The Giants Take over Cable Television
Gomery, Douglas, American Journalism Review
TCI and Time Warner are in the midst of an acquisition frenzy.
Anyone who lived through the era of only three television networks celebrates channel surfing. Cable offers so much, from 24-hour news to uncut movies to complete weather forecasts every 15 minutes.
But cable TV has always been caught in a contradiction. With all of its choices, there is, with a few exceptions, only one corporate gatekeeper per local jurisdiction. Your cable company is a legal monopoly. If you do not like what your cable system does or does not offer, your only choice is to move or pay much more for an expensive satellite hook-up.
Economic logic dictates that such local monopolists will ultimately combine. It becomes possible to economize with a centralized accounting department and one sales force. As mergers take place, these and other fixed costs can and are amortized over larger and larger revenue bases. Simply put, this means ever greater profits, a classic case of scale economies.
And indeed, consolidation is the order of the day in today's cable TV business. For example, from June 1994 through February 1995, industry giants TCI and Time Warner have acquired thousands of new customers via a half-dozen mega-billion dollar deals.
Smaller challengers, such as Cox Communications, spend billions of dollars just to keep up. The stand-pat "mighty mites" of the cable business, such as Post-Newsweek and Chronicle Publishing, seem doomed.
The original cable wildcatters, who erected a large antenna to bring in distant signals, are content to cash out rather than try to continue to compete.
In short, the long fragmented cable industry (with similar corporate nameplates like Cablevision Industries, Cablevision Systems and Continental Cablevision) is consolidating. The alphabet soup of companies is giving way to a handful of corporate giants.
TCI and Time Warner have led the way, and once this round of acquisition frenzy ends, they will control about half of all cable TV customers in the United States - or maybe more.
That is today's reality while we await a new era of competition as the Baby Bells line up against TCI and Time Warner. These regional phone companies would like to enter the new - for them - world of video. But for now they await the formal blessing of Congress and the president.
When and if the Baby Bells are freed to enter cable TV in their areas of regional telephone monopoly, the cable business will cease to be one of pure monopoly as we have today. …