Vertical Disintegration in Cable Tv: the Netflix-comcast Rivalry

Abstract: Vertical integration in cable television markets in the United States has long generated policy controversy. The 1992 Cable Television Consumer Protection and Competition Act, bolstering antitrust laws, sought to limit certain vertical arrangements between cable TV systems and cable TV program networks. Network Neutrality regulations adopted by the Federal Communications Commission in three separate orders (2007, 2010, and 2015), barred discrimination (via delivery speeds, etc.) on the basis of content ownership. Due to court proceedings and electoral outcomes, these orders have not been implemented. In 2019, the market is nonetheless increasingly disintegrated. Perhaps most illustrative of this is the rivalrous game played by Comcast, the largest U.S. cable TV system operator, and Netflix, the largest “over-the-top” video supplier. The firms have competed and cooperated, in shifting mixes, over the past decade. Today, Netflix – pioneering OTT models also supplied by Amazon, DISH, Hulu, Roku, Apple, Google and Disney – owns more valuable “cable programming” than any cable TV operator. Understanding how such market forces shape competitive margins is essential to crafting policy rules that support innovation and consumer welfare.