Comcast sits at the table with the big boys

In a recent article

 Comcast sits at the table with the big boys

In a recent article in the Philadelphia Inquirer, reporter Akweli Parker shows how Comcast is using its clout as the #1 American cable provider in America.. It became number one when it acquired AT & T Broadband last year, and it now has over 22 million customers..

Comcast faces a problem all cable operators face, which is that the cable networks, like ESPN, HBO, and Showtime, keep raising their rates each year. These raises often are in double digits, and that strongly increases the expenses of the cable companies. Those raises can happen because the cable networks are almost all owned by a handful of companies (Disney, Viacom, News Corp., Time-Warner, General Electric). These cable networks are in a mature market; one of the few ways they have to increase revenue is by raising prices to their customers, the cable operators. There are, after all, few sellers of programming and virtually no alternatives.

But Viacom with its market strength is in the position of an oligopsony to the cable networks. It constitutes a buyer that the oligopolies have to treat with respect. As the article notes that after the merger, “with more customers, Comcast could squeeze deeper discounts from programmers such as ESPN, HBO and USA Networks – bulk discounts for delivering more viewers.

“Also, since the merger, the company has begun reevaluating all its deals with networks, on a case-by-case basis. And when things haven't gone its way, it has gotten tough.”

Comcast can’t dictate prices – it still needs HBO and ESPN to serve its customers. But the cable networks need Comcast for promotion, especially the pay channels, and for carrying any new channels. But the second alternative is more compelling:

“Comcast has another arrow in its quiver in the fight against high programming costs: Its pockets are deep enough to launch its own channels where it believes a market is underserved.

“For instance, it started the video-game channel G4 last year, and it plans to provide black viewers with an alternative to BET later this year with its provisionally named TV-One network, a partnership with Radio One, based in Lanham, Md.”

Thus the cable networks have to play nice with the one cable operator that they both need and that could compete directly with them in providing content.

At the end of the article, Parker asks if any of this clout will help Comcast subscribers, who have seen considerable rate hikes over the last few years. Not any time soon. Comcast is a virtual monopoly (yes, there are alternatives with broadcast TV and satellite), so the individual customers haven’t the clout with Comcast that Comcast has with Viacom and company.

 Principles illustrated:

• Being #1 is great, #2 is good, #3 is difficult, #4 or higher is a losing game.
• Oligopolies lead to oligopsonies.

[Oligopoly Watch]