For Many, No Upside In Either Disney or Comcast Deal for Fox

Many media and telecom interests concerned about consolidation tell us Disney and Comcast's duel for Fox's non-broadcast assets (see 1806130036) presents equally unappealing options. Programmers, especially small ones, have concerns about either deal, Public Knowledge Senior Counsel John Bergmayer said. Disney/Fox would be "absolutely horrible," Comcast/Fox even worse, said American Cable Association President Matt Polka. Comcast rejected such assertions. Wednesday, Disney upped its bid, topping a competing one from Comcast (see 1806200015).

Both deals are bad for competition and the public, but Comcast probably has more opportunity for harm in more ways, since it's a broadband provider and a buyer and seller of content, said Bergmayer. Comcast also will emerge from its NBCUniversal consent decree this fall, and there's not much known about how it would have acted without those constraints, he said. He said marrying the NBCU arm of Comcast with Fox is a classic horizontal deal, with New Comcast ending up with more bargaining leverage to demand higher prices or bundled content, "taking the air out of the room for independent programmers."

Both potential deals pose significant competitive harm, but Comcast -- being vertically integrated -- heightens that since it competes with other MVPDs, said Polka. He said before Comcast/Fox, ACA was making its case to DOJ that Disney/Fox would give it outsized control of national cable programming and regional sports networks, opening the door to higher prices and increased bundling. Comcast/Fox raises those same issues, Polka said, saying when companies that own content merge, they generally use those assets to extract more money from cable operators and consumers and to increase bundling requirements. "Deals of this size, I don't see how a court doesn't see them running afoul of antitrust rules," he said.

With the ratings decline at Disney's ESPN, acquiring RSNs "would be incredibly important" for Disney as it looks to ramp up pricing and tie that RSN content to sports bundles, Polka said. Disney didn't comment. Comcast behavior in recent years was reined in by the NBCU consent decree, but unfettered Comcast can do what it wants and small MVPDs already anticipate being treated unfairly given that they have no leverage, he said.

The head of an independent programmer said Comcast/Fox carries more concerns because as a distributor, it can favor its own programming over nonaffiliated content. The CEO said Comcast has plenty of enemies in Washington over past issues, including powerful consumer advocacy groups, and thus a Disney deal could have an easier and quicker time in regulatory review.

Comcast seems particularly blase about the programming needs of rural America, and a Comcast/Fox would exacerbate that, said RFD-TV founder Patrick Gottsch. Comcast recently dropped RFD, and rural programming potentially could be a big part of Comcast/Fox discussions, Gottsch said. Comcast "just isn't going to serve rural America if it's not a term or condition," he said.

Some Fans

Comcast also has fans. It has a proven track record of supporting indies and giving them opportunities to get carriage, said Ride TV Network CEO Michael Fletcher. Disney conversely has used retransmission consent and forced bundling to launch many of its channels, to the detriment of rival networks, Fletcher said. He said Comcast's integrating over-the-top services into its X1 platform shows it isn't trying to restrict access but to improve consumer choice. He said if Comcast were just a programmer and broadcaster, Ride might have a different take, but Comcast's ISP wing is proof of its investment in technology and delivering IP to the home, which then points to programmers having a better shot of getting into those homes. Disney is "trying to gobble up the bandwidth and drive up programming fees," he said. Comcast carries Ride.

At first glance, both proposed deals “are about equally bad” for content creators and consumers, said Writers Guild of America West Senior Director-Public Policy and Research Ellen Stutzman. Fox is a significant TV and movie workforce employer, and either Comcast or Disney as owner would be a huge firm controlling a massive amount of the writer workforce, she said. But Disney/Fox might be arguably worse for the motion picture market since Disney already “goes the extreme” of relying on franchises, remakes and sequels while cutting back on feature film output, she said.

Fox continues to release the same number of films it did five or 10 years ago, but that likely would change under Disney’s “less is more strategy,” Stutzman said. Disney also has big leverage in the motion picture distribution market, and the addition of Fox would give it even more power to claim more screens when one of its films comes out, or to get guarantees of longer theatrical runs from theater chains, all of which crowds out competing films, Stutzman said. She said the TV industry has had increased competition in recent years with more outlets and increased amounts of programming, but consolidation like the Fox deal could ultimately affect output and consumer choice.

Comcast Responds

Comcast said the feature film market is dynamic and competitive, but Disney/Fox would create a vastly larger competitor than it and Fox would, and Disney/Fox would have a stranglehold over several iconic franchises like Star Wars and the Marvel Comics cinematic Universe. It said the number of additional TV entrants and outlets dwarfs any consolidation. It said domestically, the two Fox cable networks involved aren't top 20 in ratings and aren't must-have programming. It said one of the DOJ's worries about AT&T/Time Warner was AT&T's national footprint, but Comcast doesn't have national distribution, instead having 22 million residential video customers of 120 million TV homes it passes.

The operator said incentive to favor its own content would be limited to those 22 million homes and a bigger company priority is wide-as-possible NBCU content distribution. It said no program access complaints were filed against it in the past seven years. It said most of its cable programming is unaffiliated, with 100 networks aimed at diverse audiences. And it said it still carries RFD-TV's Cowboy Network in some markets.

Disney and Comcast would seek to optimize content value in buying Fox, though they would have notably different strategies for doing so, said Joel Espelien, vice president at mergers and acquisitions advisory firm Corum Group. Disney's embracing of direct-to-consumer streaming makes Hulu control "the crown jewel" of a Fox deal, he said. Comcast may experiment with streaming, but it has a big legacy cable business and networks and will likely take a more traditional approach when dealing with other content companies and MVPDs, he said. Comcast “is more the defender of the status quo,” Espelien said, saying how content companies and MVPDs see a Comcast/Fox would depend largely on individual strategies of those companies.

Espelien said antitrust approval of either deal should be relatively smooth. He said either company needs only to point to Apple, Facebook, Google and Netflix to make the case of not having dominant market share.