By Shalini Ramachandran and Brent Kendall
The U.S. Justice Department is investigating whether Comcast
Corp.'s business practices in the $5 billion cable
advertising-sales market violate federal antitrust law, according
to a document reviewed by The Wall Street Journal.
The document, known as a civil investigative demand, indicates
the department's antitrust division is probing whether Comcast's
cable ad sales practices, as well as its deals to represent rival
pay-TV providers' ad sales, are hindering competition.
The investigation is focused on "monopolization or attempted
monopolization" of the so-called spot cable ad-sales business in
locations where Comcast offers service, according to the document.
The document also indicates the government is examining whether
Comcast's ad deals with pay-TV rivals are an unlawful restraint of
trade.
The Justice Department is requesting additional information from
companies in the market, including Comcast, according to people
familiar with the matter. The scope of the government's probe,
which appears to be at an early stage, isn't clear.
The Justice Department declined to comment. Comcast said it
plans to cooperate fully with the inquiry.
The probe isn't about the size of Comcast's footprint for
providing cable TV service. The question has more to do with
whether Comcast is wielding outsize influence when it comes to
selling local TV advertising on cable, in two main ways: Comcast
takes the lead on negotiating with advertisers on behalf of rival
pay-TV providers in many markets. Comcast also owns a majority
stake in one of the main companies that helps national advertisers
buy commercial time from cable providers in local markets.
Comcast's influence throughout the marketplace could make it
more difficult for its rivals to compete, industry executives say,
and may lead to higher ad rates for small businesses.
Comcast said the advertising market is "robustly competitive"
and local cable advertising only accounts for about 7% of local ad
sales because of competition with other media like radio and
broadcast TV.
Antitrust officials are examining a relatively obscure
underbelly of the $70 billion television advertising market.
As part of their carriage agreements with pay-TV providers like
Comcast and AT&T Inc.'s DirecTV, cable channels typically set
aside about two minutes of every hour for the operators to sell
ads. National, regional and local advertisers bid for commercial
time in this "spot" cable ad market.
Spot cable ads give marketers--from local furniture stores to
area politicians to national brands like General Motors Co.--the
ability to target a preferred geography, which can be more
efficient and cheaper than buying advertising on a national
scale.
That is how, for example, a local real-estate firm can air a
commercial on ESPN during Monday Night Football in a particular
local market without having to pay a steep price for a nationwide
ad.
Comcast, Time Warner Cable Inc. and third-party firms like
Viamedia Inc. and Prime Media Productions offer services to help
smaller pay-TV providers sell, bill and insert ads into
programming. This is the market for so-called representation
services that is part of the Justice Department's probe.
Comcast Spotlight, owned by Comcast, is the largest U.S. cable
ad sales representation firm. Comcast's sales team covers about 35
million households, bringing in an estimated 48.1% of gross cable
advertising sales in 2014, according to SNL Kagan.
The Justice Department has scrutinized the cable industry
throughout President Barack Obama's administration, and the probe
doesn't necessarily mean the government will attempt any
enforcement action.
It is unclear what sparked the Justice Department's current
probe. But Comcast's influence over this marketplace came up during
the government's review of its ill-fated attempt to buy Time Warner
Cable.
Rival pay-TV providers including CenturyLink and RCN, and
competing cable ad sales representation firms like Viamedia, raised
concerns that the merger would have given the cable giant control
over the spot cable ad market, hindering their ability to compete
and potentially making it difficult for small businesses to
advertise. Documents filed by those companies with the Federal
Communications Commission during the merger review paint a picture
of a marketplace that was already being dominated by Comcast.
Spot cable ads are sold in different ways, depending on whether
an advertiser is national, regional or local.
For national advertisers like GM, the primary way to buy spot
cable advertising across cable, phone and satellite-TV distributors
at a one-stop shop is through a firm called NCC Media LLC, which is
majority-owned by Comcast.
Regional advertisers buy through "interconnects," which are
sales and technology cooperatives made up of pay-TV providers in a
particular market. The dominant pay-TV provider in a given market
makes deals with advertisers on behalf of the other interconnect
members. As the largest cable operator, Comcast manages
interconnects in 26 of the top 50 TV markets in the country.
Local advertisers like car dealerships can buy directly through
a pay-TV provider or through a cable ad sales representation firm
like Viamedia.
In recent years, Comcast started requiring pay-TV rivals who
wanted to be part of a Comcast-managed interconnect to use
Spotlight as opposed to a third-party firm like Viamedia, according
to competitors' filings during the merger review. That reversed a
long-standing practice for interconnects to grant access to all
parties, they said.
For instance, Viamedia said Comcast refused to renew its
agreement with two Comcast-controlled interconnects in 2012,
blocking pay-TV providers WideOpenWest and RCN from the
interconnects unless they agreed to only be represented by Comcast
Spotlight, instead of Viamedia.
In a December filing, RCN said it wasn't comfortable having "its
largest and most formidable rival as its representative in the spot
cable market, " given that would require sharing sensitive business
information with Comcast.
While Comcast offered Viamedia a deal to re-enter its
interconnects, Viamedia refused because it said Comcast was asking
for a 50% higher fee than two years earlier. WideOpenWest and RCN
recently struck deals to work with Comcast Spotlight starting next
year. Comcast defended its practices, saying in a filing during the
merger review that "there is nothing anticompetitive about a firm
electing not to do business with one of its competitors."
In a statement Tuesday, Comcast said "interconnects increase
efficiency and help keep costs down for advertisers" and are "good
for advertisers and consumers."
Steven Perlberg contributed to this article
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Brent Kendall at brent.kendall@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 24, 2015 19:26 ET (00:26 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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