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Business News/ Opinion / Fox and Time Warner need each other in TV today
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Fox and Time Warner need each other in TV today

Programmers need all the firepower they can muste yo ensure that they're able to reach viewers on their own terms

Rupert Murdoch’s 21st Century Fox said on Wednesday it had offered to buy Time Warner, a move that would unite two of the world’s most powerful media conglomerates, but Time Warner rebuffed its offer. Photo: ReutersPremium
Rupert Murdoch’s 21st Century Fox said on Wednesday it had offered to buy Time Warner, a move that would unite two of the world’s most powerful media conglomerates, but Time Warner rebuffed its offer. Photo: Reuters

In 2010, Gary Shteyngart’s “Super Sad True Love Story" amused readers with its futuristic depiction of people traveling via UnitedContinentalDeltamerican and banking with AlliedWasteCVSCitigroupCredit. In Shteyngart’s imagination, only two television channels provided all “Media": Fox Liberty-Prime and Fox Liberty-Ultra. The merger of Time Warner Inc. and Twenty-First Century Fox Inc., apparently suggested by Rupert Murdoch last month, shows Shteyngart was only barely ahead of his time.

As Time Warner shares climb to dizzying heights in response to the news—what investor doesn’t love a mega-merger?—it’s worth noticing how we got here.

Murdoch’s plan makes sense, and Jeffrey Bewkes, Time Warner’s whip-smart chief executive officer, will eventually find a partner. Why? Because even very powerful programmers such as Time Warner need increased heft to deal with the ever-more-concentrated US distribution market. To control their own destiny, to ensure that they’re able to reach viewers on their own terms (rather than paying unlimited tribute to ComcastTimeWarnerCable), programmers will need all the firepower they can muster. That means having as much sports and high-value content as possible on their side of the table. In turn, that means getting bigger.

Both sides of the negotiating table—programming and distribution—are already highly concentrated. In 1983, 50 companies ran 90% of American media; today, just five mega-entities control 90% of what we read, watch and listen to. Among the notable properties owned by Murdoch are Fox, as part of Twenty-First Century Fox, and the Wall Street Journal and New York Post, as part of the spun-off News Corp. Time Warner has CNN and HBO. Comcast Corp., now thoroughly vertically integrated, has NBCUniversal.

Murdoch and Bewkes can read Washington’s tea leaves as well as anyone else, and they are undoubtedly confident that both the Federal Communications Commission and the justice department will clear the proposed merger between Comcast and Time Warner Cable. That’s a problem for the programming industry. In a nutshell, Hollywood is scared.

After the merger, Comcast will be available to 70% of American homes. Most of these will have no other choice for high-speed data distribution: anything over 10 Mbps download. That means the programmers—even though they’re giant companies with gigantic quantities of high-value video—won’t have competing distribution outlets to play against one another in negotiations. In order to reach most Americans, they’ll have to deal with Comcast. That means they have to make sure that Comcast needs them more than they need Comcast.

The merged Comcast-Time Warner Cable entity will control 20 of the top 25 metropolitan areas in the US and a vast number of regional sports networks. (Sports is at the heart of this story; Murdoch knows he will need the heft to negotiate for sports rights that Comcast will need.) Comcast faces almost no competition from Verizon’s FiOS product. Because there will be so few alternative content buyers, and because Comcast’s control over its data flows is so absolute, if the programmer someday decides to go “over the top"—across the Internet, as Netflix has—its fate will be utterly dependent on Comcast’s good graces. Murdoch and Bewkes are not interested in knuckling under to Comcast’s demands in order to survive.

Comcast will say that, after its merger with Time Warner, it will control just 30% of the video-distribution market. But that is misleading: The company is pointing to the wrong market. Americans don’t, by and large, subscribe only to pay TV. They subscribe to a bundle of both data and pay TV. (Fully 91% of US high-speed data subscribers also buy pay TV.) And the two remaining satellite companies, DirecTV and Dish, can’t compete effectively with the cable-provided bundle: They don’t sell wired access to the Internet, and instead resell second-class DSL connections provided by what remains of the Verizon and AT&T wired operations. The proposed AT&T-DirecTV merger makes clear that satellite companies understand they can’t go it alone.

And so a whole series of mega-mergers, over decades, has led to this latest—almost laughable—development. As Shteyngart told an interviewer in 2011, “I’m like the Nostradamus of three months from now." Seems about right. Bloomberg

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Published: 17 Jul 2014, 12:05 PM IST
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