What Media-Merger Crisis?

Federal regulators recently approved AT&T’s acquisition of DirecTV and Verizon’s purchase of AOL and are currently deciding whether to permit the merger of two cable companies, Time Warner Cable (TWC) and Charter Communications. Inevitably, media mergers breed techno-panic in some quarters with a consistency matched only by the failure of their predicted disaster scenarios to materialize. 

Regarding the TWC-Charter deal, there is a largely unchallenged narrative that cable companies have local monopolies and the ability and desire to harm television competition. That notion fails to recognize the changing realities of media. It is true that decades ago many cities, with the encouragement of the Federal Communications Commission, granted cable companies exclusive contracts to build because of beliefs that subscription TV service is a natural monopoly. Those beliefs were not merely ill-founded—the market, it turns out, can support TV competition—the gifting of cable monopolies resulted in ugly corruption in cities and towns across the country. As a result, those natural monopoly theories were put to rest in the 1990s when policymakers removed regulatory barriers in order to make television provision more competitive. 

Those deregulatory actions of Congress and the FCC are starting to bear fruit for consumers because TV watchers increasingly have several alternatives to traditional cable television. The increased competition from the two national satellite TV companies and new TV services from “telephone” companies, like AT&T U-verse TV and Verizon FiOS TV, is intense. Cable companies have lost nearly 15 million subscribers since their peak number of subscribers in 2002. In 2004, over 70 percent of TV households had cable. Today, cable market share approaches 50 percent.

These numbers don’t even include all available TV options. Omitted from these measurements are households that subscribe only to online video, like Netflix or Amazon Instant, and those that supplement their online viewing with free broadcast television. These are harder to measure but a recent survey from the Leichtman Research Group suggests that 5 to 10 percent of U.S. households fall into this category. 

Market power in TV, clearly, has never been more precarious. The rise of competing providers in the past decade has coincided with falling TV production costs because digital technology makes cameras and editing much cheaper. The result is a seller’s market where content is king. It is impossible to stay caught up on all the quality programming that exists and hundreds of articles have been written about the Golden Age of Television we’re in. 

Economist Joseph Schumpeter wrote in the 1940s of the “creative destruction” of markets. Though Schumpeter’s description derives from Marxist theory, free market proponents have adopted it to describe the (sometimes messy) way that markets drive progress. Any industry touching technology, and includes TV and Internet providers, cannot be complacent. Disruption lurks with every passing year—so cable, telecommunications, and satellite companies spend billions every year upgrading broadband and TV infrastructure and acquiring content. 

The optimism many viewers have about the direction of media, communications, and entertainment is not shared by everyone. Fortunately, the doomsayers’ predictions typically do not age well. Look back, for instance, on the heated commentary surrounding contentious mergers like AOL-Time Warner, Sirius-XM, Sprint-Nextel, NewsCorp.-DirecTV, and Comcast-NBCU. Some of these deals worked out for the merging firms but some of these were disasters, not for consumers, but for their shareholders. Consumer habits are unpredictable and competition, like that from Netflix, iPhones, Pandora, Google Fiber, often comes from unexpected places. 

This news—there is no crisis in media that needs fixing—should come as a comfort to regulators. Instead of meddling with business plans and applying dated rules to new entrants, regulators should focus on removing entry barriers and making regulations consistent across industry.