Catlin Gabel School, Catlin Speak
This past Friday, Comcast announced a plan to acquire fellow cable giant Time Warner for a cool $45.2 million. The move gives Comcast an even greater reach over national cable than it had before, with one news site, CableTV, estimating that the service will be available to 70 percent of the national population, compared to the 42 percent before the merger.
The Federal Communications Commission (FCC), the organization that deals with such matters, still has to approve the buyout, which is proposed as solely a stock-based move. It also has to pass before the U.S. Department of Justice (USDOJ), the office responsible for anti-trust regulation. Though it jumped 6.8 percent after the deal was announced, Time Warner’s current share price, $144.50, pales in comparison to the $158.82 per share Comcast is willing to pay.
The FCC ultimately needs to decide if the move is beneficial to the American consumer. Although there are many who think it is unlikely to go through, similar thoughts were given to Comcast’s purchase of NBC Universal, which passed uninhibited through the legal process.
Comcast has become famous in recent years for its poor public perception, and their continued rise in the cable world has some detractors nervous. The company maintains that the merger will be a boon to cable users, as current Time Warner customers will gain access to Comcast’s advanced technology. They also have promoted the fact that it will improve broadband speeds over time, though it is unclear exactly how.
The move comes in response to low-ball efforts from Charter Cable to purchase Time Warner. The smaller brand offered about $132.50 per share, which was quickly rejected by Time, which was confident it could get a better offer. Time is a valuable brand, as it holds value in large markets like New York City, Dallas, and Los Angeles. They also have television contracts to the L.A. Lakers, the L.A. Dodgers, and the New York Knicks. The brand is particularly appealing to Comcast, as none of the two companies’ markets overlap.
The FCC is wary of companies that move towards larger and larger market shares, but size alone has rarely been reason to cancel mergers. Still, it has been known to happen. AT&T attempted to buy rival phone service company T-Mobile in 2011, but the move was denied by the USDOJ on the grounds that AT&T would then hold too much sway over the cellular service market, eventually, in the DOJ’s own words, leading to “higher prices, fewer choices and less innovation.”
If it is to such standards that the USDOJ and FCC are holding companies, many argue that to allow this new merger would be hypocritical, and would go against many of the purposes of those regulatory organizations. While the move was a no-brainer for Comcast, which saw an opportunity for expansion both regionally and into the sports market, the buyout will require much evaluation from the federal government.