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Justice Department Probing Comcast's Role in 'Spot' Cable Ad Sales Market

11/24/2015 | 07:27pm US/Eastern
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

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