Comcast is coming out swinging at critics of its proposed $45 billion acquisition of Time Warner Cable, accusing corporate opponents of “extortion” tactics by demanding favorable business terms as a condition of staying neutral or supporting the transaction.
The largest content company to express criticism of the deal is Discovery Communications, which has said it has “critical issues” with the size of a combined Comcast-TW Cable distribution pipeline.
But in a lengthy filing with the FCC, responding to a host of criticisms of the deal, Comcast said that Discovery “like many other programmers, is improperly using this proceeding to promote its own financial interests.”
“In fact, Discovery demanded unwarranted business concessions from Comcast as a condition of Discovery’s non-opposition to this transaction,” Comcast said in its filing. “Such extortionate demands are patently improper. As the self-proclaimed ‘#1 Pay-TV Programmer in the World,’ Discovery does not need additional regulatory help to succeed in the marketplace. Its claims are baseless and should be rejected.”
In a conference call with reporters, Comcast executive vice president David L. Cohen told reporters that Discovery sought to renegotiate carriage contracts that do not expire until the middle of 2015, asking for more money for its channels as well as wider reach.
Comcast also names other critics or opponents of the merger, including Netflix, Cogent Communications, Dish Network and advertising representation firm Viamedia.
Their criticisms include warnings that an enlarged Comcast will have leverage to demand more favorable terms, particularly to access its distribution network online as the largest broadband provider in the country.
Comcast, however, said such claims have been made for years “in every major cable transaction,” while the market has only gotten more competitive.
Comcast said that “their claims are even more unfounded here because many of them are being made only because Comcast refused to grant various self-interested requests that were made directly to Comcast soon after the transaction was announced — almost always with an express or at least an implicit offer to support the transaction (or stand down, at a minimum) if the requester’s demands were met.”
Comcast said the requests from various companies included making all of Comcast’s programming carriage agreements renewable on the same date, requests to renegotiate agreements that are not due to expire, requests to expand carriage or increase fees and “many requests to agree to carry networks that do not even exist yet — or that exist, but that are carried by no one.”
The company said that the demands would add $5 billion to estimated programming costs over the next several years, meaning increased costs for customers of $4 per month by 2019 “and in perpetuity.” It said that “self-interested” demands came from TheBlaze, Back9, RFD-TV, Veria Living, Herring Broadcasting and WeatherNation.
“The significance of this extortion lies in not just the sheer audacity of some of the demands, but also the fact that each of the entities making the ‘ask’ has all but conceded that if its individual business interests are not met, then it has no concern whatsoever about the state of the industry, supposed market power going forward, or harm to consumers, competitors, or new entrants,” Comcast said.
Among the first major corporate critics of the proposed merger was Netflix, but Comcast argues that its complaints are not even “transaction specific.” The streaming service says the FCC should reject the merger, warning that Comcast will be in a position to demand ever-greater fees from video content companies to connect to its networks. It reached an interconnection agreement with Comcast earlier this year, but afterward, Netflix CEO Reed Hastings criticized large Internet providers for demanding such payments “because they can.”
Comcast, however, cited a quote from Hastings that initially praised the interconnection deal as working “great for consumers.” It claims that Netflix’s opposition “reflects nothing more than a base attempt to gain additional commercial advantages over Comcast through a regulatory condition that is unjustified and would be anything but ‘great’ for consumers.” Comcast has contended that Netflix is essentially asking all Internet subscribers to bear the cost of transmitting their video signal, regardless of whether they subscribe to the streaming service.
Another opponent, Dish Network, raised concerns that Comcast would prioritize its own services on the Internet at the expense of competitors. But Comcast said that it is bound by net neutrality rules and any new ones that the FCC passes. It also dismissed the notion that it would create “fast lanes” and slow unaffiliated content as “idle speculation.”
“Questions about its ability or incentive to deploy them — let alone do so anticompetitively — are thus theoretical and deserve no weight here,” Comcast said.
The company said that the merger is in the public interest because it will lead to accelerated deployment of faster broadband services, upgrades to the Time Warner Cable systems, greater choice of video offerings and a more expansive Wi-Fi network.
It cited support from companies like TiVo, Cisco, Broadcom and Arris, channels like Hallmark, Ovation, Reelz and Starz and advertising agencies like GroupM, Horizon Nedia and MediaVest, as well as elected officials like Chicago Mayor Rahm Emanuel and groups like the NAACP.
Update: Discovery’s chief communications officer David Leavy had this statement: “As one of the few remaining independent programmers in the country, Discovery has a nearly 30-year history of being one of the most fair, rational and reasonable actors within the industry. Our long-term commitment to investing in education content that benefits all consumers has been rewarded with nearly 11% of the viewership of ad-supported cable in 2014. We are always talking to our distribution partners about realizing fair value for our content across all consumer platforms, and it is very unfortunate that Comcast is trying to divert attention away from the real issue.
“Comcast chooses to not talk about the substantial program discounts they currently get, or what they would do post-merger to demand extreme discounts from cable programmers or block the launch of new networks and brands. Discovery has 13 networks in the U.S. that strive to serve all ethnic and demographic groups with high quality, family friendly programming. We stand by our concerns that Comcast could use its enhanced leverage from the proposed merger to impose onerous terms that jeopardize the ability of independent programmers like Discovery to continue investing in a diverse portfolio of content and brands. Comcast’s silence on the details of key issues like program discounts, and instead, its continued strategy of intimidating voices that are not fully supportive of its position, is troubling.”