If you haven’t been paying attention to the Comcast-NBC Universal merger, here’s a reason to: A good fight has broken out!

It starts with Mark Cooper, Director of Research at the Consumer Federation of America, who testified against the merger to the House Commerce Committee’s Subcommittee on Communications, Technology, and the Internet on behalf of CFA, Free Press, and Consumers Union.

The merger has so many anti-competitive, anti-consumer, and anti-social effects that it cannot be fixed,” says Cooper.

Cato Adjunct Scholar Richard Epstein lays into Cooper’s testimony with aplomb: ”Dr. Cooper has achieved a rare feat. The evidence that he presents against this proposed merger suffices to explain emphatically why it ought to be approved.”

And in a second commentary, Epstein ladles out another helping of humble pie to Cooper, concluding:

The cumbersome Soviet-style review process that Mr. Cooper advocates does no good for the consumers who he purports to represent. It only shows how far out of touch he is with the basics of antitrust theory as they relate to the particulars of the telecommunication market.

Maybe Cooper will have a rejoinder. But until then, I’ll just note that the best fights are the ones that your guy wins.

I testified this morning in the House Energy and Commerce Committee’s Subcommittee on Communications, Technology, and the Internet at a hearing titled, “An Examination of the Proposed Combination of Comcast and NBC Universal.” Among those testifying were Comcast Chairman and CEO Brian L. Roberts, and NBC Universal President and CEO Jeff Zucker.  Down below I have attached my brief remarks (we only had 5 minutes), but see the Scribd doc at the very bottom to also see the embedded charts. I also wrote a paper about the proposed deal back in December entitled, “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC” as well as this editorial for Forbes.

____________

Mr. Chairman and members of the Committee, thank you for inviting me here today. My name is Adam Thierer and I am the President of The Progress & Freedom Foundation (PFF).

Although we are still early in this process, there has already been a great deal of hand-wringing and even some dire predictions about the pending merger of Comcast and NBC Universal. I hope to put this proposed marriage in some historical context and explain why the deal certainly won’t have the detrimental impact some critics fear, and also explain why it might even be one potential model for how to sustain traditional media going forward.

Beware Media Merger Hysteria

First, let’s remember that we’ve been here before. Paranoid predictions of a media apocalypse have accompanied the announcements of many previous media mergers, from AOL-Time Warner to News Corp.-DirecTV to XM-Sirius.[i] In these cases and almost all others, however, the “sky is falling” claims proved to be greatly overstated.[ii] The only “harm” that one could reasonably claim came from those mergers was not to consumers or content providers, but to the merging firms themselves and their shareholders. That’s because many mergers simply fail to create the sort of synergies and benefits originally hoped for and consequently die of natural causes over time.

Other firms, however, have found ways to make deals work and deliver important new services that previously were unimaginable or simply too expensive to offer alone.[iii] Regardless, the point here is that we’ll never know what works unless we permit marketplace experimentation with new and innovative business models.

“Gatekeeper” Myths: Why Restricting Content Options is Economic Suicide

Second, the fear that Comcast-NBCU will act as a “gatekeeper” over video content is also largely overblown—especially in light of the preemptive concessions they have already made on program access and carriage. But it’s important to realize that the merger will only marginally affect vertical integration in the cable marketplace. Currently, the percentage of cable channels owned by video distributors is in the single digits, and even after this merger it will only be in the teens.[iv] (See Exhibit 1) Stated differently, the vast majority of cable channels will be independent of Comcast-NBCU control.

More importantly, it’s hard to believe the new firm would restrict its content to just Comcast-owned distribution networks since they would be losing the eyeballs, advertisers, and revenues that would accompany the carriage of their content on other video platforms. Likewise, it would make little sense for the firm to block new or competing channels on their own platform since they would incur the wrath of the programmers and the viewing public alike. And those channels will likely quickly find a home elsewhere, which could incentivize subscribers to switch video service providers. (See Exhibits 2-6)

Indeed, the great thing about the modern media marketplace is that there is always another place for consumers to turn to find what they want. Comcast faces increasingly robust competition in the video programming marketplace from satellite and telco providers, as well as from Internet-based video providers.^[v] (See Exhibit 7) And NBC Universal’s stable of programming, while impressive, is a mere trickle in an ocean of content that consumers can choose from.^[vi]

Meanwhile, many consumers are increasingly “cutting the cable cord” altogether and instead getting the video they want from a bewildering array of online video services.[vii] Netflix, Hulu, Joost, Roku, Apple, the Sony PlayStation Store, the Microsoft Xbox store, and others offer traditional TV fare while sites like YouTube, Vimeo and Justin.TV offer a mix of professional and amateur content.

In sum, there has never been so much competition for our eyes and ears, and audiences and advertising dollars have become increasingly fragmented as a result.[viii] (See Exhibits 8-10)

What Future for Broadcasting & Local News in Turbulent Times?

Finally, we need to realize that the ongoing digital revolution is upending many traditional media business models—especially advertising supported over-the-air broadcasting—and that alliances like Comcast-NBCU may be one blueprint for how traditional media operators can evolve and compete going forward.  With both the FCC and FTC currently investigating whether journalism is in trouble and what it might take to “save the news,” many media economists and industry analysts seem to agree that at least some degree of consolidation or collaboration might be necessary.

Consider last week’s news that NBC Universal saw quarterly profits plunge by a whopping 30% in the fourth quarter of 2009.[ix] This is indicative of the general downturn the entire media sector has been experiencing as of late.  Why not then let Comcast help NBCU try to get back on track rather than force them to make it on their own in a radically uncertain future?  And it goes without saying that Comcast might be better positioned to protect NBC Universal’s copyrighted content from digital piracy, at least over its own pipes.

Those who are concerned about the future of broadcasting and local news should remember that news—and local broadcast news in particular—isn’t cheap. Unless we want to embark on a massive government subsidization scheme to bailout traditional media providers, Congress and regulatory officials must be willing to grant private media operators the flexibility to restructure their business affairs so they can continue to provide important public needs while also turning a profit.[x] That can’t happen unless we allow media markets to evolve and let operators experiment with new business models and ownership structures.[xi] Although there are no guarantees, creator/distributor alliances like Comcast-NBCU may be one model that helps firms create, extend, and then also monetize their media content.  But, again, regulatory flexibility is crucial so we can figure out what works and what doesn’t.

Thank you again for inviting me here to testify.

[ii] Adam Thierer, A Media Morality Play, Forbes, Dec. 15, 2009, www.forbes.com/2009/12/14/media-merger-antitrust-opinions-contributors-adam-thierer.html

[iii] A good example: Disney’s seamless and successful integration of ABC Television Group (ABC + Disney cable properties), Walt Disney Studios, the Walt Disney Internet Group, its many ESPN properties, and its parks and resorts.

[iv] 2006 is the last for which the FCC has made data available, but as of that time the overall number of national programming networks available in America stood at 565 channels. That is up from just 70 channels in 1990, an astonishing increase in program choices.  The FCC noted that, “Of the 565 networks, 84 (14.9 percent) were vertically integrated, or affiliated, with at least one cable operator.” Federal Communications Commission, FCC Adopts 13^th Annual Report to Congress on Video Competition and Notice of Inquiry for the 14^thAnnual Report, Nov. 27, 2007, at 4, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-278454A1.pdf What that summary fails to mention, however, is that vertical integration has fallen steadily since the FCC’s first Annual Video Competition Report was issued, when over 50 percent of all channels were affiliated with a cable operator. Indeed, the video marketplace exhibits less vertical integration than ever before. As far as vertically integrated industries go, no impartial observer would conclude that this industry is being controlled by “gatekeeper,” pay TV platforms, as some critics suggest. Most new pay TV channels today are independently owned and offer an unprecedented diversity of programming options. This trend is a strong sign of how healthy and vibrantly competitive this marketplace is today. Finally, these numbers do not take into account the split between Time Warner Entertainment and Time Warner Cable, which represented a significant portion of the 15% of vertically owned channels before 2006. That is the percentage of cable channels owned by video distributors is in the single digits today.

[v] Adam Thierer, The Progress & Freedom Foundation, Video Competition in a Digital Age, Testimony before the Subcommittee on Communications, Technology and the Internet, U.S. House Committee on Energy and Commerce, Oct. 22, 2009, www.pff.org/issues-pubs/testimony/2009/10-22-09-thierer-testimony-video-competition-digital-age.pdf

[vi] Adam Thierer, The Media Cornucopia, City Journal, Vol. 17, No. 2, Spring 2007, at 84-89, www.city-journal.org/html/17_2_media.html

[vii] See generally The Progress & Freedom Foundation, “Cutting the Video Cord,” PFF Blog Ongoing Series, http://blog.pff.org/archives/ongoing_series/cutting_the_video_cord/

[viii] Adam Thierer and Grant Eskelsen, The Progress & Freedom Foundation, Media Metrics: The True State of the Modern Media Marketplace, PFF Special Report, Summer 2008), www.pff.org/mediametrics

[ix] David B. Wilkerson, NBC Quarterly Profit Plunges 30%, MarketWatch, Jan. 22, 2010.

[x] W. Kenneth Ferree, The Progress & Freedom Foundation, Another Naïve Proposal for Government Entanglement with the Fourth Estate, PFF Blog, Feb. 1, 2010, http://blog.pff.org/archives/2010/02/another_naive_proposal_for_government_entanglement.html;  Adam Thierer, Socializing Media in Order to Save It, City Journal, March 27, 2009, www.city-journal.org/2009/eon0327at.html; Adam Thierer, The Progress & Freedom Foundation, Public Option for Press Should Get the Red Pen, Progress Snapshot 6.4, Jan. 25, 2010, www.pff.org/issues-pubs/ps/2010/ps6.4-OP-ED-for-Daily-Caller-A-Public-Option-for-the-Press.html

[xi] W. Kenneth Ferree, The Progress & Freedom Foundation, Media Ownership Proceedings, Testimony before the Federal Communications Commission, Nov. 3, 2009, www.pff.org/issues-pubs/testimony/2009/11-03-09-ferree-media-ownership-testimony.pdf; Adam Thierer, Media Myths: Making Sense of the Debate over Media Ownership (The Progress & Freedom Foundation, 2005), www.pff.org/issues-pubs/books/050610mediamyths.pdf

Testimony of Adam Thierer – House Hearing about Comcast-NBC Merger 2-4-10 http://d1.scribdassets.com/ScribdViewer.swf

Just FYI… This Thursday, February 4th at 9:30 am, the House Commerce Committee Subcommittee on Communications, Technology, and the Internet will hold a hearing titled, “An Examination of the Proposed Combination of Comcast and NBC Universal.” It will be held in 2123 Rayburn House Office Building and the Committee members were kind enough to ask me to come up and say a few words.  Here’s the witness list:

• Brian L. Roberts, Chairman and CEO, Comcast Corporation
• Jeff Zucker, President and CEO, NBC Universal
• Colleen Abdoulah, President and CEO, WOW! Internet, Cable, and Phone
• Mark Cooper, Ph.D., Director of Research, Consumer Federation of America
• Michael J. Fiorile, President and COO, The Dispatch Printing Company, Chair of the NBC Affiliates Board
• Adam D. Thierer, President, Progress and Freedom Foundation

For those interested, the hearing will be webcast at www.energycommerce.house.gov. There’s also another hearing Thursday on the same issue over in the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights. It’s titled, “The Comcast/NBC Universal Merger: What Does the Future Hold for Competition and Consumers?” and it will take place in the Dirksen Senate Office Building, Room 226 at 2:30 p.m.

Incidentally, I wrote a paper back about the proposed deal back in December entitled, “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC” as well as this editorial for Forbes.

As I pointed out here before (see, “And so the Comcast-NBC Merger Hysteria Begins: Help Me Document It!“), every time a media merger is proposed we hear all sorts of silly Chicken Little predictions of impending doom as well as preposterous conspiracy theories about supposed nefarious schemes to take over the media universe and control our minds. For good measure, there’s also plenty of talk of “the death of deliberative democracy,” or efforts to weed out one sort of perspective or another.

As history has shown, it’s all complete bunk. But that doesn’t stop critics from concocting asinine theories about media providers seeking to “silence critics.”  Here’s two bits of Chicken Little-ism that I missed in my previous essay documenting this silliness.  First, over at Huffington Post, Marvin Ammori tells us that America is about to become Italy or Argentina because of the deal:

Putting so much power in the hands of one company–and, specifically, its executives–is dangerous for a democracy. There is a reason why autocratic regimes control the media–media shape public opinion and define what is “possible” in politics. We have seen the problem of private media consolidation in many countries. In Italy, Silvio Berlusconi used his massive media empire to win elections and is now Prime Minister (Italy’s longest serving ever). In Argentina, the government had to pass a media consolidation law because of the power of one media company that happens to be far smaller than a combined Comcast-NBCU.

And then we have Wade Norris writing about the deal over at the Daily Kos, saying: “If you don’t want to see the progressive voices on MSNBC silenced, then join the ‘no merger’ petition.”  Ah yes, another automated “stuff-the-online-complaint-ballot-box” petition.  I love those gimmicks.  But ignore fake complaints for a moment and focus on the accusations at hand here. The Ammori-Norris theory is: If Comcast and NBCU are allowed to marry (a) progressive voices will be driven off their platforms and (b) Silvio Berlusconi will take over America democracy will somehow suffer.  Is there really any truth to this?

I find both claims pretty outlandish. I mean, seriously, why would Comcast or NBC silence Rachel Maddow or Keith Olbermann , as Norris suggests in the title of his essay? What possible reason would they have to take two of their MSNBC superstars off the air?  Is that really good business? Would they win a new base of fans with that move? Are Fox News-loving conservatives suddenly going to jump ship and run over to MSNBC because of it?  Finally, can you imagine what a PR nightmare it would be for company?

Moreover, the thing that really kills me about this ‘Comcast-is-out-to-stifle-liberal-voices’ theory is that, for the last couple of years, I’ve heard conservatives whining about how Comcast is supposedly just another big backer of liberal causes. Well, which is it?  The truth it: neither.  Comcast is in the business of … business. They are not ideological puppet-masters hell-bent on steering our opinions one direction or the other.

It’s reminds me of the blather we sometimes hear about how Rupert Murdoch wants to brainwash citizens into subscribing to conservative causes. Whenever I hear that I always ask the accuser who made the movie “The Day After Tomorrow” — a piece of global warming propaganda that must even make the people at Greenpeace blush in embarrassment. Oh, that’s right… Rupert Murdoch’s News Corporation financed and distributed that movie!  So, which does that prove: (A) Rupert Murdoch is hell-bent on programming our minds to accept the fact that global warming would result in a global freeze (how’s that work again?) and leave kids scurrying for the safety of New York City libraries (seriously, have you see that movie? That’s the plot!); or (B) Rupert Murdoch is out to entertain people and make money? If you answered B, congratulations for being a sensible person.  If you answered A, then click here now to start giving money to the Free Press!

By the way, if all these conspiracies had any credence and the mass media and online providers in America really were engaged in a Vast Right Wing Conspiracy to silence liberal voices, then someone needs to explain to me how Obama absolutely crushed the Right in the last election. Seriously, let’s hear your theory. How did he circumvent “the man” and get himself elected?

I’m sorry, but the asinine horror stories that currently dominate public policy discussions about media policy ( and net neutrality regulation , for that matter) have just gotten completely out of control. Sadly, we’ve been here before.  It reminds me of the entertaining debates that took place in Congress back in 2003, following the FCC’s announced plan to tweak media ownership rules.  I documented all the hysteria in this book, but here are some choice gems you may have missed:

• During the debate on the House floor over an amendment that would have overturned one element of the new FCC rules, Rep. Lynn Woolsey (D-Calif.) said the FCC’s tweaking of the rules was an attempt to impose a centralized “Saddam-style information system in the United States.”
• Rep. Maurice Hinchey (D-N.Y.) argued that media ownership deregulation amounted to “mind control” by Republicans who were trying to “dumb down” the public. “It’s a well thought out and planned effort to control the political process,” he argued and, “It will wipe out our democracy.” [Quoted in Terry Lane, “Hinchey Pushes Fairness Doctrine Bill to CWA,” Communications Daily, March 31, 2004, p. 9.]
• Rep. Markey jokingly introduced an amendment that would have deemed the new FCC cross-ownership rules to be “indecent” and require Commissioners who supported the rule to watch the movie Citizen Kane over and over again “until they flinch at the word ‘Rosebud.’” [Quoted in Terry Lane, “House Commerce Committee Raise ‘Indecency’ Fines to $500,000,” Communications Daily, March 4, 2004, p. 2.]
• Another lawmaker likened the FCC’s new rules to Soviet Union-esque control of the media.

I have come to believe that rational debate about media policy is simply impossible in this country. Facts have become utterly irrelevant.  It’s all about emotion and who can wear more of it on their sleeve.  And the Chicken Littles are really good at shouting louder than everyone else.

Some further reading:

• “A Media Morality Play”  [recent editorial I penned for Forbes about how Comcast-NBC deal and the fight over the future of media in this country]
• “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC” [recent PFF white paper documenting the reality about media mergers]
• “Should Consumers Fear the Comcast Deal? [a New York Times debate about the deal that Jim Harper and I took part in]
• The Media Cornucopia [an essay I penned for the City Journal a few years ago about the future of media policy]

Today, Jim Harper and I took on Andy Schwartzman of Media Access Projects and Gigi Sohn of Public Knowledge in this New York Times online debate about, “Should Consumers Fear the Comcast Deal?”  Like other media critics, Schwartzman and Sohn adopt the gloom and doom tone that many worrywarts use when discussing the deal. Andy Schwartzman says “Comcast’s proposed acquisition of NBC Universal poses a genuine threat to free expression and diversity of speech in our democratic society.” And Gigi Sohn predicts that “With all that programming under its control, Comcast will have every incentive to take its shows off of the Internet and force consumers to buy a cable subscription to get online access to that programming.”

But as Jim Harper and I point out, we’ve heard such Chicken Little horror stories before. Whether it was AOL-Time Warner, News Corp-DirecTV, Sirius-XM, or whatever else, the story is always that a veritable media apocalypse awaits if the deals aren’t blocked.  But it just ain’t so. As I note in my response:

Back in the real world, the sky never fell — except on the merging companies! Just two years after the deal was announced, AOL-Time Warner had lost over $100 billion and Time Warner has now spun off AOL entirely. The News Corp.-DirecTV marriage ended in divorce after just three years. And Sirius-XM flirted with bankruptcy earlier this year as listeners continue to flock to other audio options. The moral of the story: markets worked. Shareholders abandoned bad deals, new niche markets developed, and innovative digital technologies continue to revolutionize media.

And as Harper notes in response to silly claims about restricting access to content or communications, “Comcast-NBC can no more impinge on communications among Internet users than AOL-Time Warner did.” Which is to say, not at all. They would be doomed if they tried to play such games. You can’t make money or retain viewers or customers by cutting off access to content or conduit. Finally, “the genuine threat to free expression and diversity of speech” is not Comcast-NBC, as Schwartman suggests, but a government big enough to crush media companies and control media platforms as if they were their playthings.

For more details about the actual historical record, check out my recent PFF white paper: “A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC.”