Will Mergers Be Good for Cable TV?

It wasn't that long ago that the phrase 'Too Big to Fail' became words of common vernacular among the general public, the idea that there are corporations so large that their well-being is directly tied to the well-being of ordinary people who imagine themselves to be totally separate from those entities. These corporations continuously amassed their largesse over time, gaining a bigger and bigger share of the market, pushing out competitors or swallowing them up entirely through merger and acquisition. Wachovia and Wells Fargo, Washington Mutual and JP Morgan Chase, Merrill Lynch and Bank of America. Now, people are by and large much more skeptical of large companies getting larger, knowing that the bigger the business, the bigger the muscle. 

But is this skepticism warranted, specifically in regard to institutions that aren't financial in nature? Cable and telecommunication companies have recently also followed the trend of mergers. Will this be good for the ordinary person simply trying to watch their show? Will it be good for television in general?

The Bigger The Muscle

Well, the simplest effect of a merger is reducing the amount of companies in the market by at least one. That means one less company competing for your dollar. That means one less company offering you different choices. That means one less company providing value. In many communities, there is only one provider of cable television and high speed internet. So, when customers in those neighborhoods are not satisfied with their service, they don't have the option of simply switch to another provider. Indeed, their only option is to move, which isn't very realistic. Thus, cable TV providers who hold a monopoly on a specific area have the ability to charge whatever they want and provide whatever level of service they want, whether it be substandard or not. If customers don't approve, then they either have to live with it or do without.

Prices Skyrocketing

Fortunately, for those worried about the only two competitors in their neighborhood becoming one, mergers have to be approved by federal government authority. In order to receive approval, cable television providers have promised to reduce costs and improve service due to the increased marketshare they would receive in a merger or acquisition. It is unfortunate, though, that these promises have yet to pay off. In fact, the largest companies have experienced the biggest pay hikes, by upwards of 70 percent. And as they get bigger, the customers get poorer. The FCC has estimated that cable television prices have raised at four times the rate of inflation, despite there being no measurable improvement in service or productivity. 

New Alternatives

But as these large corporations have swallowed up traditional competitors, there have been others entering the market and competing for the consumers' entertainment dollar. There is Netflix, Hulu, Amazon and others who have no affiliation with the cable television giants or cable television in general. And networks like CBS and HBO are now offering some form of online programming completely separate from any cable subscription. With higher prices pushing customers out and new programming pulling them to alternatives, there are valid reasons to believe that the traditional model of cable television is bound to collapse as networks pull out and offer their channels online like CBS. These are innovations which the majority of customers prefer, enjoying the ability to consume their entertainment "a la carte" rather than "buying the whole meal" with a subscription to cable television and hundreds of channels they will never watch. 

At the Public Knowledge telecom advocacy group Senior Vice President, Harold Feld, says this is the sort of innovation one can expect in the absence of more mergers: "We [will probably see] more real innovation in the online video market rather than the long stasis we have had since the Comcast and NBCUniversal merger."

The Verdict

With all this evidence, it feels very right for people to continue their mistrust of big companies getting bigger. Mergers haven't done consumers well in other areas and it looks unlikely to do them well when it comes to cable television. Of course, it's not always bad to be big, but when the responsibility of that power is shirked, it is usually the smallest among us that pay the consequences.