The Comcast-Time Warner Merger would be a Death Blow to Emerging, Online Video Competition

The Consumer Federation of America released a report, entitled, Buyer and Bottleneck Market Power Make the Comcast-Time Warner Merger “Unapprovable,” that concludes the proposed Comcast-Time Warner merger violates the antitrust laws and the Communications Act by such a wide margin that it cannot be approved.

The report shows that the consent decrees that Comcast entered into with the Department of Justice and the Federal Communications Commission to obtain approval of the Comcast-NBCU transaction are totally inadequate to deal with the immense increase in market power that would result from the proposed Comcast-Time Warner merger.

“Comcast executives have claimed that the proposed merger is ‘approvable’ because the two firms do not compete head-to-head and Comcast agreed to conditions in its acquisition of NBC that address the concerns of federal and state authorities reviewing the merger,” Mark Cooper, CFA’s Director of Research and author of the report, said. “Nothing could be farther from the truth.” Cooper added: “This merger causes such a massive increase in two other forms of market power -- buyer and bottleneck market power -- that it doesn’t just violate the antitrust laws and the Communications Act, it obliterates them.”

The report explains why buyer and bottleneck market power are important in this merger review:

• Comcast would be so large, as a buyer of content, that it would have the power to dictate the prices, terms and conditions, exercising what antitrust calls monopsony power. Because Comcast sells content, it would be more than glad to weaken competition in the market for those products.
• Comcast would have such a huge broadband footprint it would have the ability to undermine online video distribution by raising its rival’s cost, degrading its quality of service, or blocking the delivery of its product altogether, exercising what antitrust calls vertical leverage.
• The weaker horizontal competition is, the more likely it is for the firm with buyer market power to benefit from these abuses.
• By exercising buyer and bottleneck market power Comcast can indirectly enhance its dominance in video distribution.

Buyer market power is judged to be a concern where the market share of the firm is 30% or higher. Mergers are deemed to be “likely to enhance market power” when a substantial increase in market concentration results in a highly concentrated market. The Comcast-Time Warner merger exceeds these thresholds by a wide margin. Cooper concluded: “Competition, consumers and the public interest will be best served if the merger is blocked.”