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Could OTT Video Derail Comcast-Time Warner Cable Merger?

20 Apr, 2015 By: Erik Gruenwedel

Ever since Comcast announced its $45.2 billion acquisition of Time Warner Cable on Feb. 13, 2014, opponents have contended the union would give Comcast too much control of the Internet into domestic households.

Nearly a year-and-a-half later, concerns over Comcast becoming the top Internet service provider has taken on new meaning as over-the-top video services proliferate on the home entertainment landscape.

Indeed, as lawyers at the U.S. Department of Justice and the Federal Communications Commission reportedly up regulatory issues about the merger, scuttlebutt suggests the deal could fall apart. At issue is the spate of new online streaming services that would increasingly rely on a merged Comcast/TWC to deliver video to their subscribers.

With Dish Network’s February launch of Sling TV, followed by Sony’s PlayStation Vue, HBO Now and pending OTT services from Verizon, Showtime and Apple later this year, the threat to the traditional bundled pay-TV ecosystem — Comcast’s main revenue stream — is snowballing.

While Comcast’s Xfinity Digital Store has made strong inroads against Apple iTunes as a go-to source for Digital HD movies and TV shows, its Xfinity Streampix subscription streaming service remains a largely ignored Netflix alternative for the cabler’s broadband subscribers.

But that could change should Comcast win regulatory approval and emerge in control of 57% of the nation’s broadband infrastructure. That control would in effect become a default safeguard for Comcast should the pay-TV ecosystem deteriorate beyond the current 10 million broadband-only households.

The FCC, according to The Wall Street Journal, is considering holding a hearing on the merger, which to some observers means an end to the deal.

“Mergers are never put to hearing in order to approve them. They are designated for a hearing in order to kill them,” former FCC commissioner Robert McDowell told the Journal.

Indeed, as OTT video has evolved into a priority, with Internet distribution becoming a utility, there is growing angst within the tech community, media companies and consumer groups about a combined Comcast/TWC.

Meanwhile, with the White House’s aggressive support for new net neutrality guidelines seen by many as a catalyst for the FCC’s new open Internet ruling, similar political support for combining the top two cable companies isn’t expected, according to Richard Greenfield, analyst with BTIG Research in New York.

Specifically, the analyst cites changing political winds, consumer group protests and ongoing Congressional investigations about whether President Obama interfered with the FCC regarding net neutrality.

“We believe the White House will not come to Comcast’s rescue,” Greenfield wrote in an April 20 blog post.

Among those caught in the crossfire are baseball fans in Los Angeles, where more than 70% of the market can't access Dodgers games that are broadcast exclusively on the SportsNet L.A. regional sports channel managed by Time Warner Cable, which is paying $8 billion to the team over 25 years. When the channel launched in early 2014, MVPDs in the area balked at TWC's asking price of up to $5 per subscriber to carry the channel. Negotiations have since halted as all eyes focus on the potential Comcast-TWC merger, with speculation that a larger Comcast would write off the cost of the channel and offer it to competing MVPDs at a greatly reduced carriage fee. Thus, attempts to halt the merger would prolong the suffering of Dodgers fans as the channel remains limited to Time Warner Cable subscribers.



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