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Why the Comcast-NBCU Acquisition is Possible: A Glance at Recent History December 7, 2009

Posted by kamilla in 1.
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Many analysts have identified the proposed acquisition between Comcast and NBC Universal (NBCU) as the first example of vertical integration in the communications marketplace of the Digital Age. Few have pointed out, however, that the regulatory framework that allows for such an unprecedented combination of assets is also a 21st century phenomenon. Less than a decade ago, this combination would have been against Federal Communications Commission (FCC) regulations – indeed, it would have been merely a business executive’s dream. What makes this acquisition attempt possible today is the drastic, systematic deregulation in media policy that has taken place over the last 20 years.

If allowed to go through, the Comcast-NBCU deal would result in unprecedented consolidation in media. For the first time, it would allow a single company to control both the cable system and a broadcast station in a dozen of the largest U.S. media markets. Folks living in Boston, Philadelphia, Chicago, Washington, San Francisco, and other major cities would receive their household cable hookup from the same source that runs their local NBC broadcast station. As a result, Comcast would be more tempted to discriminate against its competitors online by charging higher fees to rival cable providers for access to NBC content, or by blocking the access of other programmers to its network, as it has attempted to do in the past. Comcast customers could also be left with higher monthly cable bills.

No company in history has enjoyed such extensive powers of control over how the public shares and receives information, and how that information is produced. Why is a deal like this being considered now? Not as a result of pure coincidence. Before 2002, federal regulations prohibited exactly such business arrangements.

In 1970, the FCC put in place the Cable-Broadcast Cross-Ownership (CBCO) Rule to ensure the preservation of competition in broadcast media ownership. The Rule was intended to ensure that cable operators would not be able to leverage their market power by favoring the carriage of their own broadcast content over content owned by other broadcasters. Thus, the Rule ensured that audiences would receive a diversity of programming, to the extent possible under the existing market framework.  CBCO codified pre-1970 protections against cross-ownership and served the public interest in this regard for most of the following three decades.

The 1996 passage of the Telecommunications Act, however, laid the groundwork for massive deregulation in media ownership. Among other directives, Congress mandated that the FCC review and reconfirm the efficacy of all broadcast media ownership rules on a biennial basis (later modified to take place every four years). At face value, these reviews may have seemed useful to Congressional lawmakers – but in practice, they provided broadcasters with the ability to scrutinize and attack these important public interest policies on a regular schedule.

It didn’t take long for industry lobbyists to use this convenient loophole to begin a full-on war against media ownership protections.

While the FCC continued to treat the ownership review process as a mundane, procedural reporting requirement, in 2002, Time Warner caught the FCC off-guard in court by presenting an all-out challenge against the Rule. The cable provider convinced a panel of conservative judges to reverse the FCC’s 1998 decision, which saw the CBCO Rule as essential to preserve competition and protect diversity and local programming.

With the CBCO Rule out of the way, Comcast in particular began to explore cable-broadcast mergers almost immediately. In 2004, the company attempted, but failed, to undertake a hostile takeover of ABC-owner Disney. A combination with NBCU is the first time that a cable-broadcast cross-ownership deal would be put to the test – and with it, the intentions of Comcast to protect diversity, competition, and the public interest would be tested as well.

Precedent in this regard is no cause for optimism. Not long ago, Comcast was reprimanded by the FCC for blocking BitTorrent applications in an anticompetitive manner, without informing its customers. The company recently created Xfinity, a means by which some online video can be accessed only via a Comcast cable subscription. Comcast has even intervened with the application for economic stimulus funding to develop broadband in underserved areas of its own hometown of Philadelphia. Clearly attempting to forgo any threat of competition, the company has argued that it adequately serves the entire city with broadband services, despite strong arguments to the contrary by local residents and community associations. (Comcast also tried to shut out Verizon from wiring the city for FiOS service.) These and other infringements are why Media Access ProjectFree PressConsumer Federation of AmericaConsumers Union, and other public interest organizations are opposed to and concerned about this merger.

The moral of this short glance at recent telecommunications history is that Comcast-NBCU and deals like it aren’t mere inevitable next steps in the media business. Less than a decade ago, the federal government considered such transactions to be against FCC rules and threatening to the free flow of information to American citizens. But the strength of our nation’s media ownership protections is now but a shadow of its recent past.

The Obama administration and Congressional lawmakers must turn back the tidal wave of mergers and deregulation of the last 20 years. They must recognize the serious threat posed by Comcast-NBCU to consumer welfare, civic participation, and local and  independent media production – and they must stand up against this acquisition.

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