The winter of our content

Merger paranoia is nothing new, especially when rapidly evolving technologies for transportation are involved.

“With all that programming under its control, Comcast will have every incentive to take its shows off of the Internet and force consumers to buy a cable subscription to get online access to that programming.”

So said Public Knowledge’s Gigi Sohn, railing against the recently announced deal to merge cable giant Comcast with GE’s NBC/Universal. The parties are already expecting a long regulatory battle, with either the Department of Justice or the Federal Trade Commission taking the lead, backed by the Federal Communications Commission. In preparation, groups including Consumers Union and Free Press are polishing their crystal balls and predicting doom.

Before putting much faith in the Cassandras of consumer groups, regulators would do well to review the sorry track record these organizations have in earlier predictions that media mergers would create dangerous monopolies.

Indeed, even as Comcast announced its deal with GE, Time-Warner was busy unraveling its ill-fated 2000 merger with AOL.  Advocacy groups at the time warned of reduced programming choices and homogenized Internet content, of consumer “servitude” and the specter of corporate “ministries of propaganda.”  Instead, poor management of the combined properties cost the company almost 80 percent of its value. Similar warnings accompanied the marriages of News Corp. and DirecTV, Sirius and XM satellite radio, and ABC and Disney. All wrong.

Merger paranoia is nothing new, especially when rapidly evolving technologies for transportation are involved.  Today it’s the transportation of bits, but similarly apocalyptic tones were heard a hundred years ago over consolidation of the railroads.

Consider Brooks Adams, great-grandson of John Adams and a principal adviser to Theodore Roosevelt. Adams’s nemesis was the Great Northern Railway and its notorious leader James J. Hill. In 1907, Adams demanded that the Interstate Commerce Commission dismantle Hill’s empire. 

New technologies, Adams argued, called for inventive lawmaking. “There is no ancient and abstract principle of right and wrong,” he wrote, “which can safely be deduced as a guide to regulate the relations of railways and monopolies among our people, because railways and monopolies are products of forces unknown in former times. The character of competition has changed, and the law must change to meet it, or collapse.”

The trust-busters won the battle but lost the war. Despite, or perhaps because of extensive federal intervention, railways wildly over-expanded and competed to ruinous prices in much of the country. In their subjugated state, railroads proved unresponsive to even newer forms of competition, including water and, later, trucking and air. Micromanagement of the U.S. railroad industry did nothing to protect consumer choice or open access. The ICC, its job done, was dissolved in 1995, just as the Internet emerged as our next great infrastructure.

Adams was wrong, and so are those now calling on regulators to hold back the tide of entertainment industry reorganization.  As new communications technologies increase bandwidth, all entertainment content has been making the shift from broadcast to Internet — at first illegally by consumers on Napster and Pirate Bay and today through services offered by the producers themselves. 

The entire supply chain, from content creation to distribution to consumption, is in transition. But we don’t need the law of antitrust to save us. For media companies, as with the railroads, the real check on monopolistic behavior isn’t regulation. It’s innovation. 

Indeed, a recent New York Times article noted that a clever combination of free or low-cost offerings including Hulu, Boxee, iTunes, YouTube and Joost eliminated the need for a cable TV subscription altogether. 

Where do Public Knowledge and other consumer advocates get the hubris to insist Comcast has “every incentive” to destroy such innovations, including those for which it is or will become part-owners? (NBC Universal has a 33 percent stake in Hulu.) It’s true that Internet content, still in its early days, isn’t generating enough advertising revenue to cover its costs, but that’s hardly proof that media consolidation has the sole aim of turning the clock back to a simpler time — say, 2000.

Digital technology has put the entertainment industry under extreme pressure, pressure that inevitably leads to new combinations of assets. Nobody knows what successful business models will emerge to support loud-and-clear consumer demands for more content, more choices and more flexibility in how and where they view programming. Industry leaders admit as much, even to shareholders.

Perhaps Comcast will find the magic bullet that kills online innovations and subdues consumers who keep inventing ahead of what the providers are comfortable offering. 

Perhaps — but not if a hundred years of history is any guide.

Downes is a consultant and author, most recently having written, “The Laws of Disruption: Harnessing the New Forces that Govern Business and Life in the Digital Age.” He is a nonresident fellow at the Stanford Law School Center for Internet & Society.