s biggest gain from the merger would be its increased negotiating leverage when dealing with television networks, content providers, regulators and more. In these sorts of negotiations, size and customer base are inherently important. By absorbing Time Warner’s customers, Comcast would have the upper hand at any negotiating table. With this sort of power, Comcast would be better able to dictate the price of programming when hashing out contracts with content providers.

    Last year, CBS and Time Warner were involved in a pricing dispute. CBS demanded that Time Warner pay more for its content, raising the price from 50 cents per subscriber per month to $2. CBS’ rationale was that it was much more valuable than other cable networks, such as TNT or USA, because of its high primetime ratings and license to carry NFL games. Time Warner went a month with CBS blacked out on the air, but ultimately gave in as football season approached. CBS got its price and went relatively unscathed. Time Warner lost about 300,000 subscribers.

    Disputes like that wouldn’t happen with a new and improved Comcast. It would have more leverage over content providers and thus could hypothetically end up offering lower prices to its customers. Whether that will happen or not remains to be seen.

    There is no denying that the big winner in this merger would be Comcast. It would gain millions of new subscribers in new markets and big-time negotiating leverage. However, this merger may not result in the doomsday scenario that some are predicting. Although the cable industry as a whole could use more competition, Comcast wouldn’t exactly monopolize the market, given that it would be entering geographic locations from which it was previously absent. It would be more powerful and will have a wider reach, but the move would hardly puts its competitors out of business.

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