Reference no: EM133215361

"In  February  2014,  Comcast  and  Time  Warner  announced their intention to merge-a deal worth about $45 billion. The merger would form the largest cable TV and Internet provider in the United States and en-able the company to control 27 of  the top 30 markets in the United States, and three-fourths of  the overall cable  market.  The  merger  first  had  to  be  approved,  however, by the Department of  Justice (to assess an-titrust  concerns)  and  the  Federal  Communications  Commission (the FCC, which evaluates media deals to assess their influence on the public interest).

Comcast  and  Time-Warner  argued  that  the  deal  would  not  significantly  influence  competition  in  the  cable  industry  because  the  companies  operated  in  nonoverlapping  geographic  markets,  so  customers  would  not  be  losing  an  option  for  getting  cable service. They also argued that the merger would enable the  companies  to  make  investments  that  would provide customers  with  faster  broadband,  greater  net-work  reliability  and  security,  better  in-home  Wi-Fi,  and greater Video on Demand choices. As argued by David Cohen, Comcast's executive vice president, in front of  a Senate panel: "I can make you and the members of   this  committee  one  absolute  commitment,  which is that there is nothing in this transaction that will cause anybody's cable bills to go up." 

Opponents  of   the  merger,  however,  argued  that  the  size  and  scale  of   the  merged  company  would  make  the  company  dangerously  powerful  (particularly given that Comcast had recently acquired NBC Universal).  Whereas  the  merger  might  not  change  the cable options available for end consumers, it definitely would change the options available for content providers such as Disney and Viacom, or on-demand programming  providers  such  as  Netflix,  Cinema  Now, Hulu, and others. The merged company's over-whelming  bargaining  power  over  suppliers  could  also create cost advantages other TV or Internet providers might be unable to match, thereby enabling it to  squeeze  competitors  out  of   the  market.  For example,  satellite  operator  Dish  Network  argued  that  the combined company would be able to use its size to  force  providers  of   content  to  lower  their  prices,  and  that  companies  such  as  Dish  Network  would  be  at  a  competitive  disadvantage.  Dish  also  argued  that  the  merged  company  might  undermine  video  services  such  as  Netflix  or  Cinema  Now  by  altering streaming speeds either at the "last mile" of  the Internet  (where  it  is  delivered  into  people's  homes)  or  at  interconnection  points  between  Internet  providers.  Netflix  noted  that  Comcast  had  already required the  Netflix  to  pay  "terminating  access  fees"  to  ensure  that  customers  did  not  get  a  downgraded  signal. If  the cable companies downgraded the signal for on-demand providers, customers would abandon services like Netflix and turn to on-demand options the cable operators themselves were providing. Senator Al Franken pointed out that when Comcast had acquired  NBC  Universal  in  2010,  it  had  defended  that  vertical  integration  move  by  referring  to  Time  Warner as a fierce competitor. "Comcast can't have it both ways," Franken argued. "It can't say that the existence of  competition among distributors, including Time Warner Cable, was a reason to approve the NBC deal in 2010 and then turn around a few years later and say the absence of  competition with Time Warner Cable is reason to approve this deal." 

For Brian Roberts, CEO and chairman of  Comcast, the merger would be yet another milestone in the megadeal acquisition spree he has used to grow the  company  into  a  $68-billion  media  behemoth.  The  deal  was  a  more  nuanced  proposition  for  Robert Marcus, who had been CEO at Time Warner Cable for less than 2 months when the deal was announced: He would get a $79.9-million severance payoff  to walk away. The investment bankers advis-ing the deal also stood to rake in $140 million in fees. After a year of  reviewing the proposed merger, the Department  of   Justice  announced  that  it  planned  to  file  an  antitrust  lawsuit  against  the  merger,  cit-ing the reduction of  competition in the broadband and  cable  industries  that  would  result.  Thus,  on  April  24,  2015,  Comcast  announced  that  it  would  no longer seek to acquire Time Warner Cable.

1. What  do  you  think  are  the  advantages  and  disadvantages of vertical integration between content producers and distributors? 
2. Do  you  think  both  of  these  companies  were  above  minimum  efficient  scale?  If  so,  what  does  that  suggest  about  whether  and  where  they would reap savings from the merger?
3. Do  you  think  this  merger  would  have  been  good for consumers? Why or why not?