Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age

by Susan P. Crawford J. D.

  But in the months after the $20 million went on the table, together with Comcast's other commitments, minority opposition to the deal—the only thing that worried Comcast during the yearlong review of the merger—melted away.52 David Cohen and Comcast had made friends and influenced people.

  Comcast was nothing if not flexible when it came to small, nonstructural favors. At the House Judiciary Committee hearing, Jean Prewitt, president of the Independent Film & Television Alliance (IFTA), testified that “what is good for Comcast and NBC is not good for the American public.” For Prewitt, the merger was about “the very future of creative life, cultural expression and the free exchange of ideas.” The merger “places at risk the opportunities for diverse, original and independent programming to reach the public through traditional media and new platforms.” The government should not approve the merger, she argued, without strong commitments that independent filmmakers would be able to distribute their works through the new network.53

  Comcast listened. About a month later, NBC Universal announced that it would increase support for independent programming under an agreement made by NBC Universal, Comcast, and Prewitt's IFTA. The deal called for NBC to spend one million dollars annually and NBC Universal's cable networks to spend another half million for four years after the merger closed. The companies also said they would find ways to smooth licensing of independent programming for new-media distribution. Jean Prewitt was happy: the agreement, she said, “has the potential to create business opportunities for independent producers that have long wanted to produce for television in the United States again.”54

  No more opposition from IFTA.

  Another group that could have caused problems for Comcast was the 210 NBC network affiliates, the stations not owned by NBC that carried its programming. The affiliates worried that the Comcast-NBCU merger would cost them advertising revenue since direct-to-cable distribution of high-value NBC programming—sports coverage, for example, which made the affiliates millions in ad revenues—would mean that cable customers would get Comcast's best shows and the local affiliates would not get a cut. (Networks used to pay their affiliates to air network shows, but these payments have gotten smaller over time; now the affiliates are more likely to broadcast shows for free and make their money through commercials. If affiliates are not allowed to sell commercial slots by the network owner, their margins will dwindle and their existence will be threatened.) Affiliates also wanted to ensure they could continue to charge fees for the local programming—mostly news—they allowed the cable networks to redistribute.55

  It might seem that the affiliates had little leverage. But if a local news station had been angry enough about losing profits because of the merger, it could have complained to the FCC and Justice Department; such a complaint could have made the merger approval process much more difficult. And the NBC affiliates were not the only ones looking to start a fight—ABC, CBS, and Fox affiliates also stood to lose and were willing to push for a better deal. All the affiliates commanded a microphone in their local areas, and if they decided to yell, the public would have noticed.

  Again, Comcast deftly smoothed the waters. It promised the NBC affiliates that NBC sports programming would not move to cable and that NBC's overall signal would be available for rebroadcast. It also promised these affiliates—as well as those at ABC, CBS, and Fox—that it would keep its negotiations over fees for programming separate from its negotiations over the terms under which a particular station could become an NBC affiliate and that it would not discriminate in programming-fee negotiations based on a local station's affiliation or lack of affiliation with Comcast. This appeased the affiliates, who had been worried that Comcast would be wearing both hats as a network owner (jealous of an affiliate's ability to command any fees for programming) and a cable distributor (anxious not to pay high fees for programming) and that it would force the affiliates to accept unfavorable deals for programming as a condition of remaining affiliates.56

  The affiliate agreement was a coup; while giving very little in return, Comcast took the affiliates out of play as a source of vocal opposition to the merger.

  As thousands of comments came in to the FCC about the merger, predictable patterns emerged. Public-interest advocates like Public Knowledge and Free Press had prompted individuals to file tens of thousands of one-page comments opposing the merger. (Although many of these comments were individually drafted, many used language provided by Free Press: “A merger of this size would give one company unprecedented control over media content and platforms. It would allow the largest cable and Internet access provider to control one of the nation's largest media companies.”) These letters helped build the impression of widespread public opposition to the merger, something the FCC, Justice, and especially the Senate were likely to take seriously.57

  But Comcast was ready for this move, too. It had a sturdy reputation as a generous and civic-minded company, and it had already encouraged letters from more than a thousand nonprofits, government officials, and community activists. Hundreds of state legislators supported the merger. Community centers, rehabilitation centers, civil rights groups, community colleges, sports programs, senior citizen groups—hundreds wrote in, saying that Comcast had been a partner in time of need. These too were prewritten; a typical letter read, “[Name], Comcast's Vice President of Customer Care, serves on our board, and has not only provided leadership, but has been a constant voice of support for our cause. Comcast has been a major funder of our services. … It has also established a yearly presence at our most important fundraiser. … Being able to count on Comcast's annual support is a big help to our organization.”58

  The sole FCC field hearing on the merger, held in Chicago in July 2010, was attended by a single commissioner out of five: Michael Copps. Chairman Genachowski pleaded other commitments and sent a video statement. The hearing finished up with a two-hour open-mike session dominated by nonprofit beneficiaries of Comcast's largesse. As John Eggerton of Broadcasting & Cable reported: “A representative of an afterschool program called Comcast a wonderful supporter; a diagnostic treatment center rep called Comcast an angel; a drug prevention center got carriage of programming by Comcast that others would not. … After a couple of plugs for FCC protection for public access channels, the parade of fans continued, including a Hispanic civil rights group, a community college foundation, a dance program for at-risk youth. The tenor of those comments could be summed up by one: ‘Comcast epitomizes ethical corporate citizenship.’” Even FCC staff could not help chuckling privately when one of the groups speaking for Comcast turned out to be an organization whose mission involved supporting “companion animals.” Comcast had helped them out as well.59

  Comcast's gifts of more than $400 million in cash and in-kind contributions (mostly public service announcements) in 2009 to charities around the country had an impact not only on the community groups that got the money directly but on the legislators whose districts and favorite causes were supported. These contributions, amounting to $1.8 billion between 2001 and 2010, were a creative way to get closer to lawmakers.60 Comcast got a tax deduction, the causes got support, and the political relationships so critical to Comcast's success were strengthened.

  Of course, Comcast is hardly the only practitioner of this art. As the New York Times reporter Eric Lipton said in 2010 on CNN, politically motivated charitable donations demonstrate that “Washington is really a creative place … everyone, to some extent, is served.” Mickey Edwards, a former Republican Congressman from Oklahoma, told Lipton that through charitable contributions, a company “can make that person identify with me, have a relationship with me, feel that I am somebody who shares their concerns. … It's a way of trying to build that relationship between a member and a funder, to the mutual advantage of both.” For example, Jay Rockefeller (D-W.V.), the chair of the Senate Commerce Committee and a tremendous fan of Johann Sebastian Bach and the Washington Bach Consort, was happy to see communications companies, including
Comcast, Verizon, and AT&T, give the group more than three-quarters of a million dollars in 2009. Do such contributions influence the positions taken by Rockefeller and others? “Absolutely,” said Edwards.61

  The Comcast-NBCU merger provided a classic case study of the influence of nonprofit contributions. Comcast's own influence-buying campaign was big, if not novel; the company applied enormous resources and sheer force to ensure that support for the deal was widespread. Whether the resulting support had anything to do with the public-interest merits of the deal itself, it was vocal and widespread. And it was high-level: Governor Rendell wrote in, and so did Governors Schwarzenegger of California and Paterson of New York.62

  Even hearings unrelated to Comcast became a platform for praise. On the last day of Supreme Court nominee Elena Kagan's confirmation hearings during the summer of 2010, Sen. Al Franken began to express concern about Comcast and pressed Kagan for her views. “Comcast is already extremely powerful,” Franken said. “It's the nation's largest cable operator and also the largest home Internet service provider. If it owned both the pipes and the programming it would have the ultimate ability to keep others from publishing.” Specter, who also sat on the confirmation panel, was moved to respond: soon after Franken's comment, he introduced into the record a letter from himself saying that the merger was a good deal.63

  Comcast had been paving the way for these favorable statements for years, playing a very long game of indirect and direct political contributions. Between 2002 and 2010, it had laid out more than nine million dollars in direct donations to congressional members’ campaign and political organizations—with most of that coming during the 2008 and 2010 election cycles. One Hill staffer told me that there was no political reward for members in opposing the merger. Indeed, opponents would have had to meet with a host of Comcast-hired consultants asking questions about their opposition that members might not have been prepared to answer. Another obvious cost of opposition could come in the form of campaign contributions to election opponents. (Things have become more subtle since the old Standard Oil days; in the late nineteenth century Standard Oil simply bought a guarantee—in the form of state legislation granting an ironclad exclusive charter to Rockefeller—that no other refinery would be able to route around Rockefeller's business plans in Maryland.)64 But money was not the only incentive: members were worried about how the Iraq and Afghanistan wars would affect their reelection efforts, and unless other large companies started making arguments against the merger, it was hard to find a good political reason to say anything in opposition. The air of inevitability about the deal was hard to miss.

  And yet a few members of Congress spoke out. Sen. Herb Kohl of Wisconsin was of one of the wealthiest senators and the most fiercely independent, having been elected in 1988 on the slogan “Nobody's Senator but Yours.” Campaign contributions from the cable carriers were meaningless to him. As chair of the Antitrust Subcommittee of the Senate Judiciary Committee, Kohl had been raising alarms for years about the consolidation of American industry. He had sent letters and worried aloud about antitrust immunity for airline alliances and had taken on the exemptions from antitrust laws enjoyed by the railroad industry and health insurance companies. He had vocally opposed the Sirius–XM satellite radio merger that the FCC approved in 2008, and he did not consider the Comcast-NBCU merger a good idea either.65

  Kohl publicly proposed in May 2010 a long list of conditions that he thought should be imposed on the merger, including divestiture of Comcast's stake in Hulu and a requirement that Comcast not prohibit programmers with whom it dealt from distributing their content independently online. Sen. Bernie Sanders (I-Vt.) voiced outrage throughout the merger review, saying at one point, “Once we allow companies to become this powerful, the FCC does not regulate them. They regulate the FCC.”66

  But it was Al Franken, with his gravelly drawl and persistent spark of humor, who was by far the most publicly outspoken about the problems with the merger. In an April 2010 hearing about the activities of the Antitrust Division, Franken expressed his concern to Attorney General Eric Holder. “I'm concerned because I see the potential here for the consolidation of media in a way that is, to me, very frightening,” he said. Would the merger lead to a world in which “five companies are going to be controlling all the information that we get?” Franken suggested that the Comcast-NBCU merger could also affect consumers’ cable bills. Holder, who had been answering Franken's previous points with bland statements about “putting into place a variety of conditions,” snapped to attention:

  Holder: Well now I care. I'm a—a Comcast subscriber, and the fact that you point out it could have an impact on my cable bill has awakened me …

  Franken: I knew I could reach you somehow.

  When Franken said that he was unhappy with regulator-imposed behavioral conditions on mergers, arguing that they were hard to enforce and “inevitably expire[d]” after a few years, Holder replied, “I think we can make those conditions ones that are enforceable. … It involves having … access to … experts in the field.” Franken wasn't convinced, arguing at a Minneapolis session in August 2010: “We don't just have a competition problem. We have a First Amendment problem. Justice Hugo Black once said that “[f]reedom to publish is guaranteed by the Constitution, but freedom to combine to keep others from publishing is not. … Yet if this merger goes through, Comcast and NBCU will have an unparalleled ability to keep others from publishing. And it will mean a poorer marketplace—and a poorer marketplace of ideas—for everyone.”67

  Throughout all this David Cohen moved smoothly ahead. He had hired Kohl's former chief of staff, Paul Bock, to lobby on behalf of the deal.68 Kohl's letter and the opposition of Sanders and Franken would not stop it. All was going well.

  Taken together, the hearings on the merger showed Comcast in top form, defusing one potential landmine after another. Roberts had easily stayed on message, reminding legislators that NBC would be better off inside Comcast than with General Electric. The Los Angeles field hearing had thrown off more heat than light, with the diversity worries raised by witnesses and Maxine Waters assuaged by Comcast's quick promises. The first Chicago field hearing, convened by Rep. Bobby Rush, had been an opportunity for Comcast to present those promises in public, and the second Chicago field hearing, convened by the FCC, had ended up as a farce, with dozens of public commenters attesting to Comcast's corporate generosity. No one seemed to be listening to Franken, Sanders, or Kohl, and Franken was aware that his energetic opposition to the deal might dim his own reelection prospects.69 Then again, the decision was not up to Congress: it belonged to the agencies. And that's where the lobbyists focused their real firepower.

  11

  The FCC Approves

  THE COMMUNICATIONS MERGER PROCESS at the Federal Communications Commission, one content-industry employee told me, is “just awful.”1 It's a game: the companies that plan to merge know that if they can get the regulators to spend enough time considering the deal, it will probably go through. There may be a brief struggle with underfunded public-interest groups, but if no other large companies oppose the deal, the feds’ investment of time in working with the merging parties, coupled with their interest in moving on to other items on their agenda, generally overcomes any private concerns about consolidation of market power. Just two major media–telecommunications mergers have been rejected by the FCC in the twenty-first century: the proposed combination of the country's two major satellite video providers, EchoStar and DirecTV in 2002, and the proposed merger between AT&T and T-Mobile in 2011.2 Both rejections were unusual. In 2008, by contrast, the FCC approved the merger of the two providers of satellite radio, Sirius and XM, even after it became clear that the combined entity (Sirius XM) would, in fact, monopolize the satellite radio market.3

  The merger-approval dance requires a series of steps. What is called a “record” of filings with the FCC is created over a period of months, amounting to hundreds of thousands of pages. Deals are struck before and dur
ing the process to make stakeholders (such as interest groups and trade associations) who might object feel that they have gotten something out of the process. In the Sirius-XM merger, for example, the Commission pointed to the new combined satellite radio company's voluntary commitment to offer lower prices for a three-year period as a public-interest benefit that would outweigh the long-term monopolistic harm generated by the transaction.4 Yet after all the filings and the hundreds of meetings, the last phase is often an unseemly scramble for concessions. “At the end,” the content-industry employee told me, “people will all be in the room trying to get something. It will matter who is in the room.”5 Mergers are fact-dependent—particular companies are involved, particular market power issues are at stake—but the final decision sets the stage for broad future policy even though only a few key actors are “in the room” at the end of the process.

  For instance, after their last-minute struggles to merge at the end of 2005 with SBC and MCI, respectively, AT&T and Verizon voluntarily agreed to subject their DSL Internet access businesses to the FCC Broadband Internet Access Policy Statement, which entitles consumers to run applications and use services of their choice.6 The companies’ agreement made a nonbinding policy statement by the Commission appear suddenly binding—but for only part of the high-speed Internet access industry and not for the cable companies. The same 2005 merger approvals were used to pressure the phone companies to sell ten-dollar-a-month DSL services separately, divested from bundles of services, for two years. Commissioner Kathleen Abernathy felt that the Commission was overstepping the appropriate scope of its merger review by exacting these agreements, noting that “[i]t should not be standard operating procedure to craft company-specific merger conditions to address unknown and hypothetical competitive threats,” and urging the FCC to use its “customary administrative weaponry” of rulemaking and enforcement actions, rather than merger reviews, to shape policy.7 As Thomas Koutsky and Lawrence Spiwak of the Phoenix Center asked in a 2007 article, “Are consumers really well-served by backroom, closed-door negotiations between the regulator and prospective merging parties over important public issues?”8