留學生國際商務管理dissertation：康卡斯特和Nbc環球

康卡斯特和Nbc環球合并經濟學dissertation
 

這個術語：合并，可以描述當兩個或兩個以上的企業合并形成一個組織并達成一致的場景。美國在合并和收購上有悠久的歷史。他們中的一些已經成功了，而其他人已經被監管機構謝絕了。政府和監管機構最大限度的使并購順利進行,使得公眾不受影響。康卡斯特和Nbc環球合并是最近的一個成功的并購審查。這次收購被予以重視,因為康卡斯特是一家最大的互聯網服務提供商(ISP)同時NBC環球(NBC Universal)是一家最大的內容提供商，他們的合并將導致相關的視頻和其他市場的壟斷。一方面,這個交易被認為是對公共利益的威脅,導致壟斷和風險。自康卡斯特non-NBCU內容提供商是所謂的偏差在允許流量通過他們的網絡(如比特洪流案例)。另一方面,康卡斯特提供柜臺論據來支撐這個合并的例子。分析一般趨勢合并,合并的法律和政策問題。然后,本文著重于康卡斯特和Nbc環球交易的開始與公司的歷史,合并的背后原因。本文的下一部分處理FCC對于合并的分析。這里分析了對公共利益好處的潛在威脅,這種合并的優勢和最終規則,合并后政策和法律等應該遵循在線視頻市場的未來的關鍵進行解釋。本文重點從Comcast-NBCU的角度,FCC的規定,評論家的評論,Hulu,non-NBCU內容提供商的觀點和視頻行業的未來進行討論。最后給出了結論。
 

The Comcast And Nbc Universal Merger Economics Essay

 

The term merger can be described when two or more companies agree to form a single organization. The United States has a long standing history of several mergers and acquisitions. Some of them have been successful while others have been declined by the regulatory bodies. The Government and the regulatory bodies take utmost care to make the merger smooth so that the public are not affected much. Comcast-NBCUniversal merger is one of the successful mergers reviewed in recent times. This acquisition is viewed upon with great importance because Comcast, being one of the largest Internet Service Provider (ISP) and NBC Universal, being one of the largest content providers would result in monopolization of the video and other related markets. On the one hand, this transaction is considered to cause threat to public interest, cause monopolization and risk the non-NBCU content providers since Comcast is alleged of being biased in allowing traffic through their network (e.g. the bit torrent case). On the other hand, Comcast provides counter arguments to bolster this merger with examples. This paper analyses the general trends in merger, the legal and policy issues in a merger. Then the paper focuses on the Comcast-NBCU deal starting with the company’s history, the reasons behind the merger. The next part of the paper deals with the FCC’s analysis of the merger. Here the potential threats to public interest benefits are analyzed; the advantages of this merger and finally the rules, policies and laws to be followed after the merger are explained like the key to future of the online video market. This paper discusses key points from Comcast-NBCU point of view, FCC’s regulation, critics’ reviews, Hulu, non-NBCU’s content providers’ views and the future of video industry. Finally the conclusion is given.#p#分頁標題#e#

 

Definitions: Mergers and Acquisitions

 

Even though mergers and acquisitions are often used synonymously, there is slight difference between them. Mergers happen when two firms decide to come under one roof. The new company is jointly managed by the two firms noted Shankar (2007). There are three major types of mergers namely,

 

Horizontal merger

 

Vertical merger

 

Conglomeration

 

In case of horizontal merger, the two competing companies in the market join to form a single firm. Vertical merger happens between companies that have a seller and buyer relationship. In conglomeration, the companies involving in the merger have nothing in common.

 

Acquisition differs from merger slightly. When a parent company pays in terms of stock or cash to claim the ownership of different company, it is termed as acquisition. The new company comes under the total control of the parent company explained Shankar (2007). This paper pays special attention on successful merger of Comcast-NBCU.

 

GENERAL TRENDS IN MERGER

 

Economies of scale:

 

Economies of scale is the benefit the new company can avail of due to the merger. Economies of scale, a long run concept, cause the average production cost of an entity to lower. This is depicted in the graph shown below.

 

Figure. 1. Economies of Scale [grpah]. Retrieved 18 April, 2011, from Wikipedia, Economies of Scale http://en.wikipedia.org/wiki/Economies_of_scale

 

As the output increases from Q to Q2, the average cost of production decreases from C to C1. The decrease in production cost occurs due to the combined resource of the two companies and is available in horizontal mergers where the resources are augmented. The point of intersection of C1 and Q2 on the curve is the optimum point.

 

Motives of Merger:

 

There are various advantages of merging two firms into an organization. Some of the salient points are mentioned below:

 

Progress and Increased market command:

 

The new company now has increased resource than before. The union has made the firm better off by increasing the company’s market value and completion in the market. According to Shankar, (2007) in a saturated market, mergers are more favorable than expansion. Since the market is saturated, the merged companies can mutually benefit than the company that tries to expand since the resources can be saturated. The risk factors are also reduced with the merger. The companies might have faced threat from each other before merger but it is completed removed after the merger. This is similar to the fact that the negative correlation causes greater decline in risk factors.#p#分頁標題#e#

 

Tax benefits:

 

It is a known fact that when a company running in losses mergers with company running in profit, then it can enjoy the tax allowances in future. Shankar, (2007) points out that in this way, mergers help certain companies enjoy tax profits.

 

Growth Value:

 

Shankar (2007) noted that individual companies’ worth might be less before the merger. Once the firms have merged their market and stock value increases dramatically. Consider an example where the worth of company A and B might be less before the merger. But the wealth is greater when the companies A and B merge than before.

 

Less competitors:

 

As said earlier, merger increases the wealth of the companies. Shankar (2007) reported that the increased possessions might lead in producing products available for lesser value. This might drive other companies out of market.

 

Necessity:

 

If two firms are running in loss, the regulatory bodies can intervene and merge the companies so that it can put the companies in good position in the market.

 

LEGAL ASPECT OF MERGING

 

There are set of general steps which companies follow during the merger. The steps are mentioned below:

 

Examination of the merger by the companies:

 

The companies involving in the union take into consideration about the advantages and disadvantages. The issue is analyzed from every perspective like shareholders, employees, customers, company’s position in the future, legal validity, tax benefits and the well-wishers. After careful scrutiny, the decision to proceed or not is taken as noted by Shankar (2007).

 

Trading between the firms:

 

The administrative terms and condition of the new company will be discussed by the firm involving in merger. Once both the parties agree, then they advance to the next step of getting the approval of the board of directors and concerned people like shareholders as observed by Shankar (2007).

 

Firms governing authority’s approval:

 

If the Board of Directors and shareholders find the deal to be convincing they provide the consent.

 

Appeal to the Regulatory bodies and Department of Justice approval:

 

Once the case is filed for approval, the authorities investigate the merger from every aspect from every aspect. The first and foremost thing considered is the public interest while other issues are also considered. Shankar (2007)said that the authorities have the right to accept, deny or modify the merger.

 

MATHEMATICAL ANALYSIS OF THE COST AND BENEFITS OF MERGER

 

Let us consider two companies X and Y. Let us assume that the company X buys company Y. Let us calculate cost and benefits of the company X’s perspective. Benefit is calculated by subtracting the new firm’s present value from the value the individual firms.

 

Benefit= Present value of (X+Y) – {[Present value of A] + [Present value of B]}

 

Let’s make the assumption that the company X paid company Y in cash rather than stock.

 

So the cost for X = cash- [Present value of B]

 

The net present value of company X after paying company Y= Benefits- cost

 

= Present value of (X+Y) – ({[Present value of A] + [Present value of B]})

 

- (cash- [Present value of B])

 

While the net value of company Y is cash- [Present value of B].

 

Suppose the Present value of X =$20 million, Present value of Y = $5 million, Present value of (X+Y) = $30 million, Cash paid by X to Y = $6 million.

 

Therefore

 

Benefit = 30 – (25 + 5) = $5 million

 

Cost= 6 – 5 = $1 million

 

Net present value to X= Benefit – cost = $4 million

 

Net present value to Y= cash – Present value of Y = $1 million

 

THE MERGER OF COMCAST-NBC UNIVERSAL

 

History:

 

Comcast Corporation:

 

According to International Directory of Company Histories (1999), Comcast Corporation is one of the prominent cable, telecommunications and content providers in the world. Comcast cable has a customer base of 4.4 million with 783,000 cellular connections. Apart from this, Comcast is also a partner Sprint Corporation, Tele-Communications and Cox Communications Inc. It is associated with QVC Inc., Walt Disney, Philadelphia basketball team and hockey team. Comcast is backed up by Microsoft Corporation too.

 

Comcast was found in 1960 with American Cable Systems, Inc. providing cable support to the nearby areas of Mississippi. At the time community antenna television provided by American was famous. The company expanded in the late 1960s and early 1970s. The company established itself in Philadelphia, Detroit, Michigan and Texas. In 1969, American Cable Systems was renamed as Comcast Corporation. Having created a strong customer base in the States, Comcast turned its attention towards the United Kingdom. They acquired a license to set up cable television system in the outskirts of London. In 1990, Comcast made a crucial decision to make its appearance in the cellular industry. It made a deal with Metromedia company and bought Metrophone Cellular unit for $1.1 billion. During mid-1990s and starting 2000, Comcast started acquiring small companies and made alliances with content providers.#p#分頁標題#e#

 

In 1987 Comcast was mere a cable company. In a span of 10 years the revenue rose to $4.91 billion, out of which company's content operations fetched $2.083 billion, $2.073 billion came from cable, and the cellular mobile communications contributed $444.9 million.

 

National Broadcasting Company:

 

NBC Universal:

 

Fletcher (2009) explained that NBC was the first broadcast network established by Radio Corporation of America (A part of general Electric) in 1926. It was basically divided into two networks namely the red and blue network. While the red carried entertainment and music, blue broadcasted news along the east coast. Later in 1927, the west coast was covered with the creation of gold and orange networks which did the same service as the red and blue networks.

 

In 1931, antitrust issue against Radio Corporation of America (RCA) made it to separate from General Electric. In 1939, the newly formed Federal Communications Commission directed the broadcasting giant RCA to spin off NBC due to antitrust issues. RCA made a wise move by selling the blue network, which later became American Broadcasting Company (ABC).

 

NBC started its first experimental television broadcast by installing antennae in the Empire State Building during 1931. After successful experimenting, it started regular broadcast in 1939 from New York. The color broadcasting was started in 1954 and two years later NBC famed peacock as its logo. NBC launched many TV shows between 1950s and 1960s. It faced potential threats from rivals like CBS and ABC. So, General Electric decided to buy ABC and shed all its radio operations to skip antitrust issues. The merger turned out to be a huge boon with the introduction many successful TV serial like The Cosby Show, The Golden Girls and Miami Vice, Friends and Seinfeld.

 

Lately, NBC has not produced any smash hits but the cable stations like MSNBC, Bravo and USA are having good reputation in the market. In 2003, General Electric formed NBC

 

Universal that was 80% owned by GE and 20% by Vivendi.

 

PRE-MERGER PERIOD

 

Reasons for the merger:

 

Comcast which has been successful in cable, information and communication industries was very much eager to manage a content provider. NBC Universal, one of the leading content providers offered its empire comprising NBC and Telemundo, to Comcast, reported Cohen (2009), the Vice President of Comcast. The NBC network includes NBC news, MSNBC and CNBC, while Telemundo is one of the biggest Spanish broadcast networks. This merger would bring a revolution in the communication, information and entertainment industries enhancing openness and healthy competition, he added.

 

Cohen (2009) explained that the merger would provide a good platform for the companies to create and develop some creative programs which might assist the company to serve the interest of American, African and Hispanic subscribers as well as children and other important part of audience. NBC Universal being a pioneer in content production will try to satisfy the customers with smash hit content while Comcast would try and make the content available in any platform, anywhere and anytime like the customers want, he added. The company also would provided a detailed report of the advantages to the authorities with many commitments that serve the public interest.

 

The economies of scale and the provisioning of videos to people from various platform makes this merger attractive. The vertical integration of the two firms caused the transaction and contracting costs to reduce a lot, according to applications and public interest statement released by Comcast. In order to make this merger successful the companies have made certain public interest commitments to the governing authorities like Department of Justice (DoJ), Antitrust division and Federal Communications Commission which is highlighted below.

 

Commitments made by the firms:

 

According to the Applications and Public Interest Statement (2009), released by Comcast the following are the public interest commitments made by the firm:

 

The new firm formed would be providing the same features that were offered before. The free over the air broadcast through the O&O broadcast stations and the local broadcast. The companies would negotiate with the affiliates and deliver free over the air service which will be economical

 

Comcast has planned to enhance the news broadcast and other public programming on NBC stations. Further the availability of the contents are to increase by applying the window onto NBC O&O schedules and through On Demand services

 

By using the option of On Demand and the digital broadcast spectrum of NBC, Comcast has planned to speak to kids. Other valuable services would also be added for the kinds on all kinds of platform

 

Clear and unbiased on-screen TV ratings in terms of size, frequency and duration for all programs across every network would be provided to the viewers

 

Comcast would tie up Common Sense Media, a reputed organization that provides guidelines in family viewing decisions for the programs broadcasted. This would improve the options and tools available for parents to fine tune the parental guidance. Emerging On Demand and other platforms will have this feature

 

The company has planned to utilize the digital broadcast spectrum available with Telemundo O&O’s to increase the quality and availability of Hispanic programs available in Telemundo and mun2#p#分頁標題#e#

 

The Telemundo programming will be available through On Demand and On Demand online facility

 

Comcast has aimed to increase the availability of mun2 by introducing it on Comcast Cable and On Demand facility

 

At present 15,000 VOD programming choices are available free of cost and it will be the sane after the merger. In addition, Comcast has planned to add 5,000 VOD choices through its central VOD storage facility at no additional cost

 

Comcast would not charge for the NBCU contents that were previously made available on per-episode charge on On Demand service for a period of three-year after closing

 

Comcast would not convert the PEG channels to digital distribution unless or until the system is converted to all digital or until a group requires digital PEG channel

 

The On Demand PEG content would be made available within three years of closing to help the educational programming more popular

 

ANALYSIS OF THE HARMS CAUSED BY THE MERGER

 

Due to vertical elements of transaction:

 

Comcast-NBCU content access:

 

This proposed merger might prevent the Comcast’s video distribution rivals from accessing the content permanently or temporarily. This may also make the rivals pay a higher price for the contents or Comcast can provide them with low quality content. This might result in a monopoly and charge high price to the subscribers, Federal Communications Commission (2011) said.

 

Broadband Delivery of Video programming:

 

FCC (2011) noted that in recent trends delivery of content is gradually shifting from television, to PCs, tablet and cellular phones. This merger through anticompetitive policy can hinder the competition from rival OVDs. The hindrance mentioned can be attained through the following means: (1) Limiting the access of the rival or affiliated content or increase the price of the same (2) Comcast has the ability to block, degrade, or violate the Internet rules when delivering content to the Comcast subscribers who has requested for the delivery of unaffiliated parties; and (3) The set-top boxes provided by Comcast can prevent the delivery of non-NBCU contents.

 

Non-NBCU content carriage issues:

 

The competitors of Comcast opposed this merger because Comcast would have more power and ability to prevent the video programming from other content providers, entering the network. It can also force unreasonable conditions for the carriage. FCC (2011) agreed that this vertical merger might give Comcast more power to advertise NBCU content and suppress unaffiliated parties.

 

Due to vertical elements of transaction.#p#分頁標題#e#

 

“Linear Programming”

 

The rivals allege that the merger will decrease the competition in the video market as Comcast is one of the largest service providers in the States and NBCU is one of the largest content providers. Both these cover majority of audience in metropolitan areas. This merger might concentrate the audience resulting in monopolization, the competitors reported to FCC (2011). The merger would have minimal transaction effect on video market since NBCU doesn’t possess any MPVD properties and Comcast doesn’t possess any broadcast stations another rival added.

 

FCC (2011) reported that the contenders feared that the merger would make them pay higher prices for the contents. They added that the concentration of Comcast-NBCU programming asset would harm competition in various geographical parts and this merger would provide Comcast-NBCU more market power which would result in higher fees for unaffiliated parties to pass traffic through Comcast network. This will in turn reflect in higher subscription fees from subscribers.

 

The commenters assert that Comcast which has distribution rights to a large collection of movies and NBCU which owns Universal Pictures have similar interests. This might result in reduced employment and there might be a lack in variety and diversity of entertainment, news and other information. This merger might even worsen the situation because it might reduce the number of new programming initiatives, FCC (2011) noted.

 

Video delivery through internet

 

The merger might put an end to the elimination of competition between Hulu and Comcast Xfinity/Fancast and this might have a direct impact on video content for distribution, FCC (2011) noted.

 

Advertising

 

FCC (2011) reported that commenters claim that the proposed transaction will have great impact on the advertising market. This merger will bring down the competition in advertising industry for local, regional, and national advertising sales. The broadcasters and operators compete for the local advertising market which is a sole source of local advertising. This merger will give Comcast more advantages to control the cable and broadcast advertisement. Thus, Comcast can dictate and increase the advertisement profits.

 

FCC (2011) has also found that there are also many other potential threats like Harm to the Over-the-Air Broadcasting, retransmission consent and relations between Network-affiliates, diversity, localism, journalistic independence, PEG Channels, employment matters

 

EXAMINING THE PUBLIC INTEREST BENEFITS OF THE MERGER

 

Framework:

 

FCC (2011) explained that in order to approve the merger, the commission is bound to evaluate the merger would produce public interest benefits. The commission can decide whether the merger would cater to public benefits by apply several criteria. First, the benefits put forth must be transaction specific. And the second criterion is the claimed benefit should be verifiable. The third criterion is that the commission calculates the magnitude of benefits net of the cost of achieving them. Finally, the benefits must be for the customers and not solely to the benefit of the company. “Sliding Scale approach” is employed by the commission to evaluate the benefits of the merger.#p#分頁標題#e#

 

Benefits of the merger:

 

The deal between the two parties

 

The Applicants argue that the vertical integration will help the subscribers to access greater content, induce creation of new contents and help in deploying new services quickly. The applications quoted that the unaffiliated parties are not reluctant to provide content for long-run to the new and unproven distribution models. Further they argue that Comcast faced a lot of problems in introducing new services like VOD, “day-and-date” movie releases, Fancast Xfinity TV/TV Everywhere, and advanced advertising features and how Comcast was successful in the initiatives. On similar lines this merger would be improve video market and help in developing business models.

 

Improve Broadband

 

The applicants contend that the merger would promote contents being available online and increase the adoption rate of broadband. The Applicants state that given the intense competition in the entertainment environment, everyone will try new ideas and make promising advancements in order to thrive in the market effectively, FCC (2011) added.

 

Removal of the Double Marginalization issue

 

The Applicants reported to FCC (2011) that the merger would provide a major advantage by removing the concept of double marginalization of programming cost. NBCU sells video content to Comcast and other MVPDs at a per-subscriber basis, which is above the marginal cost of programming. This vertical merger would actually reduce the cost of programming and the subscribers might be charged lower price and they will also have variety of options.

 

Economies of Scale

 

The applicants explained that this merger will bring economies of scale. They will have more resources at the disposal and this will help them create more innovative content and give subscribers diversity in news, sports and video content. This merger will reduce the cost, enhance the outputs and help to provide quality programming.

 

Programming for children

 

The applicants have asserted that they will use the digital broadcast spectrum of NBCU O&Os’ “to speak to kids” and incorporate many other kids programming. Comcast has planned to provide additional opportunity to children’s content on all available platform. Comcast-NBCU is about to expand the relationship with Common Sense Media which will help the applicants provide enhanced tools and options for parents to make viewing decision.

 

COMMUNICATION ACT AND THE RULES AND POLICIES PUT FORTH BY THE COMMISSION

 

“Rules governing Cable Ownership and the allowable Channel Occupancy Limits”#p#分頁標題#e#

 

Section 613(f) of the Act, which is a part of the Cable Television Consumer Protection and Competition Act of 1992, necessitates that there is rational limit in the number of subscribers that a cable operator can handle nationwide and the number of channels the cable operator can devote to the affiliated networks nationwide. The commission decides upon the structural ownership limits both vertical and horizontal. The applicant is expected to abide by the limits put forth by the commission. For purposes of the current review, Comcast subscribers will remain fixed even after the deal and is expected to remain below 30 percent ownership limit. Comcast has complied with the channel occupancy limits and it will include no more than 45 unaffiliated channels.

 

“Rules for the Broadcast ownership”

 

FCC (2011) found that after the merger there would not be any broadcast ownership issues due to the following reasons. First, Comcast doesn’t excise any interest in broadcast station licensee. Second, NBCU which has indirect broadcast licensee through General Electric has interest in the Boston, Manchester; Chicago; Dallas-Ft. Worth and Miami-Ft. Lauderdale designated market area. FCC (2011) has noted that the applicant has fulfilled the ownership restrictions.

 

CONCLUSION

 

A famous Canadian leader John McDonald quoted that there is always a positive and negative aspect in all to form a complete circuit. Even though the merger approved by the commission has many advantages but still the critics allege that the merger has disadvantages too. This paper has analyzed what mergers and acquisitions are. Then the paper said about the general trends in merger, why companies want to merge. Then the attentions turned towards the NBCU-Comcast where in the reasons for merger were discussed. Finally the advantages, disadvantages and the policy issues related to this merger were discussed.