You may have seen or heard it mentioned on the news: Comcast is taking over Time Warner Cable for $45 billion. Facebook acquired WhatsApp for $16 billion to $19 billion.
It sounded like just more big business mergers and takeovers. Most people were probably concerned with more immediate and proximate matters like escalating grocery and gasoline prices. But some of these business deals are worthy of our attention and could have profound consequences.
The ground is shifting – some would say tilting – in the techno-media landscape.
Comcast, which already owns the NBC network, is the largest cable TV provider and Time Warner Cable is second largest. Significantly, they are also the nation's two largest Internet service providers.
As technology evolves it isn't always easy to discern where it may lead and how the business side will be structured. It may be hard to believe that the roots of today's cable giants trace back to the mom'n'pop entrepreneurs of 65 years ago, who constructed tall community antennas and ran wires (cables) to homes in small towns and remote areas where regular TV signals were not received with standard antennas. Comcast itself had origins as a small operator in Tupelo, Miss.
If the Time Warner-Comcast megadeal goes through, Comcast could have around 33 million cable subscribers, and is unquestionably the nation's largest residential Internet carrier, reaching nearly 40 percent of homes. Cox, a major presence in western Arkansas, is currently the third-largest cable provider.
Not long ago, some foresaw the demise of cable. "Cord cutting" – dropping use of land-line phones and stopping cable or satellite subscriptions and relying on Internet TV -- was a much-discussed trend.
Instead, cable is becoming the Internet utility and Comcast and the few other cable/broadband giants are putting themselves into the position of being the toll booth or gatekeeper for content providers and consumers.
Netflix, which accounts for almost one-third of evening Internet traffic and had resisted paying Comcast to carry its content more quickly, has agreed to pay Comcast for the service and Netflix is also talking to AT&T and Verizon.
Already a powerhouse, Comcast will become even more of a force if the Time Warner Cable merger withstands scrutiny by the Federal Communications Commission. Comcast has many friends on Capitol Hill and a sophisticated lobbying effort. The Comcast team includes a former FCC commissioner and ex-legislators, such as former Arkansas Sen. Blanche Lincoln.
The other enormous deal in the works – Facebook buying WhatsApp for as much as $19 billion -- demonstrates how lucrative and unpredictable the techno-media world can be. Many Americans have not even heard of WhatsApp, a mobile/smartphone instant-messaging service that only employs 55 people. It has been said that WhatsApp has done to short message service on mobile phones what Skype did to international calling on land lines.
The 5-year old company hasn't sold advertising or produced much revenue, but has 450 million monthly users around the world and is adding 1 million a day. Besides text messaging, users can send images, video and audio as well as their location via integrated mapping features. Voice phone service will soon be added.
For Facebook, owning WhatsApp, which is growing faster than Twitter, is intended to guarantee continuing dominance in social media. Although Facebook has 1.2 billion users globally, it doesn't want to lose out on this new chapter in communication. Younger users are always looking for something new and Facebook has been buying apps with large numbers of young users as part of Mark Zuckerberg's strategy of helping users share any kind of content with anyone. This deal may also require sign-off by Washington regulators, but isn't expected to encounter any red lights.
Meanwhile, turmoil surrounds the issue of "net neutrality" – the premise that Internet service providers cannot block any legal sites or services from consumers. With the vast amount of news and information moving online, it is vital to assure that the information flow remains unhampered. A federal court struck down FCC regulations intended to restrict the ability of phone and cable companies to block or discriminate against Internet traffic. Now, the FCC is drafting new rules designed to keep providers, including the cable operators, from playing favorites in granting access. However, it appears Netflix has accepted the reality of the power of the big broadband operators.
Any way you look at it, the big are getting bigger, though innovation such as WhatsApp is keeping the game interesting. If the Comcast-Time Warner combine is approved, it would have more leverage in negotiating prices for the more popular cable and broadcast channels, such as ESPN (owned by Disney), which is by far the most costly programming source. But there's little reason to believe consumers will be the beneficiaries. Comcast, as a broadband and broadcast behemoth, is going to exercise enormous clout and play a major role in determining what consumers receive and pay.
Commentary on 03/02/2014