Progress on Point

Volume 16, Issue 25

December 2009

A Brief History of Media Merger Hysteria:

From AOL-Time Warner to Comcast-NBC
by Adam Thierer*
Although the pending union of Comcast and NBC Universal has not yet made it to the altar,
Chicken Little-esque wails about the marriage have already begun in earnest. For example, the
pro-regulatory media organization Free Press has already set up a website to complain about
the deal.1 And Jeff Chester, executive director of the Center for Digital Democracy, has called it
an unholy marriage.2 The fever only promises to spread once the deal is formally announced,
and a lengthy fight over the deal is expected at the Federal Communications Commission (FCC)
and whichever antitrust agency reviews the deal.3
But reality tends to play out somewhat less dramatically than the script penned by the media
worrywarts. Its worth looking back at some of the more prominent examples of media merger
hysteria in recent years to understand why such panic is unwarranted, and why a deal between
Comcast and NBC Universal is unlikely to lead to the sort of problems that the pessimists
suggest.4

AOL-Time Warner: From the New Totalitarianism to Digital Divorce Court in Less
Than a Decade
When the mega-merger between media giant Time Warner and Internet superstar AOL was
announced in early 2000, the marriage was greeted with a cacophony of righteous indignation
and apocalyptic predictions. When referring to the dangers of the deal, syndicated columnist
Norman Solomon, a longtime associate of the media watch group Fairness & Accuracy In
Reporting, summoned the ghost of Aldous Huxley when he and referred to the transaction in
Adam Thierer (athierer@pff.org) is President at The Progress & Freedom Foundation. The views expressed in
this report are his own, and are not necessarily the views of the PFF board, fellows or staff.
1

www.freepress.net/comcast

Quoted in Cecilia Kang, Public Interest Groups Rail against a Comcast and NBC Merger, Washington Post, Post
Tech Blog, Nov. 9, 2009,
http://voices.washingtonpost.com/posttech/2009/11/for_example_were_advancing_tv.html

For regulators, a deal like this is a gift; an occasion to impose their will upon needy companies that would
otherwise be outside their regulatory reach. Craig Moffett, Bernstein Research, Comcast: Snatching Defeat
from the Jaws of Victory? Oct. 23, 2009, at 14.

Cecilia Kang, A New Kind of Company, A New Kind of Challenge for Feds, Washington Post, Nov. 26, 2009, at 1,
www.washingtonpost.com/wp-dyn/content/article/2009/11/26/AR2009112602500.html
1444 EYE STREET, NW SUITE 500 WASHINGTON, D.C. 20005
202-289-8928 mail@pff.org www.pff.org

Electronic copy available at: http://ssrn.com/abstract=1517288

Page 2

Progress on Point 16.25

terms of servitude, ministries of propaganda, and new totalitarianisms.5 Similarly, USC

Professor of Communications Robert Scheer wondered if the merger represented Big Brother
and claimed, Diversity is out, niches are gone, its Skippy peanut butter time. AOL is the
Levitown of the Internet, mom and apple pie, 50s boredom, conformity and dullness as a
virtue: A Net nanny reigning in potentially restless souls.6
Such pessimistic predictions proved wildly overblown. To say that the merger failed to create
the sort of synergies (and profits) that were originally hoped for would be an epic
understatement.7 The titles of two popular books about the deal summed up the firms
troubles: One was entitled Fools Rush In (by Nina Munk) and the other, There Must Be a Pony in
Here Somewhere (by Kara Swisher and Lisa Dickey).8
The numbers were mind-boggling. By April 2002, just two years after the deal was struck, AOLTime Warner had already reported a staggering $54 billion loss.9 By January 2003, losses had
grown to $99 billion.10 By September 2003, Time Warner decided to drop AOL from its name
altogether and the deal continued to slowly unravel from there.11 In a 2006 interview with the
Wall Street Journal, Time Warner President Jeffrey Bewkes famously declared the death of
synergy and went so far as to call synergy bullsh*t!12 In early 2008, Time Warner decided
to shed AOLs dial-up service13 and now is set to spin off AOL entirely.14 Looking back at the
deal, Fortune magazine senior editor at large Allan Sloan called it the turkey of the decade:

Norman Soloman, AOL Time Warner: Calling The Faithful To Their Knees, Jan. 2000, www.fair.org/mediabeat/000113.html

Robert Scheer, Confessions of an E-Columnist, Jan. 14, 2000, Online Journalism Review,
www.ojr.org/ojr/workplace/1017966109.php

Looking back at the deal almost ten years later, AOL co-founder Steve Case said, The synergy we hoped to
have, the combination of two members of digital media, didn't happen as we had planned. Quoted in Thomas
Heath, The Rising Titans of '98: Where Are They Now?, Washington Post, Nov. 30, 2009,
www.washingtonpost.com/wp-dyn/content/article/2009/11/29/AR2009112902385.html?sub=AR

Nina Munk, Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner (New York: Harper
Business, 2004); Kara Swisher and Lisa Dickey, There Must Be a Pony in Here Somewhere: The AOL Time Warner
Debacle and the Quest for a Digital Future (New York: Crown Business, 2003).

Frank Pellegrini, What AOL Time Warners $54 Billion Loss Means, April 25, 2002, Time Online,
www.time.com/time/business/article/0,8599,233436,00.html

10

Jim Hu, AOL Loses Ted Turner and $99 billion, CNet News.com, Jan. 30, 2004, http://news.cnet.com/AOL-losesTed-Turner-and-99-billion/2100-1023_3-982648.html

11

Jim Hu, AOL Time Warner Drops AOL from Name, CNet News.com, Sept. 18, 2003, http://news.cnet.com/AOLTime-Warner-drops-AOL-from-name/2100-1025_3-5078688.html

12

Matthew Karnitschnig, After Years of Pushing Synergy, Time Warner Inc. Says Enough, Wall Street Journal, June
2, 2006, http://online.wsj.com/article/SB114921801650969574.html

13

Geraldine Fabrikant, Time Warner Plans to Split Off AOLs Dial-Up Service, New York Times, Feb. 7, 2008,
www.nytimes.com/2008/02/07/business/07warner.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1209654030ZpEGB/n3jS5TGHX63DONHg

14

John Letzing, AOL, On The Verge Of Independence, Weighs On Parent, Wall Street Journal, Nov. 4, 2009,
http://online.wsj.com/article/BT-CO-20091104-718782.html

Electronic copy available at: http://ssrn.com/abstract=1517288

Progress on Point 16.25

Page 3

The day the deal was announced, Jan. 10, 2000, Time Warner closed at the
equivalent of $184.50 a share. After almost 10 years of travail, the $184.50 has
shrunk to about $42.25, consisting of one Time Warner share and a quarter of a
Time Warner Cable share. The 77 percent decline is triple the decline in the
Standard & Poor's 500-stock index over the same period.15
And the Time Warner-AOL split wasnt the end of this messy divorce process. In 2008, Time
Warner Cable and Time Warner Entertainment decided to split.16 Time Warner has even spun
off some of its oldest properties. In 2006, it announced that it was putting 18 of the 50
magazines in its Time magazine division up for sale.17
As is always the case, these divestitures and down-sizing efforts garnered little attention
compared with the hullaballoo and hysteria that accompanied the announcement of the deal
back in 2000.18

News Corp/DirecTV: Murdochs Digital Death Star Blows Up

No media industry personality attracts more attention (or angst) than News Corp. Chairman
and CEO Rupert Murdoch. The popular leftist blog The Daily Kos has likened him to a fascist
Hitler antichrist.19 And CNN founder Ted Turner once compared the popularity of the News
Corp.s Fox News Channel to the rise of Adolf Hitler prior to World War II.20 Alternatively,
Murdoch has been accused of being a Marxist.21 Meanwhile, Karl Frisch, a Senior Fellow at
Media Matters for America, speaks of Murdochs evil empire22 and a recent MSNBC poll has
asked people to vote on the question: Is Rupert Murdoch evil?23 In 2003, when asked by talk
show host Chris Matthews, Would you break up [News Corp.-owned] Fox? then Democratic

15

Allan Sloan, 'Cash for . . .' and the Year's Other Clunkers, Washington Post, Nov. 17, 2009,
www.washingtonpost.com/wp-dyn/content/article/2009/11/16/AR2009111603775.html

16

Tim Arango, Time Warner Spinning Off Cable Unit, New York Times, April 30, 2008,
www.nytimes.com/2008/04/30/business/30warner-web.html?ref=technology

17

Carolyn Pritchard, Time Inc. to Sell 18 Magazine Titles, MarketWatch, Sept. 12, 2006,
www.marketwatch.com/News/Story/Story.aspx?guid=%7B94967C37%2D9B4A%2D4C1A%2D8AC0%2D64904C1
267A1%7D&dist=rss&siteid=mktw&rss=1

18

Break-ups and divestitures do not generally get front-page treatment, notes Ben Compaine, author of Who
Owns the Media? See Ben Compaine, Domination Fantasies, Reason, Jan. 2004, p. 28,
www.reason.com/news/show/29001.html

19

www.dailykos.com/story/2009/9/7/778254/-Rupert-Murdoch-is-a-Fascist-Hitler-Antichrist

20

Jim Finkle, Turner Compares Foxs Popularity to Hitler, Broadcasting & Cable, Jan. 25, 2005,
www.broadcastingcable.com/CA499014.html

21

Ian Douglas, Rupert Murdoch is a Marxist, Telegraph.Co.UK, Nov. 9, 2009,

http://blogs.telegraph.co.uk/technology/iandouglas/100004169/rupert-murdoch-is-a-marxist

22

Karl Frisch, Fox Nation: The Seedy Underbelly of Rupert Murdoch's Evil Empire? MediaMatters.org, June 2, 2009,
http://mediamatters.org/columns/200906020036

23

www.msnbc.msn.com/id/19817142/

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Progress on Point 16.25

presidential candidate Howard Dean answered, On ideological grounds, absolutely yes.24 And
in their book Our Media, Not Theirs, John Nichols and Robert McChesney took the Murdoch-asevil-overlord storyline to its logical extreme when they suggested Hollywood was on to
something by scripting a media tycoon like Murdoch as the bad guy in a James Bond movie: No
wonder conspiracy theories are so popular in America; no wonder, when the makers of James
Bond movies look for believable villains these days, they eschew Eurotrash bad guys for more
credibly threatening villains such as the Rupert Murdoch-like media baron of 1997s Tomorrow
Never Dies.25
These Murdochian fears came to a head in 2003 when News Corp. announced it was pursuing a
takeover of satellite television operator DirecTV. Paranoid predictions of a pending media
apocalypse followed. A group of regulatory activists filed joint comments to the FCC claiming
that if News Corp. and DirecTV were allowed to merge, the result will be unprecedented
concentration within all aspects of the television marketplace, as well as increased prices for
consumers of cable and satellite television.26 Similarly, then-FCC Commissioner Jonathan
Adelstein worried that the deal would result in unprecedented control over local and national
media properties in one global media empire. Its shockwaves will undoubtedly recast our entire
media landscape. He continued; With this unprecedented combination, News Corp. could be
in a position to raise programming prices for consumers, harm competition in video
programming and distribution markets nationwide, and decrease the diversity of media
voices.27
Not to be outdone, full-time media fussbudget Jeff Chester predicted that Murdoch would use
this Digital Death Star as the base of a nefarious scheme to conquer the media universe:
Murdoch will use DirecTV as a death star to force his programming on cable
companies by threatening a price war unless they give Fox favorable access. Since
News Corp will control cable TVs principal multichannel competitor, it will easily
create new channelsunlike anyone else in the TV business. Rather than engage in
open combat and competition, cable powerbrokers such as Comcast and AOL-Time
Warner will likely accommodate Murdoch and add his new channels to their own
services. Imagine Fox News on steroids. Worse, with DirecTVs capacity to

24

Dean Vows to Break Up Giant Media Enterprises, The Drudge Report, Dec. 2, 2003,
www.drudgereport.com/dean1.htm; Bill McConnell, Dean Threatens to Break Up Media Giants, Broadcasting &
Cable, Dec. 3, 2003, www.broadcastingcable.com/index.asp?layout=articlePrint&articleID=CA339546.

25

John Nichols and Robert W. McChesney, Our Media, Not Theirs: The Democratic Struggle against Corporate
Media (New York: Seven Stories Press, 2002) at 31.

26

Consumers Union, Consumer Federation of America, Center for Digital Democracy, and Media Access Project,
Comments In the Matter of News Corporation/Fox Entertainment Group Merger with Hughes Electronics
Corporation/DirecTV, MB Docket No. 03-124, July 1, 2003, www.consumersunion.org/pdf/0701-DirecTV.pdf

27

Dissenting Statement of Commissioner Jonathan S. Adelstein, Re: General Motors Corporation and Hughes
Electronics Corporation, Transferors, and The News Corporation Limited, Transferee, MB Docket No. 03-124,
Jan. 14, 2004, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-330A6.doc

Progress on Point 16.25

Page 5

spotbeam channels to serve distinct communities, localized versions of Fox

programs could be available in major cities across the nation.28
Imagine the horror of new, spotbeamed local media competition! However, unlike the
destruction of the planet Alderaan by the Death Star in Star Wars,29 no one was harmed in the
making of the News Corp-DirecTV marriage. Indeed, the rebels would get the best of Darth
Murdoch since his Digital Death Star was abandoned just three years after construction. In
December 2006, News Corp. decided to divest the company to Liberty Media Corporation in an
effort to win back more controlling News Corp. stock.30
Ironically, many of the same groups that had vociferously protested the original News CorpDirecTV deal again found reason to complain when the deal was being undone! The FCCs
failure to implement various restrictions as part of the license transfer, they claimed, would
result in continuing control by News Corp. over content distribution, harming competition in
both the programming and distribution markets, reducing consumer choice and raising cable
prices.31 Unsurprisingly, little mention was made of the previous round of pessimistic
predictions or whether there had ever been any merit to the lugubrious lamentations of the
media critics.

Sirius-XM: Merger to Monopoly or Prelude to Bankruptcy?

Some of the most entertaining and wrong-headed predictions about the future of the media
marketplace often come from media moguls themselves. For example, back in 2003, when he
was still President and Chief Operating Officer of Viacom, Mel Karmazin said in reference to
Microsoft, AOL Time Warner, and Comcast: I cant imagine being a competitor with any of
these guys.32 Just six years later, however, plenty of others are competing with those
companies. Microsoft finds itself in a heated war with Google on all fronts, AOL-Time Warner
has fallen apart, and Comcast is squaring off against telco (e.g., Verizons FiOS and AT&T UVerse) and online video competitors (e.g., YouTube, Hulu) that were unfathomable in 2003
not to mention the traditional satellite TV competitors they still face. Meanwhile, Karmazin
abandoned Viacom and is now struggling to find a way to make subscription-based satellite
radio survive the ongoing digital music bloodbath caused by the rise of online music services
and a little thing called the iPod.

28

Jeff Chester, Rupert Murdochs Digital Death Star, AlterNet, May 20, 2003, www.alternet.org/story/15949

29

Destruction of Alderaan, Wookieepedia: The Star Wars Wiki,

http://starwars.wikia.com/wiki/Destruction_of_Alderaan

30

News Corporation and Liberty Media Corporation Sign Share Exchange Agreement, News Corp Press Release,
Dec. 22, 2006, www.newscorp.com/news/news_322.html. A frustrated Murdoch referred to DirecTV as a turd
bird just before he sold it off. See Jill Goldsmith, Murdoch Looks to Release Bird, Variety, Sept. 14, 2006,
www.variety.com/article/VR1117950090.html?categoryid=1236&cs=1

31

Consumers Union, Consumer Federation of America, Free Press, and Media Access Project, Comments In the
Matter of Authority to Transfer Control of DirecTV, MB Docket No. 07-18, March 23, 2007,
www.mediaaccess.org/file_download/177

32

Richard Linnett, Media Rivals Backslap at Cable Conference, AdAge.com, June 10, 2003.

Page 6

Progress on Point 16.25

Of course, hysteria ran rampant when Sirius and XM were merging, too. Critics called it a
merger to monopoly and predicted a variety of coming calamities.33 National Association of
Broadcasters Vice President Dennis Wharton described the merger as a monopoly platform for
offensive programming that would be anti-consumer.34 Mr. Wharton later remarked that
the merged firms will raise prices, wont improve their technology and will limit their
offerings.35 A coalition of six non-profits claimed that the merger was perhaps the worst
offense against the basic principle that competition is the consumers best friend and, if
approved, a tsunami of mergers could ripple through the digital space at the worst possible
moment.36 They predicted that once the competition is eliminated, prices will rise over time,
innovation will slow to the pace preferred by the monopolist and consumers will be much
worse off in the long run.37 Another coalition argued that the new company would abuse
consumers, artists and other input suppliers in the satellite radio market.38
In the end, the merger took an astonishing 500-plus days for the FCC to finally approve39 and
was conditioned with a lengthy set of voluntary concessions to supposedly rectify these
potential harmsincluding pricing constraints that could limit the firms ability to cover costs
and pay down debt over time.
Unsurprisingly, things havent turned out so well for Sirius XM. When the merger was finally
approved by the FCC in August 2008, Commissioner Copps dissented vigorously on various
grounds but specifically insisted that, We must assume that the marketplace can support two
financially viable competitors.40 Unfortunately for Commissioner Coppsas well as Sirius
XMits not even clear that the market can sustain one satellite radio provider. The companys
stock went into freefall following completion of the deal and, at one point, its stock fell below
33

Dissenting Statement of Commissioner Michael J. Copps, Applications for Consent to the Transfer of Control of
Licenses, XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, MB Docket No.
07-57, Aug. 5, 2008, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-178A3.pdf

34

Dennis Wharton, National Association of Broadcasters, NAB Statement in Response to Sirius/XM Proposed
Merger, Feb. 19, 2007,
www.nab.org/AM/Template.cfm?Section=Search&template=/CM/HTMLDisplay.cfm&ContentID=8258.

35

Peter Whoriskey and Kim Hart, Justice Dept. Approves XM-Sirius Radio Merger, The Washington Post, Mar. 25,
2008, www.washingtonpost.com/wp-dyn/content/article/2008/03/24/AR2008032401645.html.

36

The XM-Sirius Merger: Monopoly or Competition from New Technologies: Hearing Before the Senate
Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, 3 & 6 (March
20, 2007) (statement of Common Cause et. al), www.hearusnow.org/fileadmin/sitecontent/2007__0320_Public_Interest_Groups_Statement_-_Senate_Judiciary.pdf

37

Id. at 6.

38

Common Cause, Consumer Federation of America, Consumers Union, Free Press, Comments in the Matter of
Consolidated Application for Authority To Transfer Control of XM Radio Inc. and Sirius Satellite Radio Inc., MB
Docket No. 07-57July 9, 2007, at 1, www.hearusnow.org/fileadmin/sitecontent/xm-sirius_comments.pdf

39

James Gattuso, Day 505: The XM-Sirius Circus Is Finally Over, Technology Liberation Front Blog, Aug. 7, 2008,
http://techliberation.com/2008/08/07/day-505-the-xm-sirius-circus-is-finally-over

40

Dissenting Statement of Commissioner Michael J. Copps, Applications for Consent to the Transfer of Control of
Licenses, XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, MB Docket No.
07-57, Aug. 5, 2008, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-178A3.pdf

Progress on Point 16.25

Page 7

10 cents per share. The company flirted with bankruptcy in February of this year as satellite
radio failed to win over many younger listeners, and competition from other sources slowed
subscriber growth.41 In March 2009, Karmazin orchestrated a cash-for-stock swap with Liberty
Media to get a $530 million lifeline and avoid bankruptcy.42 But even with the cash infusion
Sirius XM faces an uncertain future with stiff competition.43 Sirius is girding for slower growth
than in the past, notes Olga Kharif of Business Week, and analysts remain concerned about
the companys ability to control costs.44 Former stockbroker and RealMoney.com contributor
Tim Melvin predicts the overleveraged company will disappear from the landscape. The
subscribers will go to another tech or entertainment company in bankruptcy proceedings.
Subscription radio just does not have that much appeal to most people.45
Whether Melvins dour forecast for satellite radio proves accurate remains to be seen. Whats
clear, however, is that the fears bandied about by critics when the Sirius-XM deal was pending
have not come to pass.

Murdochs Wall Street Journal Quest

In 2007, Rupert Murdoch announced his desire to purchase The Wall Street Journal. Once
again, a great deal of hand-wringing ensued. This takeover is bad news for anyone who cares
about quality journalism and a healthy democracy, argued Robert McChesney. Giving any
single companylet alone one controlled by Rupert Murdochthis much media power is
unconscionable.46 And FCC Commissioner Copps warned that It will create a single company
with enormous influence over politics, art and culture across the nation and especially in the
New York metropolitan area.47
41

Andrew Ross Sorkin & Zachery Kouwe, Sirius XM Prepares for Possible Bankruptcy, New York Times, Feb. 10,
2009, www.nytimes.com/2009/02/11/technology/companies/11radio.html

42

Jon Birger, Mel Karmazin Fights to Rescue Sirius, Fortune.com, March 16, 2009,
http://money.cnn.com/2009/03/13/technology/birger_sirius.fortune/index.htm

43

Former stockbroker and RealMoney.com contributor Tim Melvin worries about the significant competition for
the company going forward He notes:
Most of the younger people I know have iPod docks in their vehicles for listening to music.
Smartphones are bringing music and podcasts to mobile consumers. E-reading machines have
wireless connections that can eventually deliver content on a subscription or pay-per-use basis. I
really do not need the sports channels from Sirius if I can watch and listen to the games I want on
my phone. As time goes by, satellite radio will be viewed as a stepping-stone technology that was
replaced by smartphones and other portable media devices.
Tim Melvin, Sirius' Hopes Keep Slipping Away, The Street.com, Nov. 10, 2009,
www.thestreet.com/story/10624757/1/sirius-hopes-keep-slipping-away.html?cm_ven=GOOGLEFI

44

Olga Kharif, Sirius XM: The Good and Bad Earnings News, Business Week, Nov. 5, 2009,
www.businessweek.com/technology/content/nov2009/tc2009115_002716.htm

45

Melvin, supra 39.

46

Robert McChesney, Murdochs Deal for the Journal: Yet Another Blow for Journalism, Free Press Press Release,
July 30, 2007, www.freepress.net/release/260

47

Michael Copps, Letter to FCC Chairman Kevin Martin, Oct. 25, 2007,
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277576A1.pdf

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Progress on Point 16.25

Today, however, the Journal keeps humming along and continues to produce some of the finest
journalism on the planet. Meanwhile, politics, art and culture seem largely unaffected by the
dealeither in New York or the nation.
And the deal certainly hasnt made Murdoch or News Corp. any richer. His purchase of The
Wall Street Journal is widely seen as one of the worst moves of his career, notes Michael Wolff
of Vanity Fair.48 News Corp. has already taken a whopping $3 billion write-down on the deal.
Considering the $5 billion price tag Murdoch paid two years ago, one wonders if hell hold on to
this property any longer than he did DirecTV.

Comcast-NBC Universal: Debunking the Fears Preemptively

No doubt well soon be hearing many of these same apocalyptic predictions about the ComcastNBC deal. Free Press has said the new entity will have an incentive to prioritize NBC shows
over other local and independent voices and programs, making it even harder to find
alternatives on the cable dial.49 And Free Press Executive Director Josh Silver has called for the
Obama Administration to block the deal saying it would further starve Americans of [media]
diversity.50 Even competitors are complaining. Liberty Media Corp. Chairman John Malone,
which owns DirecTV, has suggested that they might push the government to reject the deal.51
Many other rivals will likely join that bandwagon.
These critics will likely raise vertical integration fears and claim that Comcast will act as a
gatekeeper by limiting the ability of independent voices to get a slot on cable distribution
systems, or by withholding NBC-Universal content from other platforms and providers. But
theres little historical evidence that suggests this will be a problem. As the adjoining exhibit
illustrates, the overall number of video programming channels available in America has
skyrocketed, from just 70 channels in 1990 to 565 channels in 2006, the last year for which the
FCC has made data available.
More importantlyand despite claims to the contraryvertical integration in the video
marketplace has plummeted over the past two decades. While many more cable and satellite
networks are available today than ever before, the greatest share of the growth in the
multichannel video marketplace has come from independently owned video networks. Since
1990, the number of cable-owned or affiliated channels has increased slightly, but it pales in
comparison with the growth of independently owned and operated video networks. In real
terms, therefore, the percentage of the overall video marketplace controlled (i.e., owned and
operated) by cable companies has plummetedfrom 50% in 1990 to just 14.9% in 2006.
Moreover, in the wake of the Time Warner Cable and Time Warner Entertainment divorce,
vertical integration in the cable sector has probably fallen into the single digits. Even if the

48

Michael Wolff, Rupert to Internet: Its War! Vanity Fair, Nov. 2009, at 112.

49

www.freepress.net/comcast

50

Josh Silver, Too Big to Block? Why Obama Must Stop the Comcast-NBC Merger, Huffington Post, Nov. 13, 2009,
www.huffingtonpost.com/josh-silver/too-big-to-block-why-obam_b_356826.html

51

www.forbes.com/feeds/afx/2009/11/19/afx7143505.html

Progress on Point 16.25

Page 9

merger of Comcast and NBC-Universal results in slight increase in industry vertical integration,
it almost certainly will not surpass 20 percent. Consequently, as far as vertically integrated
industries go, it is impossible to conclude that this market could be characterized as being
controlled by gatekeepers.

It is difficult to imagine that Comcast would buck these trends and begin restricting
independent options on its systems or withhold its content from others. Video distributors
dont make money by restricting choice. Consumers would flock to alternative video providers
and media services if Comcast played such games. The great thing about the modern media
marketplace is that there is always another place for consumers to turn to find something they
want.52 Sports programming could be an exception to the rule, and is the one issue that
Comcast may need to bargain over with FCC regulators or antitrust officials since they own
regional sports networks that other video distributors want access to.53 But traditional concerns
52

Adam Thierer and Grant Eskelsen, The Progress & Freedom Foundation, Media Metrics: The True State of the
Modern Media Marketplace, Summer 2008, www.pff.org/mediametrics

53

However, experience with regulation of sports programming suggests that FCC meddling has had negative
unintended consequences. See W. Kenneth Ferree, Competition in the Sports Programming Marketplace,
Testimony before the Subcommittee on Telecommunications and the Internet, House Committee on Energy
and Commerce, March 5, 2008, www.pff.org/issues-pubs/testimony/2008/030508ferreetestimony.pdf; Barbara
Esbin, Unable to Watch the Big Game? Testimony before the National Conference of State Legislatures
Communications, Financial Services and Interstate Commerce Committee, Apr. 25, 2008, www.pff.org/issuespubs/testimony/2008/080425esbinNCSLpresentation.pdf

Page 10

Progress on Point 16.25

about access to over-the-air broadcast signals (namely, the NBC local broadcast television
properties) shouldnt be as much of an issue today as it was the past. Frankly, local
broadcasters need all the eyeballs they can get these days. Thus, its unlikely that Comcast
would try to withhold those stations from other video distributors, especially since a great deal
of NBC programming is already available through other means. And intense competition exists
for some of the most important news and informational services that NBC offers, such as local
news, weather, and traffic.
Overall, therefore, its hard to see the case for the FCC rejecting the deal. Regulators need to be
forward-looking about what is driving this deal. This deal isnt about protecting old markets but
instead about building new ones. The real motivation behind this deal, argues Mike Berkley,
former CEO of SplashCast Media, is survival.
Comcast understands that the price point for distributing TV into homes is going to
fall dramatically in the coming years. Comcasts 3 distribution products, Voice - TV Internet, are collapsing into just one, single product: Internet. This poses a huge
threat to Comcasts top line. As such, Comcast is hedging through diversification
into content, moving up the media value chain. Comcast will be looking to replace
lost revenue in distribution with revenue from content (advertising, subscriptions,
etc).54
Similarly, Wall Street Journal business columnist Holman Jenkins points out that Comcast is
scrambling to find a way to rework their business model as the era of set-top box-delivered
video slowly gives way to a world of ubiquitously available online video:
This would be a merger, after all, of two businesses that seem headed toward some
combination of the fates of newspapers, music CDs and the old wireline telephone
business. Customers want the product for free. Comcasts lifeblood, the $100-amonth cable bill and the $50-a-month broadband bill, increasingly look like
duplicative expenses. And so on.
True, the number of households that have actually dropped their cable
subscriptions in favor of subsisting on TV streamed or downloaded from the
Internet is not yet large. But for the Roberts family and its Comcast property, their
worst fears lurk just around the cornerbeing reduced to a dumb pipe, subject to
commodity pricing while somebody else (Google) makes all the money.
Yet an escape route is vexingly hard to envision. Time Warner and Comcast have
been talking up plans to make their respective cable lineups available by
computeras long as you keep paying your cable bill. This is a stopgap, especially
appealing to anyone who owns two homes but wants to pay only one cable bill.

54

Mike Berkley, The Comcast-NBC Deal is a Defensive Move by Comcast. It's about Survival, TV News Stream, Nov.
16, 2009, http://tvnewsstream.com/the-comcast-nbc-deal-is-a-defensive-move-by-c

Progress on Point 16.25

Page 11

Never mind, too, that hundreds of shows are already available online for free, via
Web sites operated by none other than Comcast and the TV networks themselves. 55
In light of such technological upheaval and marketplace uncertainty, its important that
regulators proceed cautiously when reviewing this deal or future deals.

Conclusion: Let Markets Evolve

The point here is not that media mergers are inherently good or always make sense. Indeed, as
the examples discussed above illustrate, mergers sometimes prove to be huge blunders.56 But
the hysteria sometimes heard before media mergers are consummated rarely bears any
relationship to reality once the deals move forward. Media markets are extremely dynamic and
prone to disruptive change and technological leap-frogging. Mergers are often one response to
that turbulence.
But mergers are no panacea, and they often fail to produce the synergies hoped for. A 2004
survey by McKinsey & Co. found that Nearly 70 percent of the mergers in our database failed
to achieve the revenue synergies estimated by the acquirers management.57 Perhaps,
therefore, the best argument for blocking media mergers is not their potentially pernicious
effect on markets or consumers, but rather to save the merging firms (and their stockholders)
from a miserable marriage!
On the other hand, experimenting with alternative business models and ownership structures is
an important part of any dynamic market, because markets are not static but represent and
ongoing processes of entrepreneurial discovery.58 Thus, policymakers would be wise to avoid
micro-managing mergers and instead let things run their course. Sometimes collaboration
makes a great deal of sense, especially when the significant costs of providing a media service
becomes impossible absent a partnership. Indeed, federal officials and agencies are currently
exploring how (or whether) journalism can survive an era of seeming perpetual media
upheaval.59 Healthy media companies certainly must be part of the answer and new ownership
arrangements might be part of the solution.

55

Holman Jenkins, The Economics of Jay Leno, Wall Street Journal, Nov. 18, 2009, at A17,
http://online.wsj.com/article/SB10001424052748704431804574541684183772504.html

56

Chris OBrien, Beware the Hype Around Mergers, MercuryNews.com, Nov. 12, 2009,
www.mercurynews.com/chris-obrien/ci_13756963?nclick_check=1

57

Scott A. Christofferson, Robert S. McNish & Diane L. Sias, Where Mergers Go Wrong, McKinsey on Finance,
Winter 2004, at 2, http://westportcapital.com/library/McKinsey_Where_Mergers_Go_Wrong.pdf. The authors
noted that, acquirers face an obvious challenge in coping with an acute lack of reliable information. They
typically have little actual data about the target company, limited access to its managers, suppliers, channel
partners, and customers, and insufficient experience to guide synergy estimation and benchmarks.

58

See, e.g., Israel M. Kirzner, Competition, Regulation, and the Market Process: An "Austrian" Perspective, Cato
Institute Policy Analysis No. 18, 1982, www.cato.org/pubs/pas/pa018.html

59

For example, congressional hearings have been held on this topic and the Federal Trade Commission is holding
st
nd
a workshop on December 1 and 2 asking, Will Journalism Survive the Internet Age?
www.ftc.gov/opp/workshops/news/index.shtml

Page 12

Progress on Point 16.25

Given how difficult it is to predict the future course of events in this chaotic sector, humility
not hubrisis the sensible disposition when it comes to media merger policy. At a minimum,
policymakers should insist that ongoing debates are governed by facts instead of fanaticism,
because, if the past decade is any guide, discussions about media mergers have been more
often rooted in hyperbolic rhetoric and unsubstantiated hysteria.

Related PFF Publications

Media Ownership Proceedings, W. Kenneth Ferree, Testimony before the Federal
Communications Commission, Nov. 3, 2009.
Video Competition in a Digital Age, Adam Thierer, Testimony before the Subcommittee
on Communications, Technology and the Internet, U.S. House Committee on Energy and
Commerce, Oct. 22, 2009.
Socializing Media in Order to Save It, Adam Thierer, City Journal, March 27, 2009.
Amicus Brief of PFF in the DC Circuit U.S. Court of Appeals in the matter of Comcast
Corporation v. FCC, W. Kenneth Ferree & Berin M. Szoka, Dec., 2008.
Media Metrics: The True State of the Modern Media Marketplace, Adam Thierer & Grant
Eskelsen, Summer 2008.
Congress Fiddles, Newspapers Burn, Adam Thierer, City Journal, May 20, 2008.
Local Broadcasting in Extremis, W. Kenneth Ferree, Progress Snapshot 4.3, Jan. 2008.
Media Deregulation Is Dead, Adam Thierer, Progress Snapshot 3.17, Nov. 2007.
Rupert Murdoch, Meet Chicken Little, Adam Thierer, Aug. 2, 2007.
The Media Cornucopia, Adam Thierer, City Journal, April 2007.
Media Myths: Making Sense of the Debate over Media Ownership, Adam Thierer, June
2005.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its
implications for public policy. Its mission is to educate policymakers, opinion leaders and the public about issues
associated with technological change, based on a philosophy of limited government, free markets and civil liberties.
Established in 1993, PFF is a private, non-profit, non-partisan research organization supported by tax-deductible
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