[Medianews] Is Comcast Too Big?

[George Antunes]

Is Comcast Too Big?
Cable, competitors—and Congress—want to know
By John M. Higgins
Broadcasting & Cable

7/25/2005

http://www.broadcastingcable.com/article/CA628786.html?display=Feature&referral=SUPP



In this story:
A growing chorus
Some forceful arguments
Comcast takeovers
Feel-good fervor
20 million subscribers needed


America Channel President Doron Gorshein says there's one major reason his 
network might face extinction: Comcast.

He claims that the largest cable operator in the U.S. has denied room for 
his new lifestyle network—all the while favoring networks in which it has a 
financial interest.

And without access to the 26.1 million subscribers that Comcast 
controls—more than a third of all cable homes in the U.S.—Gorshein contends 
that it's impossible for his network or others like it to survive. Comcast, 
he says, has “become big enough to unilaterally destroy any independent 
product.”

A Growing Chorus
Gorshein's claims against Comcast and its CEO Brian Roberts are part of a 
growing chorus among programmers and competitors decrying the cable giant's 
market power. Many in Congress and at the Federal Communications Commission 
and Federal Trade Commission are exploring a thorny question: Is Comcast 
too big?

What they decide could have an adverse impact on Comcast that could affect 
the larger cable industry at a time when Washington is seriously 
considering rewriting broad swaths of telecommunications policy.

Comcast is already expected to be one target in a new round of Senate 
hearings on media consolidation that antitrust staffers are quietly 
planning. Programmers and competitors will likely testify soon on the 
company's market power—and questions of abuse.

Meanwhile, the FCC is looking into market-power accusations from the 
Baltimore Orioles. The baseball team's Mid Atlantic Sports Network is armed 
with rights to the new and hot Washington Nationals but can't get carriage 
on Comcast, which dominates the Washington/Baltimore markets. The Orioles' 
network competes with Comcast's own sports network, which will lose rights 
to the team's games in 2007. The two sides are in the middle of a legal 
dispute over the games.

“Comcast is a monopoly that does not like competition,” says Orioles lawyer 
David Frederick, who has filed a complaint with the FCC.

Some Forceful Arguments
DBS rivals DirecTV and EchoStar are making forceful new arguments to the 
FCC about Comcast's national scale and its strategy of clustering cable 
systems. Comcast's local strength could thwart their access to important 
regional sports networks—or at least could increase their cost.

Comcast has long exploited a legal loophole and refused to sell its 
Philadelphia sports channel to satellite companies. One result: Just 8% of 
metro-Philly homes subscribe to DBS, the fourth-lowest penetration rate of 
the 212 Nielsen TV markets and half the average rate of the 10 largest.

Although the government is hardly likely to force Comcast to sell systems, 
the FCC or FTC could impose new rules on how the company deals with 
programmers.

The new scrutiny stems in large part from the planned $17.6 billion sale of 
Adelphia Communications. Comcast and Time Warner have teamed to buy the 5.2 
million-subscriber operator out of Chapter 11. They plan to divide the 
systems, swap ones they already own, and extinguish Comcast's 21% stake in 
Time Warner Entertainment. Comcast will walk away with 2.2 million new 
subscribers; Time Warner, with 3 million.

Time Warner will face scrutiny as well, in part because it, too, is tough 
on programmers. One company advisor, seeking to distance the two operators, 
notes that Time Warner Cable will be half Comcast's size.

Even Comcast acknowledges that its size has made it an inevitable target. 
“Once we acquired AT&T Broadband and we were the No. 1 cable operator,” 
says Comcast Executive VP David Cohen, “you knew that, in anything else we 
did, we were going to have a large spotlight on us.”

Is Comcast too big? Says Cohen, “The answer to that, as a matter of law and 
as a matter of policy, is no.”

The inquiries in Washington will focus an unsympathetic public spotlight on 
the cable industry. Meanwhile, traditional big-media critics—such as the 
Media Access Project and Consumers Union, which have galvanized opposition 
that thwarted FCC attempts to loosen media-ownership rules—are expected to 
weigh in on the power of cable giants Comcast and Time Warner. Critics 
contend that Comcast's drive to buy Walt Disney Co. reflects Roberts' 
ambitions to grow even bigger.

Comcast wields more power than even the mighty Tele-Communications Inc. did 
at the height of its power. Throughout the 1990s, then-CEO John Malone, 
known as the all-powerful “Darth Vader” of cable, was the constant target 
of Congressional inquiries, as well as of competitors' and consumers' 
carping about the power of his cable empire.

Comcast Takeovers
At his peak—before selling out to AT&T in 1998—Malone controlled systems 
serving 18 million subscribers, about 27% of the cable industry, or 23% of 
all cable and DBS homes. Through its own takeovers, Comcast now owns 
Malone's old systems and more: 21.5 million subscribers and equity in 
partnerships serving another 4.6 million. If the Adelphia deal goes 
through, Comcast will have an interest in systems serving 28.3 million 
subscribers. That's 42.5% of all U.S. cable subscribers and 29% of combined 
cable and DBS homes.

“We were big enough that we could help something that was a good idea to 
get going, but we could never kill anybody,” Malone told B&C last April. 
“But there's no way on earth that you can be successful in the U.S. 
distributing a channel that Brian Roberts doesn't carry, particularly if he 
has one that competes with it.”

Starting a programming network is treacherous. Cable and DBS are already 
stuffed with 389 existing programming services, many of those relegated to 
digital tiers. The National Cable Television Association counts another 79 
startups looking to get on. Most are unaffiliated with media giants and 
generally comprise a programming strategy and too little money, like The 
Africa Channel or the Puppy Channel.

With a startup costing at least $60 million, the most important sign of 
life to potential investors is distribution: signed carriage agreements 
with cable and DBS operators. Skating network The Ice Channel has melted; 
Reality 24/7 met harsh realities and has ceased trying to launch a cable 
network.

Feel-Good Fervor
The America Channel is trying to avoid that fate. The network had hoped to 
tap the feel-good fervor swelling up in the country. Gorshein, a lawyer who 
has worked at EchoStar and CNN, sees the network as celebrating “real 
people” who get little acclaim but make certain accomplishments in their 
communities. Think of it as A&E's Biography without the celebs: profiles of 
interesting entrepreneurs and everyday people with interesting lives.

The concept is not as easily grasped as, say, College Sports Television. 
But Gorshein attracted investment of what industry executives pegged at $3 
million, plus support from former CNN news anchor Mary Alice Williams and 
the wife of former colleague Larry King.

He held extensive meetings with cable and DBS executives but struck out, he 
contends, because of his inability to secure carriage from Comcast or Time 
Warner. Gorshein maintains that other cable operators wait to follow the 
two biggest companies' lead. “If you don't get Comcast,” he says, “you're 
not going to get the rest.”

Gorshein says Comcast offered what it offers many new networks: 
video-on-demand carriage. The network will get not a conventional “linear” 
channel but space to offer an array of programming for the operator's 
digital on-demand subscribers. But neither subscribers nor Comcast pay the 
network. It's all free exposure, with the possibility that a network 
creating a VOD following might graduate to a real channel slot later. So 
far, that hasn't happened.

The Anime Network, a Japanese animation channel, was one of the first 
startups willing to settle for space on Comcast's free-VOD service, hoping 
for a real channel later. But talks stalled last fall after Comcast jumped 
into a programming venture with Sony Pictures, backing the Japanese 
studio's bid for MGM. If Comcast help brings Sony's own Asian anime 
service, Animax, to the U.S., will it also make room for Anime Network? 
Kevin McFeely, Anime Network's affiliate sales director, says the company 
is still working on a deal with Comcast, but would not say if it would go 
beyond VOD. Comcast's Cohen says the company hasn't finalized what networks 
it might launch with Sony.

Meanwhile, programmers have grown agitated watching Comcast systems clear 
the way for networks the company partly owns. TV One and G4, for example, 
are getting wide carriage on Comcast's best tiers. PBS Sprout is starting 
off as a VOD channel, but Comcast plans to launch it on more-lucrative 
digital basic next year.

While Comcast executives “sing the praises” of VOD for programmers, 
Gorshein says, “Comcast's adoption rate of its own networks is 100% linear 
carriage.”

Without commenting specifically on America Channel, Cohen says Comcast 
makes programming decisions based on the quality of the content: “You still 
have to generate compelling content that people want.” Protests to the FCC, 
he maintains, “are a tactic for programming negotiation rather than a 
substantive programming complaint.”

To be sure, new channels from major media companies generally offer 
stronger programming and marketing than inexperienced, thinly financed 
startups. Giants like Viacom or NBC Universal can leverage their 
relationships as suppliers of important existing networks.

More directly, Cohen says Comcast is far from the source of America 
Channel's problems. Gorshein has no deals with any major carrier, Cohen 
points out, including his former employer EchoStar.

“The notion that Comcast is the gatekeeper to the content world is not 
true,” Cohen says. “There are 70 million multichannel-video subscribers who 
are not Comcast subscribers; The America Channel has had no success in 
getting carriage on them either.”

20 million subscribers needed
America Channel's FCC filing, however, contends that, while Cohen's 
arithmetic is correct, that's not how it plays out. A basic network needs 
at least 20 million subscribers to draw much advertising.

Of 92 basic networks that have rolled out and secured more than 20 million 
subscribers, “not a single one had achieved the 20 million-household 
milestone without carriage by either Comcast or Time Warner or both,” the 
filing states. “Getting past 25 million has always required Comcast systems.”

Executives at other new cable networks would not discuss Comcast on the 
record for fear of retribution. When staffers at the Senate Antitrust 
subcommittee asked one such executive if she would testify about her 
experiences with Comcast in a hearing on competition in cable, she recalls, 
“I said, 'No way!' I have to deal with these people again.”

But Gorshein says he has little to lose by attacking Comcast: “The market 
needs to take a stand against these practices.”


--------------------------------------[BOXED 
FEATURE]---------------------------------
Big and Bigger

Comcast wields more power than Tele-Communications Inc. in its heyday and 
owns TCI's old systems. Here's how the two operators' reach compares:
                                        TCI (1998)      Comcast (2005)
Basic subscribers                       18 million      28.3 million*
Portion of all U.S. cable homes         27%             42.5%
Portion of all U.S. video homes         23%             29%

*Includes systems from Comcast's Adelphia deal. Subscriber counts are based 
on FCC-defined “attributable ownership,” which includes partnerships the 
companies only partly own. TCI directly owned 14 million subscribers; 
Comcast would own 23.7 million.
Source: FCC



================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923  Fax: 713-743-3927
antunes at uh dot edu


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