If Comcast Loses, Millennials Win
December 17, 2014 | By Neil Howe
This editorial originally appeared in Forbes.
Last month, President Obama released a statement directed at the FCC in favor of net neutrality. In it, he threw his support behind reclassifying Internet service as a utility—a move that has raised new concerns about the proposed $45 billion merger between media giants Comcast and Time Warner Cable. As the pressure ramps up on the FCC to rule on net neutrality, regulators there are also tasked with assessing the merger’s impact on the public interest while the Department of Justice reviews the deal on antitrust grounds. They will decide whether Comcast becomes the primary gatekeeper of the television and Internet businesses in America—a move that would pit them squarely against a gathering generational tide that’s pushing for the opposite.
To garner support, Comcast is touting the merger as a win for consumers. As part of an extensive lobbying campaign, advocates have cited the prospects of higher broadband speeds and faster implementation of new technologies. Comcast also argues that the merger wouldn’t result in any loss of competition, since it doesn’t compete with TWC in any market. Needless to say, however, Comcast and TWC have the most to gain if the deal goes through—along with Charter Communications, which has struck a deal with Comcast to buy a significant share of the subscribers the company is divesting to placate regulators.
But critics contend that the resulting company would wield enormous power over the nation’s high-speed Internet. Though consumers might have other options for pay-TV, cable companies are often the only available broadband providers. According to one government study, 74 percent of Americans have access to one provider at most that offers modern-standard 25Mbps service.
This distinction matters because broadband is increasingly viewed as the future of content delivery. More consumers are dropping their cable subscriptions in favor of streaming movies and TV shows through online alternatives like Hulu, Netflix, Amazon, and YouTube, as a handful of networks—namely HBO and CBS—plan or have begun to offer their content directly through new “unbundled” options.
While the overall number of cord-cutters may seem like a drop in the bucket, surveys suggest that those numbers will only accelerate under the up-and-coming generation of Millennial consumers. According to ComScore, fully 24 percent of 18- to 34-year-olds don’t subscribe to a pay-TV service. Half of that share has cut the cord, while the remainder never subscribed in the first place. This sets the stage for a new media landscape that the oldest Americans are largely ignoring—but young adults simply assume will one day overtake the current model. It also previews an ecosystem where high-speed Internet may trump cable TV as the more strategic business. And if the same company offers both the only reliable cable as well as the only Internet, then the migration of content away from cable means that consumers don’t gain anything.
Central to this issue is the ongoing debate over net neutrality. The Wall Street Journal recently reported that FCC chairman Tom Wheeler is considering a “hybrid” solution. This approach would treat business-facing aspects of broadband providers as common carriers but leave consumer-facing aspects more lightly regulated. Neither side, however, seems pleased with this compromise. Obama’s announcement only emboldened net-neutrality supporters—largely fellow Democrats and Silicon Valley players—to continue pushing for a flat ban on paid prioritization while sparking backlash from broadband providers and congressional Republicans, who issued a letter challenging the FCC’s authority on this issue.
The FCC chairman has also expressed concern over the nation’s lack of broadband competition. In a speech to the cable industry in September, Wheeler said that the agency is committed to protecting competition, particularly in underserved areas like rural America—and that it is generally opposed to merger efforts in the broadband industry.
Finally, the merger has been met with overwhelming public disapproval. According to Consumer Reports, fully 74% of Americans agree strongly or somewhat that this prospect means that “all consumers are more likely to pay more for cable and Internet.” Only 16% agree that it “will allow [these companies] to operate more efficiently and lower prices for consumers.” What’s more, the public strongly supports net neutrality: In a recent survey from the University of Delaware’s Center for Political Communication, 81% of respondents overall said that they oppose the creation of so-called “fast lanes” by broadband providers. This sentiment tilts mildly towards the young: 50% of 18- to 24-year-olds “strongly oppose” this idea, along with 48% of 35- to 44-year-olds and 38% of 55- to 64-year-olds.
Comcast’s bid, in other words, is far from a sure thing—which is surely a relief for content providers as well as its direct competitors. Should the merger fail, the clearest winners would be standalone content providers like Netflix, who would no longer face the threat of higher fees, at least for the time being. Also benefiting would be satellite providers like Dish Network, whose success relies on keeping their cable rivals at bay (though longer term, it’s likely that satellite will struggle in a broadband world regardless).
The uncertainty has put investors on edge. Typically, after a merger is announced, the adjusted share prices of the parties involved should converge. Yet since early September, the gap between Comcast’s and TWC’s has actually widened. In addition, their respective stock prices fell following Obama’s announcement.
So what happens next? How regulators will rule remains up in the air: The Department of Justice has not released a timeline for its antitrust assessment, while the FCC has pushed back its decision on net neutrality to 2015. Should either of these decisions not go Comcast’s way, the company may still be able to back out of the merger, and the forces splintering the traditional gated television ecosystem will continue pushing forward. A successful merger, on the other hand, would usher in a new era for the broadband business and essentially block more content from straying outside cable’s walls—much to the dismay of a public, particularly Millennials, who are ready for an ungated model.