By Hermione Wilson
Comcast Corp. announced Thursday that a merger with the U.S. giant Time Warner Cable is in the works. Comcast will acquire the cable company for an estimated $45 billion US.
According to a press release, Comcast says this merger will ensure “more American consumers will benefit from technological innovations, including a superior video experience, higher broadband speeds, and the fastest in-home Wi-Fi.”
But economic studies show big mergers like this one often have a negative effect on innovation and research investment, said Alberto Galasso.
Galasso is a professor with the Institute for Management and Innovation of the University of Toronto.
“When you have a big merger like this it’s likely that competition in the industry goes down,” said Galasso.
In a Reuters article Comcast Chief Executive Brian Roberts denied that the merger would reduce competition in the industry. Comcast and Time Warner Cable were never competitors, he said and the markets they cater to don’t overlap.
Nonetheless, the merger will give Comcast considerable power at the cable network bargaining table.
The corporation stands to gain approximately 11 million subscribers through Time Warner Cable and close to 30 per cent share of the pay TV market in the U.S. This is in addition to its acquisition in 2011 of NBC Universal.
This increased concentration of media organizations may not be all bad, said Galasso. For one thing, he said, big companies like Comcast may be more willing to invest in innovation because they can spread those investments across a larger market share.
The merger could also have a positive impact on innovation if the main reason behind it was technology.
“People want to acquire each other’s technology because they were already building on each other’s technology,” said Galasso.
Although there seems to be an increasing concentration of a few large media conglomerates, Galasso noted it may not always be the case thanks to smaller players.
“In a lot of industries, competition sometimes comes out from small players, new big technology is developed by small players,” he said.
The Comcast/Time Warner Cable merger is expected to take effect by the end of this year, barring any intervention of the U.S Department of Justice or the Federal Communications Commission, Reuters said Thursday.