Analysis: Comcast Bets On Heft At Dizzying Time For Media

Regulators and media watchdogs may not like it, but Comcast thinks bigger is better.

In making an all-stock bid of $45.2 billion for Time Warner Cable, Comcast is betting that growing its footprint in the United States will keep it competitive at a time when new stripes of rivals are emerging with the potential to assemble a national audience.

Should the merger be approved, the Philadelphia company will see its subscriber base grow to 30 million from about 22 million. Having a wider audience gives Comcast more leverage as it seeks to roll out new technology that assembles viewers in front of a video screen and them beams them advertising – even as new distribution rivals like Netflix, Hulu and Amazon assemble subscriber bases largely unfettered by the geographic boundaries that hem the cable industry.

To be sure, Comcast’s proposal will not pass without scrutiny. “An enlarged Comcast would be the bully in the schoolyard, able to dictate terms to content creators, Internet companies, other communications networks that must interconnect with it, and distributors who must access its content,” said John Bergmayer, senior staff attorney at Public Knowledge, a Washington, D.C.,   public interest group that seeks to defend consumer rights.

But Comcast is likely to press forward. At a time when consumers are cutting their ties to traditional cable distributors – Comcast’s ability to add 43,000 video subscribers in its most recent fourth quarter marks the first time in months the company has seen that number grow, not shrink – gaining more customers and then assimilating them into a broader base may be paramount.

While many people talk of Comcast’s blend of cable and broadband services and ownership of NBCUniversal, there is another not-so-obvious mission in effect at the company. Sure, Comcast has the power to influence what America watches – got a yen for a live showing of “The Sound of Music” featuring Carrie Underwood? – but by increasing its ability to assemble audience, the company can also push new behaviors as well as stoke the appeal of TV advertising.

Take video on demand, for example. The idea of having hours of primetime network shows at the ready was an idea best considered in science-fiction novels. But Comcast has quietly built a massive library of just such stuff and consumers, who have grown used to getting what they want when they want it thanks to digital video recorders and Netflix, have taken to the technology – so much so that TV networks now use impressions from VOD watching in the schedules they plan for advertisers.

In December, Comcast unveiled a pact with Nielsen that would insert current commercials alongside older episodes of TV series that customers accessed on demand – an idea that would help the backers of traditional TV recapture some of the audience it has lost to new couch-potato behaviors like binge-viewing.

And then there’s so-called “addressable” advertising, a new kind of TV-ad pitch that hinges on set-top boxes and the kind of customer data that only a company with wires that connect to its customers’ homes can offer. NBCUniversal and Comcast said last month they would offer advertisers more data about how subscribers and viewers watched commercials – allowing them in some cases to place very specific ads in video-on-demand selections aimed at reaching particular households – like, say, those who might be in the market for a new luxury car.

But to make these ideas appealing, Comcast needs size. The company has over the years digested the massive cable operations of AT&T – once part of John Malone’s sprawling TCI empire. And it took over some of the appealing pockets of audience once controlled by Adelphia Communications. As satellite rivals like DirecTV gain in influence – just ask The Weather Channel – and as emerging over-the-top rivals like Hulu and Amazon stake their claim, Comcast may feel under pressure to maintain its presence in an industry roiled by what seems like constant change.

Comcast’s leader, Brian Roberts, isn’t known for his predilection to offend. While attending an annual conference held by the boutique investment bank Allen & Co. in 2003, Roberts was spotted by a gaggle of journalists speaking to a reporter from The New York Times. Rather than make the others feel left out, Roberts spent the good part of a morning talking to each journalist individually.

He does not have the luxury of such time today. The ways in which consumers watch their favorite TV shows and movies are transforming at a dizzying pace. To gain sway over that changing behavior, Comcast must touch the lives of more people. With its NBC broadcast network still in turnaround mode and some of its NBCU cablers trying to gain ground on competitors, that mission won’t be accomplished with programming alone. This once quiet family business will continue to reach beyond Philadelphia to keep its operations growing.

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