1. Cypherpunk on March 9, 2004 10:28 PM writes...

How is this different than any other market? Merging and consolidation will increase market power no matter what you are buying or selling. What specifically differentiates telecom that makes it more susceptable to this problem? Is there a natural monopoly at work? Or some regulatory barrier that prevents the entry of new competitors when the giants get too greedy?

2. Ernest Miller on March 9, 2004 10:41 PM writes...

Yes. How many satellite firms has the FCC authorized? How many satellites can we have? How many cable companies does a typical city permit?

3. Cypherpunk on March 9, 2004 10:50 PM writes...

Those are examples of barriers to entry for distributors, but ironically your description seems to indicate that it is the other side, the content creators, which have the market advantage. I don't see many barriers to entry in creating new cable channels or TV shows; in fact, from what I've read, there are hundreds of them that you and I have never heard of.

It would be strange, although I suppose not impossible, if providing a near-monopoly to a business somehow gave market power to its customers and partners.

4. Ernest Miller on March 9, 2004 11:10 PM writes...

Well, if you are a content provider and there is a near monopoly on distribution, what are you going to do? Increase your own power in order to better negotiate, right?

5. Cypherpunk on March 9, 2004 11:33 PM writes...

Yes, as a content provider you would like to increase your market power when faced with a disadvantage. But the point is that you would also want to increase your market power even if the other side did not have such an advantage. Market power is always beneficial. The fact that Microsoft is in the advantageous position of selling to millions of customers doesn't make it work any less hard at maintaining its market dominance, for example.

What limits this effect in most markets is that if a monopoly arises through consolidation or some other means, other parties can enter the market and provide competition. This restricts how much market power any one party can exercise. My original question was directed at why this is not happening with Viacom, and why that company is able to exercise this kind of market power. Barriers to entry by its customers don't explain this in an obvious way, although it's possible that there are subtle effects going on.

6. Robert on March 9, 2004 11:42 PM writes...

There's another element to this debate worth considering...

Yes, the current regulations do encourage consolidation. But there is a positive outcome that can result out of this scenario.

Take Comcast's bid for Disney as an example. One reason for the bid is so that Comcast can gain negotiating leverage over content deals, per this thread. But the other reason why Comcast wants Disney is their strong desire to rollout their VOD initiative much more rapidly. One of the big obstacles to VOD deployment has been the studios -- they have been stalling VOD licenses for fear of cannibalizing their gangbuster home video/DVD business.

Now if Comcast succeeds in acquiring Disney, they will likely unlock the film vault for VOD. This, in turn, will pressure other studios and cable distributors to do the same. This is big! Not only will it benefit the public by allowing them the convenience to see movies on demand, the movie studios can start adjusting to a new business model where they will no longer rely on physical inventory of DVDs and distribution chains. This, in turn, will allow for a much smoother transition to an internet-based distribution model. The current regs encourage such an outcome.

7. Ernest Miller on March 9, 2004 11:45 PM writes...

Generally, you want to increase your own market power. However, there are two places where Viacom can exercise its market power. One is with the cable or satellite company, the other is with the consumer.

As a consumer, the fact that Viacom owns both MTV and Comedy Central is not going to make me more likely to watch Nickelodeon in any real sense. There might be some cross marketing going on but, really, there isn't a lot of market power that we can point to. Furthermore, it would be a lot harder for Viacom to tell consumers that if you don't watch Nickelodeon, we won't let you watch CBS, MTV, and Comedy Central.

On the other hand, the threat of Viacom withholding its premium channels from EchoStar is a valid threat.

With regard to the consumer, consolidation doesn't create any real market power threat. With regard to the distributor, it does.

8. Ernest Miller on March 9, 2004 11:46 PM writes...

VOD doesn't impress me and I really don't care. Give me TiVo and Netflix anyday. I think the internet will spur development and roll out of VOD well enough.

9. Robert on March 10, 2004 01:10 AM writes...

No argument there, I love my Tivo and Netflix too. But if I can get first-run movies on VOD, p2p, or someone's blog without breaking any laws, that would be great too. My point was simply that anything that can get the studio's to unlock their vaults for IP distribution would be a significant thing. For this to happen as a result of today's FCC regs seems counterintuitive I know, but that's just my belief.

BTW, I'm here because I'm a great fan of your blog, simple as that. Hope you don't mind.

10. Ernest Miller on March 10, 2004 02:00 AM writes...

If one of the satellite or cable providers buys Disney, it may marginally increase the liklihood of VOD roll out. However, the other studios would also have to agree, otherwise the cable company rolling it out will be out on a limb. So, I don't think that the increase in liklihood is substantial.

Still, although VOD would be nice, I really don't see it as a major breakthrough or revolutionary product. It will come, a buyout might increase the speed with which it comes, but it is coming nonetheless. I'm not sure an increase in the rollout of a technology that isn't that impressive in the first place is worth all the other problems consolidation will cause.

I'm glad you like the blog. I don't mind comments, as long as you don't mind that we may disagree.