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Justice Department Opens Antitrust Probe of Cable Industry

Justice Department Opens Antitrust Probe of Cable Industry

Are cable companies conspiring to shut out competitors like Netflix, Hulu?

June 15th, 2012 by James R. Hood of ConsumerAffairs in News

So think about it a minute: Would you want to live your life as a pipe, doing nothing but moving everybody else's slush around?

No, of course, you wouldn't and the Justice Department reportedly suspects that Comcast, Time Warner and other cable companies don't like the idea either and is said to be investigating whether they have conspired to squash competition from the likes of Netflix and Hulu.

Cable and phone companies know what being a pipe is like, after all. They've been there, done that. If you'll recall, cable companies originally did nothing but capture distant television signals and transport them to the homes of subscribers who lived too far out in the boonies to pull in a decent over-the-air signal.

Phone companies were also pipes.  They played no role in the "content" that their subscribers generated when they called each other.

Three-legged stool

Ah, but that was then. Now, the cable and phone companies are basically in the same business. They provide lowly old telephone service, broadband data and the programming packages that consist of clumps of network and local stations and the output of HBO, AMC, CNN and all the other program producers out there.

So, the cable and phone companies have gotten a grip on two of the three legs of the stool -- the pipes and the distribution rights to  programs produced by third parties. Comcast has gone even further and added a third leg with its purchase of NBC Universal, a program producer.  

But the stool is getting a little wobbly lately, thanks to such interlopers as Netflix, Amazon, Hulu and the other services that distribute third-party programs over the Internet, which basically consists of the pipes owned by the big cable and phone companies.

Consumers like this because it lets them pick and choose. Instead of paying $100 or more to subscribe to 173 channels to get access to the four or five shows they watch regularly, they can buy a very inexpensive (or, in some cases, free) subscription to a streaming service that lets them watch some stuff for free and pay a few bucks for premium stuff, like recent movies and TV shows. 

The Wall Street Journal reports that it has learned that Justice Department officials have been talking with various players in the industry, asking probing questions about such issues as data caps, the limits that cable and phone companies impose on their subscribers.

Could it be, the investigators wonder, that the cable and phone companies are worried that their subscribers will figure out that as long as they have the pipe, they don't need the distribution services they now pay so dearly for.

Just to be clear about this, not all program producers are crazy about scrapping the present set-up. As it works now, a cable company works out a deal to distribute -- let's say -- AMC, a movie channel. It then pays AMC a certain amount each month for every household that subscribes to the package that includes AMC, even though many of those households will most likely never watch AMC.

Some of AMC's finest

This is not a purely hypothetical example. Dish Network is currently threatening to drop AMC, claiming it's too expensive and not enough subscribers watch it.

There are quite a few cable channels out there that might find themselves going back to beans and rice if they got paid only when somebody actually watched one of their shows. It would be like the  Internet sites that try to get by on those pay-per-click ads the newspapers complain so bitterly about. (Newspapers are kind of an early version of cable pipes, more like buckets really, but that's another story).

Where all of this goes from here is anybody's guess.  After all, when you take cable, telecommunications and broadcasting, you're talking about three of the most heavily-regulated (i.e., governmentally protected) industries out there, so expect some heavy lobbying before anything much happens.