FORTUNE -- Comcast (CMCSA) executives reportedly believe that if their company decides to make a bid for Time Warner Cable (TWC), it's unlikely the deal would face serious regulatory scrutiny since the two cable giants' geographical markets don't overlap much. In this, those executives are alone. Of course there would be scrutiny, and the Federal Communications Commission might well disallow the acquisition. Or at the very least, the agency would likely impose tight restrictions on such a deal. The problem wouldn't be geography: It would be the enormous power Comcast could wield in the market for TV programming.
Comcast's power is already enormous, but it's not to the point where it can dictate the prices it pays to suppliers, as companies such as Wal-Mart (WMT) and Amazon (AMZN) often can. The suppliers in Comcast's case are of course programmers such as Disney (DIS) and Viacom (VIA). The FCC might not be so worried over how an even-more gargantuan Comcast would treat its customers in terms of subscription rates (which can't go much higher without losing subscribers), but over how the company would treat programmers.
The FCC has been generally liberal in allowing cable tie-ups, mainly because acquisitions have little effect on local competition (since there essentially is none among cable providers). But in this case, the FCC might well decide that acquiring Time Warner Cable would give Comcast "de facto control over what content would be available on television," analyst Craig Moffett of MoffettNathanson Research told Bloomberg News last week. "If a TV programmer couldn't cut a deal with Comcast, they wouldn't exist."
As things stand, Comcast, even with its 21 million subscribers, can't dictate terms to programmers, who in fact have come out ahead in many recent, often bruising negotiations with the cable industry over pricing their video content (just witness the shellacking Time Warner Cable took in its standoff with CBS this past summer). But an acquisition would give Comcast 12 million more subscribers and control over nearly three-quarters of the entire U.S. cable industry. Even if you took into account the satellite and telephone companies that offer pay-TV, as well as other broadband Internet providers that distribute content from Netflix (NFLX), Hulu, YouTube (GOOG), and the like, Comcast would still be serving a third of all U.S. video and broadband customers. Meanwhile, Comcast already owns one the of the nation's largest programmers, NBCUniversal.
If Comcast decides to make a play, it will be going up against Charter Communications (CHTR), which itself has been angling for Time Warner Cable. Cable kingpin John Malone, who in May acquired 27% of Charter, has said that the FCC should allow further consolidation of the cable industry because cable operators need more negotiating power and because of the competition they face from the likes of satellite operators DirecTV (DTV) and Dish (DISH), and phone companies such as AT&T (T) and Verizon (VZ). "As big as Comcast is," Malone said last month, "it has a 25% footprint. You can't buy national programming when you have that kind of footprint."
Each suitor is problematic for Time Warner Cable for different reasons. The company would prefer to be acquired by Comcast, but such a deal might face a long, protracted inquiry by the FCC and possibly fail to win approval. A bid from Charter -- which with only 4 million cable subscribers is a fraction of the size of Comcast -- would be much more likely to pass regulatory muster, but it would have to be highly leveraged. (It was also reported last week that Charter was near to reaching a financing deal with a set of banks). Both Charter and Time Warner Cable are already laden with debt. Comcast's enterprise value is about $168 billion. Charter's is about $28 billion. Comcast has about 40 times as much cash ($1.6 billion) as Charter, according to the companies' most recent balance sheets. Time Warner Cable, the nation's No. 2 cable provider, has an enterprise value of about $61 billion. After Friday's 10% runup in Time Warner Cable shares in the wake of the news about the Comcast bid, Time Warner Cable's market capitalization was at $38 billion.
One possible outcome is joint bid by Comcast and Charter for Time Warner Cable, with each company taking different parts of the company. Reports surfaced late Friday that the two would-be acquirers were discussing just such a plan. That would both make FCC approval more likely and limit the amount of leverage Charter would need.
Another concern from industry critics is the effect an acquisition might have on broadband Internet access. Comcast has been aggressive in its dealings with Netflix and other so-called "over the top" video providers, as well as with some of its own subscribers who watch a lot of video or play bandwidth-hogging online video games. Comcast has done everything it can to work around rules governing net neutrality, which restrict Internet providers from favoring some data flows over others. For instance, net neutrality rules would keep Comcast from, if it wanted to, slowing down Netflix's video feeds relative to the feeds from Comcast's own NBC Network, for example (the consent decree allowing Comcast's acquisition of NBCU also restricts it from favoring its own traffic over that of competitors).
Also, Comcast imposes data caps on its users. Time Warner Cable has so far not done so, but an acquisition by Comcast would likely mean that 12 million more broadband subscribers would have their monthly data allotment limited. A similar issue would likely arise from an acquisition by Charter. The media-focused consumer watchdog group Free Press doesn't want either deal. Combining Comcast and Time Warner Cable would be an "unthinkable deal," the group's research director, S. Derek Turner, told the Los Angeles Times. But also, he said, "Charter and John Malone have stated quite clearly that they think the best way to grow value for their company is by imposing very draconian data caps on their broadband Internet customers."
Rather than improving its service or cutting prices, Comcast has spent big to unseat the mayor of Seattle, who is bringing a city-sponsored high-speed broadband network to his city.
FORTUNE -- When challenged, monopolists, particularly in the communications industry, often tend to work harder to protect their monopolies than they do to improve their services or cut prices (or simply limit price increases). An excellent example of this can be found MOREDan Mitchell, contributor - Nov 1, 2013 4:18 PM ET
If Fox Broadcasting makes good on its threat to yank its signal from the air and go all-cable, it would upend the already-chaotic TV industry.
FORTUNE -- Could it really turn out that a company with a seemingly loopy business model -- capturing over-the-air TV signals and streaming them to subscribers over the Internet -- will be the thing that finally brings down the American broadcasting industry? Quite possibly.
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A filmmaker makes a strong case that the cable guys will never strike a deal with Cupertino
FORTUNE -- Of the 53 responses posted before noon Wednesday to the Wall Street Journal's latest piece about Apple's negotiations with the cable TV operators -- including TechCrunch's "Everyone has known this for months" -- the most nuanced may have been Victor Agreda, Jr.'s Apple's toughest nut yet at TUAW.
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FORTUNE – For most of its history, Netflix had the rare knack of taking bold steps that proved shrewd in retrospect. Then, last year, it famously bungled a series of announcements before eventually righting itself. The company may be taking another misstep: MOREMar 14, 2012 5:00 AM ET
Reed Hastings' disruption tour continues as Netflix weighs ploughing its profits into an original series. "It's not TV, it's HBO" may soon be "It's not HBO, it's Netflix."
Update: 24 hours later, it's official. "Netflix has committed to a minimum of 26 episodes," the press release reads, of "House of Cards." That sounds like 2 seasons worth, and it should begin, um, "airing" in late 2012. Kevin Spacey and David Fincher MOREMichael V. Copeland, Senior Writer - Mar 17, 2011 10:29 AM ET
Every day, the Fortune staff spends hours poring over tech stories, posts, and reviews from all over the Web to keep tabs on the companies that matter. We've assembled the day's most newsworthy bits below.
Dell is switching 1/4 of its 100,000 BlackBerry-toting employees over to the Windows Phone 7-friendly Dell Venue Pro. "Clearly in this decision we are competing with RIM, because we're kicking them out," said company CFO Brian Gladden. MOREJP Mangalindan, Writer - Nov 5, 2010 8:24 AM ET
As cable companies take on Netflix and Hulu with TV Everywhere, they'd do well to remember that where video content is concerned, a polished interface is part of the package, and the main area where they've been beat.
At a time when more than 21 million people now regularly stream film or television content from services like Netflix Instant and Hulu, cable companies still think they have the consumer by the eyeballs, MOREJP Mangalindan, Writer - Oct 14, 2010 3:29 PM ET
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Cablevision's Dolan family is weighing its options again. But while the chilly credit market puts some boundaries on the scope of the Long Island cable company's options, some of the more likely moves include a dividend and a spinoff of its Rainbow Media unit, say analysts.
"We arrive at the view that given the current state of the credit markets and $1.7 billion in maturities [Cablevision faces] next year, the MOREsmoritz - Aug 5, 2008 2:47 PM ET
By Scott Moritz, writer
Seeing no signs that the slowing economy is crimping consumer spending, Verizon (VZ) plans to raise prices on its nascent TV service.
The New York phone giant reported first quarter earnings that met Thomson Financial's analyst estimate but missed the Bloomberg consensus by a penny Monday. On a conference call following the release, the company blamed the loss of a large former MCI business customer for some of the profit weakness.
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