As global media titans like Comcast, Disney and Rupert Murdoch do ferocious battle, someone needs to be looking out for the consumer’s interest

For many decades giant American cable companies possessed what seemed like a licence to print money.

By bundling their exclusive blockbuster entertainment content such as live sports with other programming, which was still desirable but which had less mass appeal, they could effectively compel customers to purchase expensive all-in cable subscriptions. The profit margins were extraordinarily plump.

Then along came Silicon Valley and spoiled the party.

By offering relatively cheap online streaming services like Netflix and Amazon Prime, these newcomers created a business model with the potential to destroy the cable empires.

Why buy an expensive cable cord subscription when you can simply use your broadband connection to access your home entertainment through your internet-ready TV, or your computer, or your tablet, or even your phone?

And what if those cash-rich Silicon Valley companies started to seriously compete in bidding wars for those desirable exclusive sports, movie and TV content rights, currently in the hands of the cable companies? What if they started to make the content themselves by establishing studios?

The mass “cord cutting” by Americans, long forecast by industry analysts, hasn’t begun yet. Americans are slow to change their habits. Many have Netflix alongside their cable packages. Yet it’s still clear which way the content wind is blowing, especially with younger “digital natives” far less likely to be in the habit of subscribing for cable.

So how do the cable companies respond? If you can’t beat them join them is one option. Why not buy smaller digital streaming companies and beef them up into potential rivals to the big Silicon Valley players?

Some cable companies have already diversified, acquiring content creators such as movie studios and news networks. They could leverage that exclusive content to serious challenge the incumbents in the battle for digital subscribers.

That was likely a significant motivation for Disney’s recent $66bn bid for 21st Century Fox.

Another tactic for the cable leviathans is simple acquisitions: get even bigger and expand into new cable markets abroad. Control more broadband distribution networks.

Large revenues means larger cash flows, which means more investment firepower for new content production and bidding wars for content rights.

That’s how best to understand Comcast’s dramatic attempted gazumping of 21st Century Fox’s bid for Sky today.

Where is the public interest in all this? The focus here in the UK in relation to the Sky takeover battle has, understandably, been on preserving the plurality of the UK news media environment.

Such concerns fell away somewhat when Rupert Murdoch agreed to sell the majority of his 21st Century Fox business to Disney. Unlike Murdoch, the home of Mickey Mouse doesn’t already control any major British news brands.

And there are no obvious news plurality issues in relation to Comcast, the company behind a couple of large US news broadcasters, owning Sky News. MSNBC is not a big influencer of public opinion on these shores.

It’s possible there might even be more welcome investment in UK TV news if the deal goes through.

Yet there are, nevertheless, grounds for concern.

Competitive and dynamic as the Western world’s media landscape seems on the surface, size still confers power, both commercial and political.

It’s reasonable to be suspicious when the same company potentially provides your home broadband, streams your content, creates that content and also provides your news. There are a lot of potential barriers to customers switching there. Or it’s possible to imagine them being erected. It’s perhaps not a coincidence that, as well as having the largest revenues among media companies in America, Comcast is also one of the firms most complained about by consumers.

This ferocious global battle among giant multinational media and technology conglomerates for content and distribution networks can feel like a remote drama peopled by stupidly-rich oligarchs, moguls and financiers. Perhaps a fitting subject for a new Netflix drama. Fetch the popcorn.

But make no mistake: what these titans are all battling over is our attention and access to our wallets. And it’s essential that our interests as consumers are adequately safeguarded by regulators.

Bundling is profitable for cable firms and internet streamers. But is it a bundle of fun for customers?

Imagine a business model that enabled your firm to compel customers to purchase things from you that they wouldn’t otherwise buy. To sellers it probably sounds like a dream. To buyers it sounds like a bad joke. But it’s neither a dream nor a joke. It’s called bundling.

Many people purchase a satellite or cable TV subscription for a particular piece of content – maybe live Premier League football matches or episodes of Game of Thrones – and watch none, or little, of the other stuff available as part of their subscription.

Even the most voracious devourers of entertainment will only ever consume a small fraction of what they have access to as part of their packages. There are, after all, only so many hours in a day, even for telly addicts.

Consumers would be better off financially if they only paid for what they actually consumed. But under this arrangement the media companies would be worse off. So instead of offering pay-as-you-watch deals, they bundle.

Sky in the UK and the big cable companies in the US have extracted large profits from this selling practice in recent decades. They’ve used their exclusive rights to some forms of sports broadcasting or other premium entertainment content to effectively compel customers to buy bigger packages.

But new technology in the form of internet streaming subscription channels now presents a commercial challenge to these bundlers. In the US, financial analysts talk of “cord cutting”, to describe Americans ditching their expensive cable connections in favour of cheaper streaming services.

The epic deal last week by Disney to buy most of Rupert Murdoch’s Fox movie and TV assets and also his share in the streaming service Hulu was heavily motivated by the rise of Netflix and Amazon Prime.

Disney is preparing to invest in its own streaming platform, leveraging its vast catalogue of exclusive films, TV shows and sports rights.

Yet streaming has not killed bundling, but rather re-invented it in a new form. The streaming companies, of course, have their own bundles. If you want access to their own burgeoning exclusive content, you have to buy the whole package. These are cheaper than satellite or cable bundles, though the cost soon adds up if you have more than one.

So what should we make of media bundling from an economic perspective? Bundling is essentially a way of firms to extract the “consumer surplus”, a reference to the difference between the maximum customers would be willing to pay for something and what they would be asked to pay in conditions of perfect competition.

Of course, as this implies, consumer surplus extraction is only possible because competition is imperfect and sellers have some degree of market power. So should we consumers be outraged at the existence of bundling? Should we be demanding regulatory intervention to prevent it happening?

It depends. High profits for media companies from bundling might be seen as socially useful if the surpluses are re-invested in quality cultural or educational content that might not otherwise be made. This kind of welcome cross-subsidy was common in the era when print newspapers (a form of content bundling) had a virtual monopoly on this distribution of written current affairs content. 

Plenty of superlative, but expensive, foreign and specialist reporting was sustained in that way in the pre-interent era. But if the excess profits from bundling only end up lining shareholders’ pockets this becomes a transfer that simply harms consumers.

And if the practice of bundling serves to stifle competition, blocking potentially innovative new firms from coming into the market, that’s even more damaging to consumer welfare in the long term.

This represents a huge challenge for market regulators in this revolutionary era of instant digital content delivery  and the penetration of online giants such as Amazon into a stunning range of new commercial sectors.

The competition authorities in the US and Europe took on the software leviathan Microsoft in the late 1990s and 2000s over its bundling practices. Are they prepared to do the same with the Silicon Valley giants and entertainment conglomerates of today? And should they?

A great deal of the coverage of the Disney-Fox takeover has been from the perspective of the companies themselves and their powerful leaders. Is this the beginning of the end of the Murdoch empire? How long will Disney’s veteran boss Bob Iger stay in his post? Reasonable questions. But a little more consideration to the economic interests of the little people – their customers – would also be in order.

This article appeared in The Independent on 17/12/17