Week of Nov. 23, 2009
“Big media today wants to own the faucet, pipeline, water, and the reservoir. The rain clouds come next.”
So wrote Ted Turner, the media entrepreneur who sold off CNN and the rest of Turner Broadcasting to Time Warner in 1996, in a remarkable Washington Monthly article five years ago that remains as compelling a case against media consolidation as you’ll find anywhere.
Turner was exaggerating a little when he described the unending, predatory longing of industry players to drag more and more media operations under a single roof. Exaggerating a little, but not much.
Vertical integration—owning the whole shebang, the entire media loop from script creation to program production, on to distribution channels, exhibition venues and syndicated re-runs, and nowadays on to DVDs, director’s cuts, re-releases and sequels, streaming video, cartoon spinoffs and action figures—has been the Holy Grail for as long as there has been a media business.
It’s why the great movie studios of the silver screen insisted on having their very own nationwide theater networks. (The government stopped that.)
It’s why the broadcast TV networks of the so-called golden age insisted on buying programs from companies they owned. (The government stopped that too for a while—and a fourth broadcast network, Fox, emerged thanks to the bumper crop of shows from newly emancipated producers.)
And vertical integration is why Comcast, the country’s biggest owner of cable systems, the company that decides which networks reach one of every four U.S. homes, is drooling over NBC Universal. The deal, if it happens, would be a staggering one.
NBCU, owned by General Electric (whoever decided that was a good idea?) is a powerhouse that comprises NBC—one of the storied Big Four broadcast networks—a major movie studio, theme parks, 13 cable networks—including USA, CNBC, Bravo, SyFy, MSNBC, CNBC, Oxygen, the Weather Channel—the No. 2 Spanish-language network, Telemundo, and 33 local TV stations.
NBCU, in short, is a mammoth content machine. And, Comcast, though chiefly an immensely rich operator of cable pipes, isn’t just the $34 billion-a-year utility whose bill you bellyache about every month. It too covets content. It tried to buy Disney in 2004, and it owns all or part of 20 cable networks, including E! Entertainment Television, Style, G-4, the Golf Channel and a bunch of national and regional sports channels.
And now it wants NBCU. One analyst estimated that combining the content arms of the two companies would bring roughly one-quarter of the country’s TV programming under a single owner. Another said the merged entity would control one of every five hours of programming. Who knows. Clearly, this would be big.
The usual objections to such deals have to do with the outsized economic clout the resulting colossus would wield. Scale emasculates market discipline. When you control access to 24 million homes, you aren’t ruled by prevailing prices, you set them. Recession? Comcast is squeezing $6 more per household now than it was a year ago, and its profits were up 22.5 percent last quarter.
Very nice, but when you own the programs too you can make sure your networks get delivered even when that means elbowing other producers aside. You can strong-arm your competitors—satellite companies, for instance—by threatening to withhold popular networks or forcing them to carry the dogs as well. You can cut deals with other distributors who want the shows they control flowing through your pipes. You get your way.
Naturally, you’ll resist innovation unless you control it. Comcast would get a 30 percent stake in Hulu, the upstart distributor of first-run Hollywood programming via the Internet—a huge potential threat to cable operators. Subscription cable is Comcast’s bread and butter, and a business that makes $944 million on quarterly revenue of $8.8 billion is some business. Comcast will make sure online’s future doesn’t endanger its own.
Sure, the government can demand conditions to keep some of the worst excesses from being realized. Comcast may agree to carry the programs of outsiders on roughly the same terms as its own, may have to shed some NBCU holdings.
But pigs don’t fly. The whole point of vertical integration is to secure unfair advantage, to unlevel the playing field. And besides, since when is avoiding the worst the best we can hope for? It has been longstanding public policy to encourage localism, diversity and competition in the media business. It’s time to dust off that policy and give it some teeth by blocking this ridiculous and dangerous deal.