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Comcast, NBC deal may model the future

Normally, I'm rather skeptical about mega-mergers, but I find myself rather indifferent about the news that Comcast is buying up NBC Universal.

To begin with, rather than combining two companies that are head-to-head competitors, this deal combines companies that are located at different points of the value chain. NBC is primarily a producer of video content — TV news and entertainment programming, along with movies from its Hollywood studio — while Comcast is primarily a distributor of such content, most of which it buys from somebody else.

It wasn't that long ago that it looked as if all the power was moving downstream to the distributors — cable providers, phone companies and satellite operators — which would extract most of the profit and turn content into a low-margin commodity, or no-margin, in the case of pirated music and free news Web sites.

But as the technology advanced and cable and phone companies invested billions to build and expand their next-generation networks, the competition has now become so intense that those huge profits are now in jeopardy. Now that you can get a bundle of phone, television and Internet service from any number of sources at roughly the same price, the focus is turning back to content, applications and services that can be accessed through these "pipes." Suddenly, it's distribution that's looking like the low-margin commodity and content that is king.

The logic of the Comcast-NBC merger is that by having a strong position in both content and distribution, it won't matter how all this plays out. For both Comcast and NBC, vertical integration is a hedging strategy that will ensure each emerges from the current competitive chaos as a survivor, no matter where on the value chain the profits and power end up.

Given how fast things are changing, and how uncertain the future is, it would be a mistake for the government to step in and stop such a merger on traditional antitrust grounds. Rather, the Justice Department, the Federal Trade Commission and the Federal Communications Commission should use the merger review process as an opportunity to craft a set of regulations for this new media world that would apply not only to Comcast-NBC, but to all competitors.

Broadly speaking, these rules should ensure that consumers can purchase the digital content and services they want, from whomever they want, without having to buy bundles of services or content that they don't want. They should guarantee that independent creators of content have fair and reasonable access to distribution networks of vertically integrated competitors such as Comcast-NBC. They should ensure that independent distribution networks have fair and reasonable access to the content of vertically-integrated competitors. And, yes, they should allow vertically integrated companies that invest in both distribution networks and content creation to earn a competitive return on their risk and their investment.

These are the principles that will ensure that the Internet continues to be a disruptive and democratizing force that lowers costs, stimulates innovation and enhances consumer choice, no matter who merges with whom.

Comcast, NBC deal may model the future 12/06/09 [Last modified: Monday, December 7, 2009 7:40am]

    

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