The initial reaction to media mega-mergers is typically a mix of fear and dread with calls for regulatory intervention — and that's certainly true of Comcast's recently announced acquisition of Time Warner Cable. But if there's one thing previous mega-mergers teach us, it's that the worst fears never materialize. Unforeseen competition, platforms and technologies emerge that disrupt five-year business plans, or the deals just unravel when elusive "synergies" fail to develop.
For example, 14 years ago, predictions of doom and "new totalitarianisms" surrounded the merger of AOL and Time Warner. Fearing that AOL might soon monopolize instant messaging and Internet connectivity, regulators strapped the deal with various conditions.
Within just a few years, however, the deal ended in abject failure and eventual divorce after shareholders absorbed over $100 billion in losses. New networking technologies and broadband platforms caught AOL off guard, but AOL wasn't the only loser in the merger sweepstakes at the time. In 1999, with acquisitions totaling more than $100 billion, AT&T Broadband was the largest cable operator in the country. Three years later, after hemorrhaging billions, it sold off the cable unit for less than half that. Any high-profile merger could fail, just as AT&T Broadband and AOL-Time Warner did.
While every merging party predicts huge savings from combination, nothing is certain in competitive markets. NBC, which Comcast acquired in a high-profile deal just three years ago, is still struggling. During last year's February sweeps it finished fifth — behind Spanish-language Univision.
But the competition we should really care about isn't between Comcast and TWC; rather it's between completely different modes of delivering service to consumers.
Today's competition comes from wireless broadband networks owned by telecom giants. For young people in particular, a smartphone is their screen of choice. Further, telecom operators continue to upgrade their networks with fiber, like Verizon's FiOS and AT&T's U-verse, and with G.fast — a new technology standard that brings gigabit speeds to DSL.
Merger review is an important process, but regulators may stymie competition if they get bogged down in the 20th century's market divisions. The digital convergence means traditional telephone, television and Internet operators are entering each other's markets. Market power in high technology has never been more precarious, particularly as companies like Netflix, Google, and broadcast and cable programmers gain leverage over Internet Service Providers and cable companies by offering popular content.
Regulators should embrace these dynamics because — as AOL-Time Warner and AT&T Broadband made clear — markets are unpredictable. Doomsaying should not be a substitute for regulatory humility.
Brent Skorup and Adam Thierer are research fellows with the Mercatus Center at George Mason University.