How Bad Is The Comcast Acquisition Of TimeWarner For Society?

In his 1995 article for Business On A Small Planet, Corporations and the Public Interest, Jonathan Rowe helped put the intent behind the rise of corporations into a perspective that has been lost over the decades. "When I was a law student in Philadelphia," he writes, "I was hired by the owner of a small local radio station to look into the original corporate charters of the Penn Central Railroad (originally the Pennsylvania Railroad). The Penn Central was in the process of ending its passenger service, and the man who hired me wondered if the railroad didn’t have a legal duty of some kind to continue it. What I found truly surprised me. The charter spelled out clearly that the corporation had an obligation to serve the public by providing passenger service. That was the condition for the privilege of operating in the corporate form, and also for the generous grants of land it received from the legislature."

This was true of the early corporations generally. Their charters asserted that they existed first and foremost to serve the public. That was their reason for being.

In fact, the first corporations in the Anglo-American tradition had nothing to do with profits. Much as it might cause free market fundamentalists to squirm, the original corporations were actually regulatory agencies, such as guilds, or local governments such as townships. (In New England, when you drive from one town into another you pass a sign that announces the year in which the town you are entering was "incorporated.")

Later, the British Crown adapted the corporate form to what we would call today a "public-private partnership." The Queen wanted to lay claim to the New World, but such ventures required huge amounts of capital, and were risky in the extreme. To amass the capital, there was a need to insulate investors from responsibility for the undertaking, beyond the amount of their investment. Thus the "joint stock company" was born.

Individual responsibility is one of the bedrock principles of common law. To dilute this principle was an extraordinary step, one that was conceivable only for a mission that presumably served the public good. In other words, there was a direct link between the exemption from individual responsibility for corporate investors (and later officers), and the public good that the corporation was chartered to carry out.

This legal tradition carried over to the American colonies. It gave rise to the corporate charters that the state legislatures bestowed one by one, and only for specific undertakings. (Think of Amtrak as a rough modern-day equivalent, including the subsidy.) This was the form of corporation the framers of the Constitution had experienced. It was totally a state matter, and nothing for the new federal Congress to worry about.

Predictably, there was a lot of patronage and corruption in the granting of charters, which in effect were private monopolies. There also were boondoggles of the first order, the railroad land grants being a prime example.

By the middle years of the 19th century, the nation’s commerce was bursting at the seams. What historians now call "Jacksonian Democracy" gave political expression to these impulses-- the resentment of special privilege and the explosive growth of commerce. Corporations became a prime target of political attack; not to curtail or abolish them, or to reinforce the original bargain, but rather to extend the privileges of incorporation to everyone.

Up close, this Jacksonian Democracy could look a lot like an S&L convention in the ’80s. One after another, the state legislatures enacted "free incorporation laws," which democratized the corporate form. No longer did legislatures have to charter corporations by special act. No longer were corporations limited to specific activities that served the public. Now anyone could form one, to do anything they wished. Market ideology said that simply seeking gain would, under the dispensation of the Invisible Hand, serve the public good.

Thus US Steel and Standard Oil and the like were born on a wave of what might be called today "liberal permissiveness." Several decades later, the Supreme Court completed the coup by declaring, with little basis in law or history, that the Fourteenth Amendment applied equally to corporations, making them legal "persons" with all the Constitutional rights and privileges of human beings.

The important point is that the free incorporation laws tore up the original bargain that was the basis of the corporate form. Corporations no longer had to serve the public. They could do anything they wanted. But they still enjoyed the extraordinary exemption from individual responsibility that they had obtained historically only because they would serve the public.

More recently, writing for Alternet, Thom Hartmann, an expert on the depredations of corporations-run-amuck, reminds us that doing business is a privilege, not a right: "In order to do business you, or you and a group of participants, must petition a Secretary of State for a business license."

If your petition is granted, you will be given to set of privileges ranging from the ability to deduct from your income taxes the costs of your meals (if you discuss business), to a whole variety of special tax breaks, incentives, and immunities from prosecution for things that, had you done them as an individual, you might otherwise go to prison for.

When we set up this country more than 200 years ago, we established some of these privileges, and associated with them some pretty heavy responsibilities.

Up until the 1890s, a corporation couldn’t last more than 40 years in any state-- which prevented them from being used as a tool to accumulate massive and multigenerational wealth. A corporation had to behave in the public interest, and when they weren’t, thousands of them every year were given the corporate death penalty, their assets dissolved and their stockholders losing everything (but nothing more than) they had invested.

Over the years, as the Supreme Court has given more and more power to wealthy individuals and corporations, these responsibilities receded so far into the background that in one state, Delaware, your articles of incorporation can be a single sentence stating that you intend to “Do whatever is legal in the state of Delaware.” Which is probably why more than half of all the companies listed on the New York Stock Exchange are Delaware corporations.

The reason we originally allowed businesses to do business in this country was that some benefit would come to society from it. But since the era of New Deal economics was replaced by Reaganomics, the principal rationalization we use to give limitations of liability and privileges to corporations and their masters has changed from, “What is best for society?” to, “How can somebody best get rich quick?”

This is a perversion of the entire concept of why nations allowed people and corporations to do business, and why we facilitate that activity by providing at public expense: stable currencies and a stable banking system; predictable and fair court systems; transportation, electrical, water, septic, and communications infrastructure; a criminal justice system to enforce the rules of the game of business; and a workforce educated at the public expense and protected with a public pension called Social Security. We do all these things so the business will provide some good to the public while, in the meantime, enriching its owners.

But a new business model has emerged in the United States. Companies still get the privileges, but they no longer have to conduct themselves in ways that inure a net positive to the public.

On Friday, Ken examined the TimeWarner/Comcast merger from the perspective of an intended victim of the deal: "My first thought," he wrote, "on hearing of Comcast's acquisition Time Warner Cable (which as far as I can tell is a more accurate description than a 'merger' of the country's no. 1 and no. 2 cable-TV companies) was: They're not gonna let that happen, are they? By 'they,' I guess I meant the FCC, the FTC, the Justice Department's Anti-Trust Division-- whoever would have to sign off on a corporate conglomeration that would turn two pretty powerful players in the cable industry into one behemoth. It's just not possible, is it? My second thought was: Well, they spent a lot of time and billable lawyer hours negotiating the deal, so they must think they can somehow slip it past the regulators?" Ken forgot to mention that the cable companies are determined to charge $200/month by 2020 and the merger will make that even easier.

As Ken pointed out, he's an East Coast victim of TimeWarner Cable; I'm a West Coast victim of TimeWarner Cable. I'm also a former divisional president of TimeWarner. In its heyday, employees had every reason in the world to be proud of the company, it's commitment to serving its employees, its customers and the public. The father of the company, Steve Ross, who died in 1992, was considered a visionary. He was also a sharp businessman who made his shareholders gigantic returns on their investments and built a gigantic company with an eye on sustainability. And for the people who worked for him, he had a very clear message. We would prosper so long as we took the interests of our shareholders, our employees, our artists, our customers and the society around us into account. I heard about the concept of stakeholders from Steve. And we took that seriously. His vision ended on January 10, 2000 when Jerry Levin and Dick Parsons sold the company to huckster and financial predator Steve Case of AOL. An aggressive gnat swallowed a whale and the stakeholders were suddenly the enemy. Within 15 minutes of meeting Steve Case for the first time I decided to retire at the ripe old age of 52. He had a vision too-- screwing the shareholders, the employees, the artists, the customers and society. Gone were the days that TimeWarner was the biggest contributor to the Democratic Party and to progressive initiatives in the United States. TimeWarner would never again be a force for good-- just a force for ripping off everyone it came in contact with. Last week a supervisor suggested to one of my neighbors that she dump her cable system and get DirectTV.

Friday, writing for AP, Ryan Nakashima explained the consumer outrage around the Comcast acquisition of TimeWarner Cable. "Comcast and Time Warner Cable regularly rank at the bottom of the pay TV industry when it comes to customer satisfaction. So it didn't take long for customers to vent frustrations online over high prices, spotty service and fears of a monopoly after Comcast announced its $45 billion purchase of Time Warner Cable… Consumers [and not just Ken] weren't buying the assertion of Comcast CEO Brian Roberts that the combination, which will have 30 million TV and Internet subscribers, would be 'pro-consumer and pro-competitive.'"

Using a contorted logic, the two companies are expected to argue to anti-trust regulators that the fact they don't directly compete against each other in many parts of America shows the deal won't reduce competition and therefore should be approved.

But it is that lack of overlap, and lack of choice, which is at the root of customer frustration, according America Customer Satisfaction Index managing director David VanAmburg. Cable companies that purposely don't compete against each other to provide fast Internet or reliable TV service can get away with not fully meeting customer needs in markets where they dominate.

"It's almost subconsciously built into their business model that they don't have to worry so much you're going to leave for a competitor," said VanAmburg. "It's definitely a big factor."

Most people think the Justice Department shouldn't allow the merger. Most people are right-- but that won't matter one jot. Michael Noll at cnet.com seemed more fatalistic about the ability to stop it and is hoping the Feds at least force a spin-off of the content business. Like everyone who doesn't get a fat paycheck from one of the two companies, he asserts that the claim that the merger will benefit consumers is "nonsense." That's got to be a contender for 2014's understatement of the year. "One perspective on this is the distinction between conduit and content. Verizon's optical fiber or Comcast's coaxial cable is the conduit over which video, Internet, and telephone services are carried to our homes. The television programs we watch are the video content.

At the local level, there is conduit competition between the cable company (Comcast or Time Warner Cable) and the telephone company (Verizon or AT&T). But there's no competition between Comcast and Time Warner Cable or between Verizon and AT&T. These supersize firms have carved up the United States, with each sharing the provision of the conduit with the other-- what is called a duopoly. Government believes duopoly is better than monopoly.

The problem is that the cable companies own content-- the telephone companies do not. For example, Comcast owns NBC, Universal Pictures, and cable networks; Time Warner Cable owns CNN, HBO, and Warner Brothers. An acquisition of Time Warner Cable by Comcast would create a gigantic content business with incredible control over content pricing, packaging, and programming. And this supercontent is what the telephone companies would be forced to purchase to resell to their customers.

Decades ago the cable television companies were allowed to own both the cable conduit and also content providers. Government allowed this as an incentive to the fledgling cable companies. But today cable companies are far from fledgling, and past polices need to be revisited in light of today's realities.

Another perspective on this is the use of the Internet to go directly to video content providers, thereby bypassing the video provided by the cable company. This is a threat to the lucrative video business of the cable company. One way to counter this threat is to own as many content providers as possible and stipulate and control access to the content. This proposed acquisition would create a supersize content provider with tremendous market domination and control.

Monopoly might be evil and duopoly a little better. But the combination of conduit and content on the scale of this proposed acquisition would truly be evil squared. Decades ago, movie theaters (the conduit) and movie producers (the content) had to be separated and broken apart. It is time again for government to separate conduit from content and break up the power of the cable companies. If government allows this acquisition, as a condition the content business must be spun off.