Comcast-Estrella TV Dispute Shows How TWC Merger Could Hurt Hispanic Communities, Congressman Says

Is Comcast using its muscle to force a competitor off the air? In the wake of an ongoing contract dispute between Comcast Corporation and the Spanish-language network Estrella TV, a U.S. congressman is asking federal regulators to take a closer look at Comcast’s proposed merger with Time Warner Cable Inc. and its potential impact on Hispanic communities.

Rep. Tony Cárdenas, D-Calif., wrote to Attorney General Eric Holder and Federal Communications Commission Chairman Tom Wheeler citing the dispute as an example of how Comcast can use its leverage to discriminate against channels that compete with its own content. Estrella TV is a competitor of Telemundo, a subsidiary of Comcast’s NBCUniversal.

In his letter, which is circulating for cosigners on Capitol Hill, Cárdenas said the contract battle “clearly demonstrates the difficulties independent program providers face when negotiating with Comcast and other heavily vertically integrated companies.”

Comcast and Estrella TV have been locked in a carriage dispute in three markets: Houston, Denver and Salt Lake City. Last week, Estrella issued a press release accusing Comcast of trying to push it off the air. The network claims Telemundo has been losing viewers to Estrella in the markets in question. The current contract expires Feb. 19, at which time Estrella says it will go dark in the affected cities.

Jose Liberman, founder and chairman of Estrella, said in a statement, “This has been a real-life David versus Goliath battle, with our minority-owned company fighting one of the largest companies in America, and armed with a simple message: Let the people watch what they want to watch.”

Comcast said that’s exactly what it has been doing. In a counterstatement, the company said it is Estrella TV’s largest distributor and has been “negotiating in good faith for months” with the network’s parent company, Liberman Broadcasting. More crucially, Comcast said it is Estrella that has decided to yank its signal.

On its face, this is standard carriage-dispute territory: A television network and a pay-TV provider battling it out over programming fees, with each blaming the other in the event of a blackout. Last month, we heard a similar script from Dish Network Corp. and Fox News. But while the Comcast-Estrella battle may be a small-time fight in comparison, the stakes are potentially much higher. As Comcast seeks regulatory approval of its $45 billion merger with TWC, opponents of that deal -- and there are many -- will seize upon whatever ammunition they can to convince regulators that merging the country’s two largest cable companies is a bad idea for competition and consumers. Whether Estrella’s claims are true or not, they likely will be used as another “I told you so” moment by anti-merger lobbyists.

As a broadcast network, Estrella TV is considered a “must carry” channel, meaning providers are required by law to carry it. But some broadcasters -- typically more popular ones -- often pursue what’s known as “retransmission consent” fees from cable providers. The question then becomes whether the provider thinks the station in question is worth the cost.

In Estrella TV’s case, Comcast says it is not. “We do not believe Comcast’s customers should have to pay millions of dollars for Estrella’s broadcast programming that has very limited appeal,” the company said in a statement. “Contrary to Estrella’s assertions, these stations are not widely viewed among Latino audiences.”

So either Comcast is trying to push out a viable competitor in key markets, or Estrella TV is seeking fees it isn’t worth at a time when Comcast needs to be on its best behavior.

Cárdenas said his letter to the FCC and the Department of Justice shouldn’t be seen as taking sides in this one contact dispute, but he said protecting business and consumers against anticompetitive overreach is “historically the purview of Congress.” He said a combined Comcast-TWC would be an information gatekeeper in markets with 90 percent of Hispanic pay-TV subscribers, and regulators should “closely examine whether safeguards could even exist to protect unaffiliated programming from being discriminated against on the basis of self-interest.”

Cárdenas is seeking cosigners on the letter until Thursday night. Read the full letter below.

Christopher Zara is a senior writer who covers media and culture. News tips? Email me here. Follow me on Twitter @christopherzara.

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Dear Attorney General Holder and Chairman Wheeler:

Independent program providers are an essential part of the diversity of programing options available to pay-TV subscribers in America. In July 2014, more than fifty of my colleagues joined me in a letter to the Chief Executive Officers of Comcast and Time Warner Cable, asking them to ensure that, should there be a merger between Comcast and Time Warner Cable, that independent program providers are able to continue to operate on an even playing field in what would be an increasingly consolidated media environment. We’re writing today to again ask that close attention be paid to the pending merger between Comcast and Time Warner Cable to ensure that their potential increased market dominance does not negatively impact communities and protects the best interest of consumers and viewers.

Comcast and Time Warner Cable have maintained that such a market domination would not be likely under the proposed merger. However, this week brought more evidence this may not be the case. Estrella TV is currently under a carriage agreement with Comcast in Denver, Houston and Salt Lake City which expires at midnight on February 19th. If the parties are unable to come to terms by that date, Estrella TV contends that it will be forced to terminate its carriage agreement with Comcast in those markets because the terms Comcast has been requiring are commercially unfeasible.

This example of a contract negotiation with a direct competitor to Comcast's Telemundo, shows the potential for an uneven playing field, where the direct competitor is sitting at the bargaining table and negotiating commercially reasonable terms. As a gatekeeper to the information services offered in markets with 90% of Hispanic pay-TV subscribers and more than 30% of all pay-TV households in America, a merged Comcast-TWC will have an incentive to discriminate against independent program providers and drive down carriage fees for competitors, position those competitors poorly on the dial, offer them in standard definition versus high definition, or place them on more expensive and less viewed programming tiers. Each of these outcomes would economically disadvantage any independent program provider when competing with a Comcast-owned competitor.

Congress has a long history of supporting competition going as far back as the passage of the Sherman Antitrust Act in 1890. With that in mind, we ask that your review of the proposed merger consider whether the increased leverage created by virtue of the new company’s size and market dominance would result in, and even encourage, anti-competitive practices.

This letter should not be construed as taking sides in the current contractual dispute. However, the overarching concerns we have are historically the purview of Congress. While it is clearly not the place of Congress to meddle in individual contract negotiations occurring fairly, on an even playing field, between two companies, this situation clearly demonstrates the difficulties independent program providers face when negotiating with Comcast and other heavily vertically integrated companies.

As we have too often seen, programmers lack reasonable carriage alternatives in most markets. Comcast mimics other large cable companies in their domination of a given market. For instance, Comcast itself has pointed out that they do not compete with TWC in most markets, nor with other major cable companies. This denies a free market for content providers to seek a better deal elsewhere. Direct Broadcast Satellite TV is not an equivalent alternative since many independent content providers are carried regionally and cater to a regional audience, which is not possible on the nationwide satellite programming. Likewise, providing programming solely online, in the absence of access to Comcast, is not a viable alternative, given the lower rates of broadband access when compared with cable.

Comcast, in the person of Executive Vice President David Cohen, said to a Senate committee hearing, “Comcast, like the MVPDs with which it competes, has every business incentive to carry programming that its customers value and demand.” That attitude would indicate a proper, market-focused decision-making process, not one based on suppressing competition. However, in the current contract negotiations, Estrella TV showed strong Nielsen ratings during November sweeps, higher than Comcast’s Telemundo in primetime among Hispanics 25 to 54 in Salt Lake City, Denver and Los Angeles.

Independent program providers, like all businesses in America, must have the protection against vertical integration pressures provided by American law. No company should be forced to compete against a vertically integrated company given unfair advantage by powerful corporate parents.

As Members of Congress, we believe it is in the best interest of the public and the consumer to promote competition on the airwaves and recognize the disadvantage of scale that independent programmers face when negotiating for distribution and carriage fees. We ask that in the course of your review of the proposed merger between Comcast and Time Warner Cable, your agencies closely examine whether safeguards could even exist to protect unaffiliated programming from being discriminated against on the basis of self-interest.

We look forward to working with you on these issues and thank you for your consideration of our views. Please do not hesitate to contact us directly if you need any additional information.