The U.S. Justice Department’s Antitrust Division is in the early stage of a probe into whether Comcast’s business practices in cable advertising sales are anti-competitive, the Wall Street Journal reported on Tuesday, citing government documents reviewed by the newspaper.
The probe is looking into issues associated with Comcast’s Spotlight division, which offers services that allow regional and local advertisers to buy ads targeted at certain regions without paying expensive prices for national ads. A Comcast spokesperson told Fortune that the company plans to cooperate fully with the Department of Justice’s inquiry.
The DOJ is expected to investigate whether Comcast’s recent efforts in the spot cable ad-sales market has led to “monopolization or attempted monopolization” in regions where Comcast sells cable service. The main question facing antitrust officials: Is Comcast unfairly wielding its power when it comes to selling local TV advertising on cable?
Although the Journal reported that it is unclear what started the DOJ probe, there are several companies that have publicly complained about Comcast’s role in this marketplace during FCC review of the doomed Comcast acquisition bid for Time Warner Cable.
Because of the way the spot cable ad market works, regional advertisers buy ad time through “interconnects,” which are ad-sales cooperatives comprised of various cable companies and other pay-TV providers offering service to a region. Currently, the system is set up so the dominant cable provider negotiates on behalf of smaller pay-TV providers, which means that Comcast manages interconnects in over half of the top TV markets in the United States.
According to Comcast, it manages interconnects in 26 out of the top 50 TV markets in the United States, but does not manage interconnects in either New York or Los Angeles, the two largest markets.
“These interconnects increase efficiency and help keep costs down for advertisers and are responsive to the needs of major local advertisers. We believe these long-standing industry practices are good for advertisers and consumers,” Comcast said in a statement.
Comcast (CMCSA) is accused of requiring its competitors, such as WideOpenWest and RCN, to use Comcast Spotlight as opposed to competing services from companies such as Viamedia. If those pay-TV providers refused, Comcast would then block access to its interconnect.
“Comcast currently denies RCN access to the interconnect for selling spot advertising on a regional basis,” RCN said in a December FCC filing. “RCN is not comfortable having its largest and most formidable rival as its representative in the spot cable market and should be free to choose a representative for such services that does not present such an obvious conflict and competitive disadvantage.”
“Comcast will only allow RCN to join the interconnects if RCN employs Comcast Spotlight instead of Viamedia,” RCN said.
Earlier this week, Comcast Spotlight said that RCN had chosen it to manage its local advertising inventory in markets including Philadelphia, New York, and Chicago, dropping Viamedia.
Ultimately, Comcast’s spot television ad revenue is only a small fraction of its total revenues, most of which comes from providing cable TV and high-speed internet to homes and businesses. In 2014, local advertising contributed $2.4 billion to Comcast’s year-end revenue of $68 billion.
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