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What the Time Warner buyout could mean for cable ... and the rest of us

A Time Warner Cable truck.

Wanna know why Time Warner might merge with another major cable company (Comcast or Charter)?

It’s because of Meg. 

Meg Cramer is 25, a producer for the Marketplace Tech Report.

Hey Meg um do you have cable?

LIKE TV?

yah

No.

Do you like know anyone who has cable? 

No. Umm.  My parents have cable.

People  -- especially those under thirty – aren’t wedded to cable.  They have smartphones and tablets and Netflix and Hulu and Amazon and iTunes and Google Play.

“Cable’s not going out of business tomorrow, but the industry is under significant pressure”  according to Porter Bibb, managing partner at MediaTech Capital.  “Consolidation has become a way of surviving in cable.”

Consolidation lets cable operators get bigger, and therefore wield more power in negotiations with the channels and networks they carry.  Those content providers have been demanding more and more profits from cable operators. 

For example, last summer, Time Warner Cable had an epic battle with CBS over how much the cable company should pay CBS for carrying its programming.  Things got so bad that CBS just pulled the plug and refused to allow Time Warner to broadcast its channel for a month.

“Approximately 100,000 people opted out of Time Warner Cable,” says Bibb.  “And that’s going to happen more and more frequently – not just to Time Warner but to other cable operators -- for the simple reason that content is now king.”

Bibb says another cash cow of the cable industry is coming under threat as well:  bundling.  That’s where you might only want one channel, but you have to pay for 50.   There is a growing movement to replace that with what’s called the “Chinese  menu” option, where channels are a la carte like  dim sum. 

Incidentally, cable’s loss of status in the world of content is exactly why a merger might not trigger anti-trust laws.   “The anti-trust laws prevent a lessening of competition in any relevant market,” explains Bob Lande, Venable Professor of Law at the University of Baltimore and a director at the American Antitrust Institute.  “ The problem here is what markets are we talking about?”  Cable doesn’t just compete with other cable companies, it competes with the internet.   So consolidation in cable isn’t necessarily viewed by regulators in the same way as consolidation in, say, the cookie industry – even though in Lande’s view the media industry deserves special attention.

“To say it’s a big deal is an understatement - it’ll take a long time to resolve, these issues are very thorny,” says Lande, adding that regulators would also have to figure out if competition was being lessened in the production side, the buying side, and many other facets other than simply bringing cable to people’s homes. 

As to the effect of such consolidation on consumers, “that we just don’t know, that’s the ultimate question from the merger.” 

Boston University economist Laurence Kotlikoff is considerably more certain.  He says consolidation might fly legally, but it won’t be a good deal for consumers.   In many regions of the country cable companies already operate like miniature monopolies, and competition is impossible.  He says consolidation would just exacerbate what’s already going on.  “You get this monopolistic behavior where they charge much higher prices and give you lousy customer service.” 

What? Lousy customer service from a cable company?  That’s crazy.

About the author

Sabri Ben-Achour is a reporter for Marketplace, based in the New York City bureau. He covers Wall Street, finance, and anything New York and money related.

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