There are lots of understandably rapacious business reasons for Comcast, the country's biggest cable provider, to acquire Time Warner Cable, the nation's second-largest cable system. But the more greedy and clever that deal seems, the less reasonable Comcast's ownership of NBC Universal appears to be.
There's a right brain, left brain conflict here.
The future of the cable business is straightforward. It will be less and less about supplying programming, and more about providing broadband service. Cable TV subscriptions are going down; Internet subscriptions are going up.
Monopoly profits will continue to flow — and, of course, you'll make even more if you figure out how to run the pipes more cheaply. Buying TWC, said Comcast, "will generate approximately $1.5 billion in operating efficiencies." In other words, $1.5 billion in redundant employees and functions.
BEHIND THE SCENES: How Comcast-Time Warner Cable deal came together
What's more, net neutrality — the FCC policy under which broadband providers have to provide the same service to all content providers at the same price — is being undone by the courts. That means a new gold mine for cable. By just owning the pipes, cable — not Netflix or Amazon — may be the biggest winner in the digital video bonanza.
Cable, recently terrorized by cord cutting, is now the all-powerful Internet utility, a lightly regulated one at that. Yum.
But then there's Comcast's left brain (or, many would argue, brainless) acquisition of NBC Universal, completed just a year ago.
Even before Comcast decided to double down on cable, NBC was an odd and unlikely addition, an entertainment company (now called "content") joined to a pipes company. Manhattan and Hollywood showbiz joined to Philadelphia infrastructure.
Indeed, Time Warner disgorged the same cable company that Comcast is now proposing to buy in part because of years of culture and business conflict between content and pipes. Certainly the Roberts family, which controls Comcast, is a pipes family, a kind of aristocracy of pipes — or put another way, kind of 1950s local bank managers — as far in temperament, interest, and natural inclination from the media business as it is possible to be.
The reason for the NBC acquisition has always seemed peculiarly old school: synergies and horizontal integration and all sorts of largely discredited baloney. Along with the ego-boost of owning NBC, the Roberts family also got NBC's owned and operated television stations, a business increasingly from another age; its ever-troubled network; and its lagging movie studio. It's real value was in a set of lucrative cable channels —CNBC, MSNBC, Bravo, USA Network, the Weather Channel, E! and others — and a content library.
The knotty economic question there: Can you make more by giving advantages to your own content, or by not giving those advantages to other people's content? Negotiating hard with someone, or negotiating softly with yourself, is, most people have come to understand, a zero-sum paradox.
In other words, the Roberts family bought NBC for no logic other than that they could, and because they had insecurities about being who they were — cable guys.
But suddenly, they're proud again. John Malone, the other would-be cable king, through the Charter Communications cable system, made a move on TWC first, reminding the Roberts family of the importance of cable primacy, and its vast new powers over Internet life.
Alas, in order to pass the NBC deal through regulators, Comcast agreed to abide by open-Internet, or net neutrality, rules, an enforceable commitment that now overrides the dismantling of those same rules.
Ironically, the Comcast-TWC deal could mean that, while the FCC can't guarantee net neutrality, it is effectively grandfathered into the broadband infrastructure because of Comcast's side deal on NBC.
But, more likely, it means that Comcast is kicking itself — and trying to figure out how to retreat from its now-foolish commitment.
What the absence of net neutrality and the creation of a behemoth Internet provider means is that Comcast is the Internet gatekeeper — set to benefit from whatever video digital networks are serving up.
Suddenly, the most annoying aspect of the cable business — having to pay content providers — could go away.
Now cable systems pay cable channels a fee for their content, and they pay network television a separate retransmission fee. Time Warner Cable lost a big battle last year with CBS, when the cable company tried to hold the line against CBS' demand for an increase in that fee.
But without net neutrality policies and with ever-growing amounts of programming streaming over the Internet, Comcast is free to charge content providers what the market will bear for speedier and more seamless delivery. (It can also charge the consumer for better service.) A vast percentage of the new video Niagara of the Internet now potentially passes through Comcast's toll both.
Except that Comcast owns NBC and has agreed to uphold net neutrality policies.
Cue the gnashing of teeth in Philadelphia.
The Roberts family's flirtation with content was a rare moment of self-doubt. But with cable's primacy restored, and its uber status in the video equation promising to be the key power in media, losing NBC — now merely a small division amid the Comcast-TWC operations, as well as a regulatory inconvenience — will be just one of the many ripple effects of the most transformation deal in the new video age.