Talk about an easy choice. I told you last Friday’s news about Sprint/T-Mobile would be the most important story of the week and nothing has stepped up to replace it.
The Most Important Story of the Week – Sprint & T-Mobile is Now Very Close
The merger of a German telecom giant’s US cellular operation (T-Mobile) with a Japanese tech-telecommunications giant US cellular operation (Sprint) is almost complete. It got the Federal government’s blessing via the antitrust division of the Department of Justice not moving to block it. This merger would fundamentally reshape cellular communications in the United States. Moreover, the deal would produce some strange winners and loses. But instead of recycling the “winners and losers” conceit, let’s try “who does this help, hurt or hinder?”
Help: AT&T and Verizon
And don’t let them tell you different. As the number of companies in an industry shifts, the amount of competition decreases and hence prices (and profits) rise. Eventually, if you get to one single company, well it becomes the monopolist pricing situation. In this situation, they extract all the value they can from customers. If you imagine this as a timeline of possible cell phone concentration, well we’re two notches from complete monopoly.
Even if AT&T and Verizon have a stronger new competitor (and don’t forget AT&T tried to buy T-Mobile this decade), going from four to three competitors is good for all the incumbents.
Help: Dish (and its new mobile provider)
Dish is probably in the most trouble of the MVPDs as they face declining video subscribers, but don’t have the ability–like cable companies–to just raise the prices on internet access. (Better margins on that business too for cable companies.) As a solution, Dish has been buying up wireless spectrum with the now revealed plan to launch their own cellular network. If this merger had been blocked, Dish would have lacked that pivot ability and would have had to spend much more to get in the cellular game. Whether Dish can truly pull this off remains to be seen, but this merger will help.
Read Bloomberg’s Tara Lachappelle for this one:
And that last sentence helps reinforce that this deal helps all the incumbents as well as Sprint/T-Mobile.
Hold: 5G Implementation
The biggest explanation for “why let them merge?” seems to be “for faster 5G implementation”. The challenge is that no matter what companies say to get approval for a merger, they don’t have to really do any of it. This line from Matt Yglesias’ article on the merger stuck with me, referencing Comcast’s merger with NBC-Universal:
Even if the company’s promise 5G implementation, if they fail and they’re already merged, what is the government going to do? Break them up? When was the last time that happened? Under an Elizabeth Warren administration, maybe her Department of Justice would. Under everyone else? Probably nothing would happen.
Meanwhile, the easiest way to advance giant infrastructure projects is government spending on infrastructure. If you want 5G, you just pay cellular phone companies to build it. We could debate the method (direct government spending, low interest loans, tax rebates) but government spending gets things built faster than the private sector using capital markets. This merger may accelerate 5G investment but could just as easily not because of the lack of a competition motive.
Hinder: Antitrust Enforcement
Antitrust enforcement in the Trump Presidency (and this isn’t political, but about forecasting) has been very uneven. The Department of Justice sued to stop AT&T’s merger, even though Disney’s merger with Fox was arguably larger. Then Trump’s DoJ supports the T-Mobile/Sprint merger, even as it launches investigations into big tech for monopoly power. Overall, there is just a level of incoherence that a lot of smart people have pointed out.
Hinder: Giant Tech Companies
More consolidation means more control over mobile access to the internet, with potential restrictions on the big players from Netflix to Amazon to Google, depending on the service and need to access the cloud. At least that’s my near term take. Longer term, I’m intrigued by the theory that 5G will strengthen the cloud based companies, which could benefit Amazon, Microsoft and Google. Still, consolidation in one industry increases that specific industry’s buying and selling power, which hurts the businesses that have to use that platform. Fortunately for them, the tech giants are huge.
Hinder: Regulatory Certainty
Before the Department of Justice blessed the merger, many state Attorney Generals had sued to block the merger. That lawsuit may not start until December. So this merger may go through, or may still be blocked or in limbo for years. That’s uncertainty for everyone which is bad for business.
Hurt: Either Hulu or Netflix
Both T-Mobile and Sprint have deals offering free Netflix and Hulu respectively to their customers. Invariably, this flood of subsidized customers helps boost overall subscriber numbers. Will the new T-Mobile keep both deals? Unlikely, so inevitably one side will lose those subscribers from the mobile deal.
Hurt: The Unaffiliated Streamers
Related to the subscribers is one of the next “carriage wars” I described a few weeks back. Even with 5G, mobile data and bandwidth will be a weapon mobile carriers can use against streaming companies. In other words, if you only have three mobile carriers, they can demand extra fees to carry your streaming content over it’s airwaves. In economics, that’s called rent seeking. Given their leverage, it’s hard for me to see how that doesn’t happen. Which leads to our last point…
I already told you this above, but some combination of increased prices or decreased quality is in the offing for customers. My most likely guess is a hypothetical roll out of 5G, but at much higher prices than in a competitive industry.
Other Contenders for Most Important Story
BritBox Plans to Launch in UK
Thanks to Twitter reader Jack Genovese for this suggestion. And even though I had Tweeted out the Axios Media newsletter on this last week, I somehow ignored it myself for last week’s column. The news is that BritBox, an ITV/BBC joint streaming platform that launched in North America will launch in the UK. Which feels slightly odd that the British are now in a territory where by definition all their shows are already, but in a cord-cutting world it all works out.
Tthe update this week is that all that good BBC back catalogue–the type of stuff that helped grow Netflix early on–is going to HBO Max. Which seems weird that it wouldn’t go to BritBox itself. My guess is that AT&T just had deeper pockets and is willing to spend a la Netflix in the early days. Meanwhile, Digiday says that while everyone goes Millennial, they’ve gone older to strong results.
CBS All-Access Surging in Dish Carriage Dispute
CBS self-interestedly claims that the AT&T blackout has prompted a “spike” in sign-ups to CBS All-Access. Take this with as much skepticism as you can since they’re engaged in a very public retransmission fight. This is a clear PR negotiating position. (Notably, by TCAs, they’d softened from “spike” to “uptick”.) That said, it isn’t that ridiculous since I’m considering signing up for CBS All-Access the first time to catch up on The Good Fight, which I mentioned a few weeks back. The importance could if this is the forced blackout that finally convinces CBS that streaming is the future way to go. Again, if the streaming numbers really are that strong.
Meanwhile, for some inside baseball on how CBS may have some clever pricing, Rick Ellis from AllYourScreens on Twitter describes how CBS is paying local affiliates retransmission fees for CBS All-Access customers, which is a fascinating business model.
(Also, if you want to know my thoughts on the latest CBS/Viacom merger rumors–there have been a LOT–I have you covered in my latest Linked-In article. Be sure to connect or follow me on Linked-In if you aren’t already.)
PBS on YoutubeTV
This week PBS launched on YoutubeTV, which is their first foray into an OTT service (though they’ve long had an app for tablets and what not). Listen to Screengrab this week for a good take on it. Overall, this move makes sense since, as a public service, PBS should be wherever the American viewers are. If that is YoutubeTV or other aggregators, then they should do it.
I need to do a deeper dive into PBS’s strategy at some point, but I worry overall. I think their kids brand continues to be a juggernaut–and has been fairly innovative on mobile–but they haven’t replaced their biggest primetime hit to date, which was Downton Abbey. Then, their source of cheap overseas, mainly British, content is moving to its own channels or streamers, as I just mentioned. To top it off, the vagaries of the US political system constantly threaten their funding.
Entertainment Strategy Guy Update – Fortnite World Cup Had Viewers
The Fortnite World Cup happened and the biggest video game in the world had ratings. When it comes to esports, I’ve finally decided that sharing the specific numbers is probably more misleading than helpful simply because bots have likely infiltrated Twitch/Youtube to such a degree that up to 50% of the viewing (according to an OnTheMedia podcast from December) could be fake. So we can’t trust any of it.
Fine, I’ll tell you the ratings. But just to make a point. Fine, two points. For the Fortnite World Cup, the organizers leaked to a consultant that up to “2 million concurrent sessions” watched the final. I only bring up the 2 million, because that’s much less than the alleged 100 million unique viewers who watched the League of Legends World Cup. (And note, that’s not apples to apples, since it’s comparing max viewers to unique viewers.)
Point one is negative. Even as the teenage drug of choice, “only” did 1/50th of League of Legends. But–this is the second, positive point–Fortnite is just much more honest with their viewership. Around 2 million viewers actually feels realistic and not insanely hyperbolic a la most esports overhyped numbers.
(For my articles on this, here’s my piece on esports from last August and here’s my extended Twitter thread on Marshmello’s concert and another thread on the “Shady Numbers” article I’ve linked to repeatedly.)
Long Read of the Week – Lucas Shaw’s Hollywood Torrent “All records are meaningless now…”
Speaking of unreliable numbers, Lucas Shaw reviews how “records” have lost their importance in everything from box office to baseball, while touching on my old bugaboos of digital platforms not explaining what a view is. However, make sure you read for the gem about launching music videos on Youtube. Essentially, certain pop stars can buy views via ads–a practice used by Ariana Grande and Taylor Swift–and as a result Youtube has touted their launches. However, the current title is held by an Indian artist who didn’t get the same Youtube love. (Technically, this is from his newsletter Hollywood Torrent, which you should subscribe to.)
Listen of the Week – Capitalisn’t on “The Mickey Mouse Monopoly Club”
My podcast recommendation of the week is the Capitalisn’t episode on copyright. Really it’s a two part series on patents, but I paid the most attention to the second episode because it touched on copyright and Mickey Mouse, a subject close to my heart. They provided some examples from different industries and some of the benefits to shorter protections in intellectual property.
However, Luigi Zingales falls into the old “absolutist trap” for copyright. Either it lasts forever or doesn’t exist at all (except for a strange carve out for pharmaceuticals). That’s why I love my solution: make companies pay to extend copyright. This would free millions of works of art from copyright, while ensuring the businesses/estates that can maximize the value of given properties will (because if they can’t afford the payments on copyright extension, they won’t pay it). I wonder if this wouldn’t help with patents too. Have very short patent protection, then if it works, extend it much, much longer. Take a listen and then read my take on it.