Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (51 page)

72.
“Time Warner Chief Invokes Past in Criticizing NBC Talks,”
New York Times, DealBook
(blog), October 13, 2009,
http://dealbook.nytimes.com/2009/10/13/timewarner-chief-invokes-past-in-assessing-nbc-talks/
.

73.
Margaret Kane, “Time Warner to Split Off Cable Service,”
CNET News
, April 30, 2008,
http://news.cnet.com/8301-10784_3-9932113-7.html
. News Corp. made a deal to swap DirecTV, along with additional assets and cash, for Liberty Media's stake in News Corp. See “News Corp. Reaches Deal with Liberty Media,”
New York Times, DealBook
(blog), December 22, 2006,
http://dealbook.nytimes.com/2006/12/22/newscorp-reaches-deal-with-liberty-media/
.

74.
Oliver E. Williamson, “Antitrust Enforcement and the Modern Corporation,”
Economic Research: Retrospect and Prospect
3 (1972): 22, available at
The National Bureau of Economic Research
Web site,
http://www.nber.org/books/fuch72-2
.

75.
United States v. Paramount Pictures, Inc.
, 334 U.S. 131 (1948).

76.
Ibid., 154. Modern economists have suggested that vertical integration should be implemented as a solution to the vulnerabilities of complex, global companies. See “Moving on Up: Is the Recession Heralding a Return to Henry Ford's Model?”
The Economist
, March 27, 2009, available at
http://www.economist.com/node/13173671
. Commentators have reported on a “return” of vertical integration in business. See Daniel Gross, “DisIntegration? Why Michael Dell Needs to Act More Like John D. Rockefeller,”
Slate
, August 17, 2006,
http://www.slate.com/articles/business/moneybox/2006/08/disintegration.html
.

77.
As a witness at the July 2010 FCC forum in Chicago about the deal, I expressed concern that the addition of the NBC Universal content to Comcast's current dominant distribution operations would enable and incentivize Comcast to constrain nascent competitive online pay-TV distributors and competition for high-speed Internet access provision to Americans. See Susan Crawford, “Comcast-NBCU Forum Today in Chicago,”
Susan Crawford
(blog), July 13, 2010,
http://scrawford.net/blog/comcast-nbcu-forum-today-in-chicago/1372/
. Other critics suggested that a vertically integrated company could foreclose competitors from the market, stifling competition. See Charles B. Goldfarb,
The Proposed ComcastNBC Universal Combination: How It Might Affect the Video Market
(Washington, D.C.: Congressional Research Service, 2010), 19; Emily Bell, “NBC Universal and Comcast's Merger Is No Joke,”
The Guardian
, January 21, 2011, available at
http://www.guardian.co.uk/media/2011/jan/21/nbc-universal-comcast
.

78.
United States v. Microsoft Corp.
, 253 F.3d 34, 55, 60 (D.C. Cir. 2001).

Chapter 5. Netflix, Dead or Alive

1.
“
The Comcast/NBC Universal Merger: What Does the Future Hold for Competition and Consumers?”: Hearing Before the Subcomm. on Antitrust, Competition Policy and Consumer Rights of the Committee of the Judiciary
, 111th Cong. 24 (2010).

2.
Ibid., 23.

3.
“Only 8% of U.S. households with a television rely on antenna reception,” according to the Consumer Electronics Association, “CEA Study: Consumers Are Tuning
Out Over-the-Air TV,” survey, May 31, 2011, available at
http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=12105
.

4.
See Nigel Hollis, “Why Good Advertising Works (Even When You Think It Doesn't),”
Atlantic
, August 31, 2011: “I often respond by pointing out that U.S. companies would not invest $70 billion (yes, that's the size of TV's ad market) in something they thought didn't work.”

5.
Shahid Kahn, “Time Warner Cable's iPad App,”
Mediamorph
(blog), March 28, 2011,
http://www.mediamorph.com/blog/?p=153
.

6.
Lauren A. E. Schuker, “Customers Say to Cable Firms, ‘Let's Make a Deal,’”
Wall Street Journal
, December 29, 2011.

7.
“From the richest to the poorest, inflation-adjusted incomes were lower in 2010 than they were a decade ago” (“Cutting the Cake: The Real Incomes of America's Richest and Poorest Households,”
Economist Online
[blog], September 14, 2011,
http://www.economist.com/blogs/dailychart/2011/09/us-household-income
).

8.
Liberty Media Corporation, “Q1 2011 Earnings Call,” transcript, May 6, 2011,
http://www.morningstar.com/earnings/PrintTranscript.aspx?id=27506514
.

9.
“For the moment it looks like satellite, telcos are continuing to gain video share, but the cable guys are driving to some incredible high penetration rates on broadband. I'm very impressed to hear that Comcast have 17 million broadband customers, out of what was it 22 million?” (ibid.).

10.
Jessica E. Vascellaro, “At Comcast, No Fear of Web Video,”
Wall Street Journal
, February 28, 2011.

11.
“Comcast's CEO Discusses Q1 2012 Results—Earnings Call Transcript,”
Seeking Alpha
, May 2, 2012, available at
http://finance.yahoo.com/news/comcasts-ceo-discusses-q1-2012-163011159.html
(the average revenue per user was up 4 percent from the previous quarter).

12.
“Comcast, Time Warner, Bright to Sell Spectrum Worth $3.6 Bln to Verizon Wireless,”
RTT News
, December 2, 2011,
http://www.rttnews.com/1773694/comcast-time-warner-bright-to-sell-spectrum-worth-3-6-bln-to-verizon-wireless.aspx
; Cecilia King, “Verizon Wireless Makes Marketing, Airwave Deal with Three Cable Companies,”
Washington Post
, December 2, 2011.

13.
Jessica E. Vascellaro, “Malone Is Fired Up by Cable and Ready to Buy,”
Wall Street Journal
, July 12, 2010.

14.
“Starz will bring 2,500 movies and TV shows to Netflix.com, through its Starz Play broadband movie service. Netflix subscribers will pay nothing extra—and may for the first time find that online streaming is a satisfying alternative to waiting for the mailman,” wrote Brad Stone, “Starz Gives Netflix Fans a Reason to Stream,”
New York Times
, October 1, 2008. “The original deal from 2008, in which Netflix paid an estimated $25 million annually—a paltry sum, executives say, compared with the hundreds
of millions of dollars cable and satellite companies pay Starz for the same movies—is now seen as a major coup for Netflix, and a major mistake by Starz. Michael Nathanson, a media analyst at Nomura, called it ‘probably one of the dumbest deals ever. Starz gave up valuable content for tens of millions of dollars,’” noted Tim Arango, “Time Warner Views Netflix as a Fading Star,”
New York Times
, December 12, 2010.

15.
Stone, “Starz Gives Netflix Fans a Reason to Stream.”

16.
Sue Zeidler and Jennifer Saba, “Netflix, Epix Strike Programming Deal,”
Reuters
, August 10, 2010.

17.
Dean Takahashi, “Netflix Confirms Deal to Launch Kevin Spacey Series via Video Streaming,”
Reuters
, March 21, 2011.

18.
“Netflix Now Represents 29.7% of North American Peak Downstream Traffic,” Spring 2011 Global Internet Phenomena Report, Sandvine, Intelligent Broadband Networks, May 17, 2011, available at
http://www.sandvine.com/news/pr_detail.asp?ID=312
.

19.
“Netflix estimates it will spend about $600 million on postage this year, with the annual cost rising to $800 million within the next few years,” reported Michael Liedtke, “Netflix Adds 1.1M Customers, 4Q Profit up 36%,” Associated Press, January 28, 2010.

20.
An article in
Forbes
described Netflix's open, collaborative approach to developing new algorithmic software designed to tailor individual customer video recommendations based on the customer's viewing history. See Lee Gomes, “Netflix's Law: The Future of Software,”
Forbes
, November 12, 2009.

21.
Janko Roettgers, “Netflix Streaming Users Now Outnumber DVD Subscribers 2:1,”
GigaOM
video, January 25, 2012,
http://gigaom.com/video/netflix-streaming-vs-dvds/
.

22.
As Don Davis reported, “Netflix is besieged with requests from manufacturers of consumer electronics devices to embed its software into their Internet-enabled machines so consumers can access videos from Netflix. ‘It's possible that within a few years nearly all Internet-connected CE devices sold will include a Netflix streaming client,’ Hastings said” (“Netflix Will Mail DVDs on Saturday, but Also Invest More in Streaming Video,”
Internet Retailer
, April 24, 2009,
http://www.internetretailer.com/2009/04/24/netflix-will-mail-dvds-on-saturday-but-also-invest-more-in-stre
.

23.
“Netflix said today that it ‘hates’ upsetting customers by raising prices as much as 60 percent and acknowledged that the customer backlash to the rate hike would likely stifle growth and hurt earnings in the short term,” reported Greg Sandoval, “Netflix ‘Hates’ Upsetting Customers, but Most Won't Cancel,”
CNET News
, July 25, 2011,
http://news.cnet.com/8301-31001_3-20083201-261/netflix-hates-upsetting-customers-but-most-wont-cancel/?tag—ncol;txt
. “Netflix lost 800,000 U.S. subscribers in the quarter that just ended, which was littered with PR nightmares including a price hike and the Qwikster debacle,” noted Julianne Pepitone, “Netflix Loses 800,000 Subscribers,”
CNN Money
, October 24, 2011,
http://money.cnn.com/2011/10/24/technology/netflix_earnings/index.htm
. While the loss of 800,000 subscribers is significant, the overwhelming majority of Netflix's 25 million subscribers elected to swallow the price hike and continue with the service.

24.
Tim Arango, “Netflix as a Fading Star.”.

25.
Ibid.

26.
Ben Fritz, Joe Flint, and Dawn C. Chmielewski, “Starz to End Streaming Deal with Netflix,”
Los Angeles Times
, September 2, 2011.

27.
Paul Bond, “Starz Not ‘Reveling’ in Netflix's Pain After Severing Ties with the Company, Says Top Exec,”
Los Angeles Times
, December 5, 2011.

28.
Ben Fritz, “Netflix Stock Drops 9% on News That Starz Deal Will End,”
Los Angeles Times, Company Town
(blog), September 2, 2011,
http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/09/netflix-stock-drops-9-on-news-starz-deal-will-end.html
. Moreover, from the announcement of the price hike in July 2011 through the Starz's abrupt walkout on negotiations in September, and to the end of the fourth quarter, Netflix's stock tumbled from a high of three hundred dollars to below fifty dollars per share.

29.
Elliot Van Buskirk, “Cable Departs from Hulu Model with ‘TV Everywhere,’”
CNN Asia
, June 26, 2009,
http://asia.cnn.com/2009/TECH/biztech/06/26/wired.tv.everywhere/index.html
.

30.
“Broadband gross margin dollars per subscriber were up even more at 5.4%, where margins expanded by 130 bps from the already stratospheric level of 93.2% a year ago (yes, ladies and gentlemen),” reported Craig Moffett, “Quick Take—Comcast—Designated Driver at the Buyback Party,” Alliance Bernstein Research, February 16, 2011.

31.
Yinka Adegoke, “In Switch, Cable Operators Want to Go ‘a la Carte,’”
Reuters
, September 27, 2011,
http://www.reuters.com/article/2011/09/27/cable-idUSS1E78K05L20110927
.

32.
“When retrans fever first erupted several years ago, broadcasters targeted small cable operators, satellite TV and new entrants such as Verizon FiOS with the first wave of deals. These newer companies lacked clout, either nationally or with heft of concentration in any one local market, so they pay the highest per capita fees,” (Robert Marich, “Broadcast's $1 Billion Pot of Gold,”
Broadcasting and Cable
, July 6, 2008,
http://www.broadcastingcable.com/article/114424-Broadcast_s_1_Billion_Pot_of_Gold.php
).

33.
For example, in the latest deal between Comcast and ESPN/Disney, Comcast agreed in January 2012 to pay an undisclosed amount to Disney Corporation in order to strike a ten-year deal to carry all of Disney's stations and programming—including in an on-demand format—thereby cementing the distribution and reach of all of Disney's content. See Meg James, “Disney Partners with Comcast to Provide ABC, ESPN On-demand,”
Los Angeles Times, Company Town
(blog), January 4, 2012,
http://latimesblogs.latimes.com/entertainmentnewsbuzz/2012/01/walt-disney-co-partners-with-comcast-to-provide-abc-and-espn-on-demand.html
.

34.
Dawn C. Chmielewski and Ben Fritz, “Fox Restricts Free Online Access to Its Shows,”
Los Angeles Times
, July 27, 2011.