08.30.2018 0

ALG President Rick Manning pens letter to DOJ Antitrust Division

The Honorable Makan Delrahim
Assistant Attorney General
Antitrust Division

Dear Mr. Delrahim:

We share your concerns about the harms of so-called “vertical integration” in the video industry and applaud your willingness to address those harms by seeking to block the AT&T/Time Warner merger. When a video distributor (like AT&T) controls popular programming (like Time Warner), it harms rival distributors by withholding or threatening to withhold that programming.

We write because another instance of vertical integration—between Comcast and NBC Universal—threatens to cause exactly the same harm you cited in the AT&T/Time Warner case, now that the conditions imposed by the FCC in 2011 have expired.  Indeed, we believe that an unconstrained Comcast/NBCU will cause harm dwarfing that of the AT&T/Time Warner combination. We thus urge an open investigation into the Comcast/NBCU combination. We expect that any such investigation would find that Comcast/NBCU is harming consumer welfare and should either be broken up or have the FCC conditions re-imposed upon it.

As you argued in the AT&T/Time Warner case, vertical integration allows a programmer to increase programming prices to a rival because its bargaining leverage over programming increases. The following three factors will increase the profitability of withholding programming and thus result in more bargaining leverage and greater competitive harm:

  • The importance of the programming to consumers, which determines the number of subscribers that will depart the rival if programming is withheld;
  • The vertically integrated distributor’s market share, which determines the share of disconnecting consumers that will sign up with the vertically integrated firm; and
  • The profit that the vertically integrated distributor earns on each new subscriber.

On each score, the Obama Administration-approved Comcast/NBCU merger is far more dangerous to Comcast’s distribution rivals than the AT&T/Time Warner combination is to AT&T’s distribution.

  • Comcast/NBCU programming is significantly more important to consumers than is Time Warner’s programming. While the national programming of both cable distributors may be similar, Comcast/NBCU owns many widely considered “must-have” television broadcast stations and regional sports networks (RSNs). Time Warner, by contrast, owns no broadcast stations or RSNs.
  • In the markets where Comcast owns these local stations and RSNs, Comcast’s market share is on average greater than 50%, compared to AT&T/Time Warner national market share which is about 25%.
  • Comcast would profit much more from acquiring a rival’s subscriber than AT&T/Time Warner because Comcast can sell all new customers video and wireline broadband. AT&T/Time Warner only has that capability in limited areas.

Accordingly, because Comcast has much more to gain from NBCU’s programming price increases than AT&T would from Time Warner’s, the competitive harm it will cause is much greater

Of course, none of this diminishes the considerable harm that will ensue as a result of AT&T/Time Warner’s consolidation. We support your efforts to block that transaction. We would also note that, due in part to your efforts, AT&T has agreed to submit to a binding arbitration commitment based on a now-expired FCC condition on Comcast/NBCU.

Now that Comcast/NBCU is no longer subject to the FCC’s conditions, the potential for an even greater harm looms. Accordingly, we urge you to open an investigation into the practices of Comcast/NBCU and to adopt, as necessary, measures to limit the harm as the federal courts decide the legality of vertically integrated media giants. At the very least, to create a level playing field, you should consider subjecting Comcast/NBCU to the same binding arbitration remedy effectively accepted by AT&T/Time Warner.

We look forward to continuing to work with the DOJ as it continues its oversight and enforcement of the nation’s antitrust laws.

Sincerely,

Richard M. Manning
President

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