Media Battle

JIM LEHRER:

Two views of the new proposed merger now from Andrew Schwartzman, president and CEO of the Media Access Project, a public interest law firm. And Adam Thierer, director of telecommunications studies at the CATO Institute. Would a merged Comcast-Disney be good for American consumers?

ANDREW SCHWARTZMAN:

I think not.

JIM LEHRER:

Why?

ANDREW SCHWARTZMAN:

Well, first, consumers as consumers can expect higher rates and worse service from the monopoly that gets bigger. And consumers as citizens will also suffer in terms of the free flow of information both in video programming in markets and in the future in the ways in which the Internet could be constrained.

JIM LEHRER:

In general, do you agree with his two reasons why it's bad for consumers?

ADAM THIERER:

No I disagree. I think there are many benefits to this sort of merger, both for just Comcast as a company and consumers in general.

Let's keep in mind that Comcast is no monopolist, as Andy claims. They face stiff competition from a number of different types of media giants that are out there including the latest merger between Fox and — I'm sorry — News Corporation and DIRECTV, which is going to create a formidable competitor in that marketplace for direct broadcast satellite to the home. So you are talking about many large companies that are out there competing head to head. So there's no media monopoly here as Andy claims.

JIM LEHRER:

Why do you say there is?

ANDREW SCHWARTZMAN:

Well, cable is a monopoly in each of its communities. And it has market power. DIRECTV has just raised its rates. The General Accounting Office has put out yet another study showing that the satellite industry has not effectively constrained cable rates.

When you combine the increased program clout that would come from this deal, it would really take what may be the powerful wire into the home and make it that much more powerful.

JIM LEHRER:

What would be the incentive of Comcast to raise its rates, if it had risen?

ANDREW SCHWARTZMAN:

Well, the same incentive that the cable industry has had since day one, which is —

JIM LEHRER:

To make more money?

ANDREW SCHWARTZMAN:

To make more money, and they have the market power to do it.

JIM LEHRER:

You disagree with that?

ADAM THIERER:

I do disagree. That's not really what's putting pressure on rates.

What's putting pressure on rates is primarily the increases in the content expenditures that a lot of cable companies and others have to pay for. I mean, the content that we witnessed out there —

JIM LEHRER:

Content means programs.

ADAM THIERER:

Right, the programs we see out there — ESPN is the jewel in the crown of the Disney empire that Comcast will be getting. That is expensive stuff. Comcast has had to negotiate bitter deals with Disney for those rights to carry those types of channels and then they have to carry a number of other channels along with it before they get the rights to something like ESPN, but those aren't cheap. ESPN carries National Football League programming and other sporting events. It's going to be expensive and those costs are going to be passed along. So it's not just some case of lining the pockets.

JIM LEHRER:

Do you believe that if the merger went through then, that maybe Comcast could make a better deal for Disney's programs —

ADAM THIERER:

Well, certainly they could because they'd be vertically integrating program in this case. So they would have the channels under one roof or an umbrella and they could therefore more easily negotiate on these cost issues with some of their other providers.

JIM LEHRER:

So, it could be cheaper, you are saying.

ADAM THIERER:

I think it could.

JIM LEHRER:

You don't buy that?

ANDREW SCHWARTZMAN:

The history the cable industry in particular is when they own the programming they use it competitively to keep the programming away from their competitors at the expense of the public's ability to get different kinds of programming.

Comcast is a terrific company. It's extremely well managed. From the standpoint of the company this deal makes eminent good sense. This is a company that is picking the right kind of target for the right reasons from the standpoint of the company.

But the question was: how is it going to affect members of public. And as to that, video program markets that what we're talking about are more likely to be more expensive and less creative when they are in fewer hands.

JIM LEHRER:

Let's go to the second point, Mr. Thierer, that Mr. Schwartzman made at the very beginning, that as citizens, American people are going to suffer because there will be less choice, less variety, et cetera.

ADAM THIERER:

We hear this argument a lot today. I think there's a lot of Chicken Littlism at work in this marketplace. You hear people say that it's all one big media monopoly. And then they start pointing, look at Time Warner-AOL; look at Verizon; look at Comcast. Then they start pointing to all these companies. Well, I you can point to all those companies, there's no monopoly. There's lots of choices.

Far from living in a world of information scarcity, we live in a world of information overload today. We struggle as Americans when we come home each night to sort through all the choices of entertainment, information and news at our disposal. How in the world we can claim we're worse off today than we were in the past is just beyond me.

JIM LEHRER:

It's not beyond you?

ANDREW SCHWARTZMAN:

Yesterday I was in Philadelphia at an appeals court hearing and one of things discussed there in terms of FCC's broadcast ownership rules is that five companies, including Disney, are among the ones that control 75 percent of the video programming that people watch every evening. We have got more programming but they are controlled by fewer hands. This will concentrate that even more.

JIM LEHRER:

What is the evil of that — the potential evil?

ANDREW SCHWARTZMAN:

Well, it's not necessarily evil in some sort of conspiratorial way. But what it does is it depletes the gene pool of creativity.

On the news side, it means there's that many fewer editorial choices, that many fewer people making decisions about what people are going to hear. As we go forward toward the Internet the threat is even greater.

JIM LEHRER:

Do you challenge that?

ADAM THIERER:

Yeah, absolutely. There are more editorial choices at our disposal today than ever before. You can turn on cable television, satellite television, traditional broadcasting, radio, Internet and the like, and find so many different distinct points of view on any issue under the sun and just more points of view and choices to begin with.

The idea that somehow all of this is controlled by someone in New York or Los Angeles — sort of a neo-conspiratorial theory of, puppet master theory of media domination is just in my mind absolutely silly. The consumers dictate what is on the air, not the big companies.

JIM LEHRER:

What about his point that five companies will control — do control 75 percent of the program?

ADAM THIERER:

The economics of the media marketplace are not those of a corner lemonade stand. We're talking about an industry that requires significant economies of scale, significant investments to pay for the type of content that we demand as consumers in our modern marketplace. Five or six companies dominate the market for soda pop or automobiles or a number of mature industries. We don't complain about those much. What's the difference? We have choices.

The question is one of outputs and how many choices we have as consumers not who owns what.

JIM LEHRER:

What is the difference?

ANDREW SCHWARTZMAN:

Well, I think proof is in the pudding. What we have got today is three major television networks increasingly picking programs based on the deals they have gotten with their own production house.

This is giving us reality television and lots and lots of mediocre material. The Hollywood production community complains with increasing vigor that better new, more creative programming, the Norman Lears of the world, are finding it harder to get their programming on the air because they are not owned by a studio. That's the kind of problem that I'm worried about on the creative side.

JIM LEHRER:

Let's go through…the potential hurdles that this — assuming that Comcast and Disney come to some kind agreement either through a shotgun marriage or otherwise and — they have federal hurdles to go over. Let's go through those. The Department of Justice antitrust: do you see antitrust issues here?

ANDREW SCHWARTZMAN:

There are not significant antitrust issues certainly in terms of regulatory philosophy of this administration. These companies are not direct competitors.

JIM LEHRER:

It's a vertical merger rather than a horizontal one.

ANDREW SCHWARTZMAN:

That's correct.

JIM LEHRER:

Do you agree with that?

ADAM THIERER:

I generally agree with that. I think there might be some questions about what will be conditions put on the deal by either the Department of Justice or the Federal Communications Commissions in the form of program access requirements, along the lines of what we saw in the deal that Rupert Murdoch made when he acquired DIRECTV. That would be something that Comcast could probably live with. The question is will regulators or someone on Capitol Hill seek to go further and try to use something, embed something about cable rate regulation in the deal or something like that.

JIM LEHRER:

But I was going to go through these — the FCC, does it have the power to turn this down and say no way?

ADAM THIERER:

Sure, they do and there's a chance that any one of the folks that would review the merger could do so but, I don't think it's likely in this case.

JIM LEHRER:

Do you think the FCC —

ANDREW SCHWARTZMAN:

Until two years ago the FCC would have absolutely precluded this merger, would have made it impossible for even to be proposed but those rules were thrown out by a federal appeals court in Washington.

After a very big fight, Chairman Powell, Michael Powell refused to take that appeal to the Supreme Court. So the coast is really quite clear at the FCC. Theoretically, it would have the power to do so but in the absence of these cable broadcast rules it would be very hard to imagine how that would happen.

JIM LEHRER:

What about the FTC?

ANDREW SCHWARTZMAN:

Well,

JIM LEHRER:

The Federal Trade Commission.

ANDREW SCHWARTZMAN:

Well, the Justice Department and the FTC share jurisdiction and one of two will take it.

JIM LEHRER:

But you don't see the FTC stepping in and doing anything like that?

ADAM THIERER:

It's unlikely that that will be a problem with DOJ or FTC in my opinion.

JIM LEHRER:

I'll ask you, that leaves Congress, right?

ANDREW SCHWARTZMAN:

Well, just because I'm unhappy about it doesn't mean I think it deal won't go through.

It does leave Congress and I do think that there are increasing concerns. A year ago this time, people would have said, well, you know these kinds of things, media ownership and concentration are just not things Congress is likely to get involved in, but the whole world has changed in this regard.

The media ownership and concentration is proven to be an issue that has remarkably deep resonance with members of public. They don't quite understand all the details but they know, they just sense that it's not a good thing and it has certainly reflected itself since last June when the FCC repealed its broadcast media rules, so Congress —

JIM LEHRER:

There was a great public outcry about that.

ANDREW SCHWARTZMAN:

Absolutely. So, Congress might well intercede, and there are other side issues in an election year that arise. The fact that the cable indecency standards don't meet the taste of some members of Congress and surely many members of the public could well come up, notwithstanding constitutional problems that that might create.

JIM LEHRER:

How do you read that?

ADAM THIERER:

Well, I think that's right. I think there's a lot of members of Congress who have an ax to grind with the media for one reason or another, both on the left and the right. And you are seeing this week, for example, at the hearings that are going on indecency regulation but there's always going to be attempts by Congress to regulate content on the airwaves and sometimes the structure of the media business in America.

So I think there's a very real threat that Congress is going to potentially start to meddle more in this marketplace including the cable industry. I'm not sure how that would work with regards to Comcast but more on the cable industry in general.

JIM LEHRER:

The newspapers this morning were full of stories about other potential mergers, this is the first of many big ones that are about to come. Do you agree with that — I'm talking about in the media, all kinds of things, Viacom may do this and that, with some of the telecom companies, et cetera. What do you think?

ADAM THIERER:

There's a lot of shaking out that is going to take place in this industry. We've seen a lot of consolidation both on the wireless side, the wire line side of communications both, and now in the cable industry and entertainment and video distribution and programming. Again, the economics of this industry probably dictate that we're going to get down to a handful, sort of a core group of primary providers of programming. That makes a lot of policy makers very uncomfortable but that's the reality of where this industry is heading.

JIM LEHRER:

Do you agree that's where it's headed like or not?

ANDREW SCHWARTZMAN:

Like it or not, I think that there certainly is going to be a desire for more consolidation for good reasons and for bad and good deals and bad deals are likely to happen.

But the effect of each of these successive large mergers is something of a cascade. There are many, many television only companies that are saying gee whiz, not Comcast gets to own a television company so we should get to buy something else and the newspaper publishers yesterday in court were arguing that if Comcast can buy Disney, why can't they buy TV. So the one does build on the other.

JIM LEHRER:

All right. Gentlemen, thank you both very much.

ADAM THIERER:

Thank you.