Mega Cable, Mega Merger

Mega Cable, Mega Merger

By R. Alan Clanton | Published, February 13, 2014 |
Thursday Review editor

If you are old enough, like me, you remember a quaint age in which the cable company was considered “local,” or, perhaps regional. There was a local office with a payment center, a local call center, a locally-sourced after-hours answering service, and a local set of owners and managers. Mom and Pop Cable, they were known in the trade.

That of course changed rapidly throughout the late 1980s and through most of the 1990s. Medium-sized cable companies eventually began to swallow the smaller ones, creating larger ones. Big fish would eat the little fish. The process moved at an organic pace through the 1990s until, by the early aught years, there were really only about a dozen major players, with another 10 or 12 medium-sized challengers in that second tier. By then the biggest players had become routinely referred to as “giants,” and those hovering in that second group were basically waiting their turn for the right offer from one of the big boys.

Among them, at the top, were the two titans, Comcast and Time-Warner.

Comcast itself started somewhere in that second tier. Back when I first worked for them in the very early 1990s, they ranked between 12th and 14th, give or take. Their phenomenal growth in the 1990s was due largely to a series of street smart, savvy moves, mostly in the form of mergers and buyouts. By then the business model of the Mom and Pop operator was already endangered. The costs of going it alone were simply too great and the complexities—well—too complex.

Comcast, meanwhile, had found the sweet spot in managing the vastly and rapidly expanding process, and soon they would move through the ranks to become the biggest player, outflanking or outmaneuvering AT&T in 2002, gobbling up second tier players to increase their footprint, and outbidding competitors to acquire companies like Media One and TCI.

Ultimately Comcast had the cash and the moxie to buy all of NBC-Universal, at which time they became one of the largest media conglomerates in the world, with rivals among only Rupert Murdoch’s News Corp, which owns Fox TV, 20th Century Fox and over one hundred newspapers, and the colossus Time-Warner, which by then owned CNN, Headline News, HBO, Cinemax, Warner Brothers and Time magazine.

Still, cable TV customers in North America could console themselves that—at least in some markets—there might be competition, either between one of the giants and a second-tier competitor (like WOW!, a Denver-based operator in several dozen cities and towns, or Bright House, which is spread across dozens of cities from Florida to California to Indiana), or possibly even between the two mega players, Time-Warner and Comcast, which typically forces both companies in that market to adapt more quickly to customer complaints or dissatisfaction. In many areas companies like New York-based Mediacom, which has operations in Iowa, Georgia, Missouri, Florida and Minnesota and ranks 12th total customer footprint, offer a degree of competition where multiple cable companies are allowed to operate. And a few lucky souls might enjoy a third competitor like WOW! (which bought Knology in 2012) or Charter Communications, a Connecticut based cable operator with operations in 29 states.

Still, customers mostly benefitted, albeit indirectly from the ongoing clash of the titans.

But soon, if the feds approve the deal, Comcast may become a force of singular power and scope. Early on Thursday executives of Time-Warner and Comcast announced a massive deal in which Comcast would purchase Time-Warner’s cable and internet operations for $45 billion—not quite the largest media merger of all time, but pretty close (Comcast’s buyout of NBC-Universal was bigger!).

“The combination of Time-Warner Cable and Comcast,” said Comcast CEO Brian Roberts via a press statement released on February 13, “creates an exciting opportunity for our company, for our customers, and for our shareholders.”

For some 35 million customers of the combined Comcast and Time-Warner, this may or may not be good news. Many consumer advocates have already raised the red flag, suggesting that the damage to customer service will be horrific. The two cable giants already share the dubious distinction of being two of the least-loved companies in America. Cable companies generally fare poorly in many customer satisfaction surveys, but Comcast and Time-Warner happen to top—or bottom—that list.

Mergers of this magnitude are often immensely complex and prone to customer service mishaps, like billing foul-ups, computer system train wrecks, sudden price increases, package rearrangements and mind-boggling technical issues when two mega-sets of technologies, multiple email platforms and two parallel billing systems are merged. Customers often feel lost in the shuffle. In some cases, cable customers may walk away completely in favor of a satellite provider. This will almost certainly occur in geographic areas where customers have no other choices.

On the other hand, sometimes the advantages offered by the larger cable company really can outweigh the multiple inconveniences and billing problems. For one, larger cable companies have bargaining strength—and lots of it. That means that when it comes time to sit down and negotiate with networks and content providers, broadcasters and local television stations, a giant like Comcast has the leverage to better manage and control costs. Since all those fees and costs are passed along directly to customers, mostly in the form of those multiple small charges cable customer see on their typical bill, the average customer might actually benefit.

Furthermore, Comcast has always shown a predisposition to staying at the top of the technology curve, and wherever possible, ahead of it, and its formidable clout among its partners and vendors—Motorola, for example—means that Comcast customers are often the beneficiaries of the newest technologies and services. For a decade or more this formula gave Comcast a distinct advantage over its smaller competitors.

Still, few consumer advocates will find solace in those rationales, and many predict price increases coupled with a possibly decrease in service response time.

Having worked in the cable television field for over 21 years, I have heard all the complaints. This merger will no doubt raise a hue and cry unlike any of the previous mega mergers, and there will surely be problems on a large scale.

On the other hand, both Comcast and Time-Warner have struggled in the recent two year period as thousands of customers walked away from cable entertainment in favor of mobile apps, wireless services and broadband-based content. This new merger may be the cable titans’ way of coping with that inevitable market shrinkage, and it is possible—just possible—that service quality will increase even as prices remain stable.

Hang on to your remote control for more news on this topic.

Related Thursday Review articles:

Citizen Rupert; review of the book Murdoch’s World: The Last of the Old Media Empires; Thursday Review; October 29, 2013.

T-Mobile: Fewer Dropped Calls; R. Alan Clanton; Thursday Review; Monday, January 6, 2014.