How Cable Programming Is ‘Chosen’ — The Implications for Comcast-NBC

Posted January 11th, 2010 by Adam Lynn

The Department of Justice announced last week that it will review Comcast’s proposed takeover of NBC Universal. When this deal was announced a month ago, we raised a number of public interest concerns. One of the biggest: If right now we rarely see independent, diverse and groundbreaking programming, it will become nearly extinct if this merger is approved.

It is appropriate to start with a primer about how TV shows reach our living rooms. The general idea is that the programmer brings the content and the cable operator brings the subscribers, and these are the key bargaining chips for both sides during negotiations. Big programmers, say, NBC Universal, have a huge number of cable channels, which serve as a big hammer when negotiating for carriage – or a slot on a cable system – with cable companies.

Big programmers leverage this power when negotiating  with small cable operators, which  don’t have the same market power as big cable operators to strike deals with big programmers. That is, NBC can afford to lose these subscribers much more easily than the small cable guys can afford to lose premium content. The big programmers thus routinely fleece small cable operators.

On the flip side, big cable operators like Comcast have so many subscribers that they have the upper hand in negotiations and can force agreements that favor them. Now, when large cable operators negotiate with large programmers, they typically come to mutually beneficial terms. If there is a standoff, it doesn’t last long because both sides recognize they won’t go far without the other. Small or upstart programmers, however, aren’t so lucky. They consistently get the short end of the stick in their dealings with companies like Comcast.

After the announcement of the Comcast-NBC merger, Comcast submitted a filing to the Securities and Exchange Commission. For the first time, the filing publicly disclosed the companies Comcast owns a partial stake in, and the news was  both unsurprising and worrisome. The media properties listed in Comcast’s filing include:

• NHL Network US, L.P. – 15.6%
• The MLB Network, LLC – 8.34%
• Current Media, LLC – 10%
• Big Ten Network, LLC – 4.99%

These are all startup networks: Why and how does Comcast have an ownership stake in them? It’s not hard to understand. These startups did what they had to do to get carriage on Comcast, and that meant relinquishing shares of their companies to the cable giant.

As one industry observer noted, “If it doesn’t have Fox in front of its name or NBC behind it, it’s going to have trouble.” Certainly sounds like market dominance to me.

Comcast’s outsized market power means it can make outrageous demands of content companies that want to air their programming.  For instance, the recently created nonprofit Olympic Network (started by the U.S. Olympic Committee) had to offer an estimated “$30-40M [million] in annual advertising” before Comcast would agree to carry the network. These arrangements are rarely leaked to the press, so it is unknown how many other upstarts had to make similar concessions.

What about no-name programmers that can’t afford to offer tens of millions of dollars for a slot on Comcast’s lineup? When true upstarts pitch their networks to the likes of Comcast, they don’t even have a prayer. When the Horror Channel tried to get picked up by Comcast, the company passed, deciding instead to create its own horror network called “FEARnet.” The lesson is that if you don’t have backing from a large programmer or distributor, your best hope is to be buried in the on-demand menu somewhere.

These instances are proof positive that large programmers like NBC and large cable operators like Comcast already have too much market power. Allowing the two to combine will only further tilt the scales in their favor. Comcast can take its less known cable channels and lump them with NBC’s, forcing distributors to air these channels, a practice known as bundling. Just think about this degree of market power – the largest cable operator owning one of the largest stables of cable networks. The problems I’ve described here will only  get worse.

Meanwhile, other companies will likely try to match this market power through consolidation. As usual, the biggest losers will be small networks and cable operators, and last but not least, the public. Any increase in costs will surely be passed directly on to you. And this will further cement the reality that you have no chance of viewing truly independent content. The Comcast-NBC merger is a no-win situation for the public and must be stopped.

This entry was posted on Monday, January 11th, 2010 at 1:26 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.