Understanding the economics of cable mergers

Author: 
Coverage Type: 

[Commentary] It is often said that the definition of insanity is doing the same thing twice and expecting a different result the second time. A scant three months after regulators torpedoed Time Warner Cable’s proposed merger with Comcast, the company found a new suitor, as part of a blockbuster three-company merger with rivals Charter and Bright House. But unlike its predecessor, this mega-merger among three of America’s six largest cable providers is likely to receive the government’s approval.

The reasons why one proposed cable behemoth was bad, but another is good, is not obvious, and has little to do with the traditional story about preventing cable monopolies. The quest for scale is driving merger mania throughout the industry, including the aborted Comcast-Time Warner deal and Charter’s proposed mega-merger. But mergers give these companies greater scale in another industry as well: broadband Internet service. America’s cable companies are also its largest Internet providers. Many assume this drove the government’s concern about the Comcast deal. Cable is under increasing pressure from Internet-based video providers such as Netflix and Hulu. But those companies rely upon broadband networks to reach consumers. The combined Comcast-Time Warner empire would have controlled roughly half of all American broadband customers -- and regulators were afraid the company might use its power over broadband networks to protect its cable business from Internet-based competition. Ultimately, cable’s merger mania reveals its identity as a mature industry in transition. The Internet has a history of disrupting seemingly stable old businesses, as companies such as Borders, Blockbuster, and countless music labels can attest. Now the Internet has cable in its sights. Greater scale will help this suddenly old media compete more effectively in an increasingly rich, dynamic, and competitive market for video. And in the process it will free up capital to improve Internet speeds and build out the broadband networks that will power the industry’s future.

[Danile Lyons is an associate professor at Boston College Law School]


Understanding the economics of cable mergers