The following My 2¢ appeared in Day Two of VideoAge Daily at MIPCOM 2014. It is also available as a PDF at www.videoagedaily.com. It is re-proposed here because it received wide attention in Cannes.
Television spurs mergers of giants that want to be titans. Mergers do not benefit consumers but only favor merging companies in several ways: by reducing competition, cutting investments and increasing savings for content and services.
Let’s make one thing perfectly clear: mergers do not take place to help consumers, just the merging companies. Why? Because mergers are ways to get more money from the same customers, while saving money from suppliers and from reduced investments.
In particular we’re referring to the two mergers in the U.S.: Telco AT&T wanting to buy satellite TV provider DirecTV for $67.1 billion and MSO Comcast looking to buy MSO Time Warner Cable for $42.2 billion.
Why this sudden new rash of mergers in the telecommunications business? There are three reasons: the first is indicated above, the second has to do with timing and the third has to do with current deliberations over net neutrality.
These mergers between giants looking to be titans will be scrutinized by U.S. regulators such as the Department of Justice and the telecommunications authority, the FCC. However, they can help each other get approval by playing the big competitor’s card. In addition, by synchronizing the mergers’ scrutiny and hearings, they will better argue for the elimination of the net neutrality provision, which prevents them from charging extra for speedier broadband service.
In terms of market size, DirecTV has 20.3 million customers in the U.S. and 18 million in Latin America. It is the largest satellite TV service and the second largest pay-TV provider in the U.S. (after Comcast). Smaller competitors include Dish satellite TV, with 14.1 million customers and Telco Verizon, with 5.3 million TV subscribers.
AT&T’s TV service is marketed under the U-Verse brand, which uses fiber-optic lines and has 11.3 million customers in 22 U.S. states, including 5.7 million TV subscribers, and operates their own 2,300 retail stores, plus thousands of dealers and agents.
Based in El Segundo, California, DirecTV recorded $8.6 billion in revenue last year, while the Dallas, Texas-based AT&T reached $128.7 billion.
The Philadelphia, Pennsylvania-based Comcast (which also owns NBCUniversal) generated revenue of $64.6 billion, while the New York City-based Time Warner (no longer affiliated with Warner Bros.) generated $22.1 billion.
With Comcast’s 22.8 million customers and Time Warner Cable’s 11.2 million subscribers the merger would put a single company in control of the Internet pipes and television into 40 percent of American homes.
How can the merged companies get more money? By charging extra for faster Internet lanes and by increasing subscription costs. How can they save money? By reducing fiber-optic investment in favor of Wi-Fi and satellite delivery, by cutting retransmission fees, by reducing per-sub paid to cable channels and by lowering on-demand content license fees.
The DirecTV merger, for example, would increase AT&T’s TV base without resorting to expensive fiber-optic investments.
In conclusion, it is clear to all that mergers are not good for consumers, for competition, for innovation or for increased investments. It is also clear to all that money talks and big money talks louder. The approval process is not left to the discretion of consumers but to politicians who depend on the financial support of big money, therefore the outcome is inevitable. (Dom Serafini)