The U.S. Justice Department has opened an antitrust investigation into Comcast Corp.'s market power in the multibillion-dollar cable-TV advertising business, the Philadelphia company confirmed Tuesday.
Comcast said that it would "cooperate fully with the Department of Justice's inquiry," and that it believed that its "long-standing practices" with what is known as spot cable-TV advertising had benefited advertisers.
A Justice Department spokesman declined to comment on the investigation, which came to light in a Wall Street Journal article Tuesday.
The federal agency has requested information from the cable giant through a civil investigative demand letter, which is similar to a subpoena.
The Justice Department already has a vast trove of information on Comcast's cable spot-advertising practices and economics because of its exhaustive review in 2014 and 2015 of the company's proposed $45 billion acquisition of Time Warner Cable Inc., which both the department and the Federal Communications Commission opposed earlier this year.
Comcast abandoned the deal in April rather than fight the agencies.
Spot advertising on cable systems had been one of many antitrust concerns arising from the proposed merger of the nation's No. 1 and No. 2 cable companies.
Typically, cable operators have the rights to sell two minutes of advertising during each hour ESPN, TNT, USA, and other networks televise programs. The cable operators keep the revenue from local car dealerships, retail stores, health clubs, and politicians.
Though simple in concept, the spot-cable market can be complex to navigate for advertisers because of multiple pay-TV operators in metropolitan areas such as Philadelphia, Chicago, Boston or Atlanta.
Because of this, Comcast and other pay-TV operators have developed businesses that act as one-stop-shopping venues for advertisers. Comcast's Comcast Spotlight division sells advertising for its parent company as well as Verizon FiOS, DirecTV, Dish, and other operators in 26 of the nation's 50 largest TV markets.
SNL Kagan, the media-research firm, estimates that Comcast Spotlight's sales team covers about 35 million households. The technical term for these businesses in a TV market is "interconnect."
"To better compete with local advertising platforms with significant scale, like a broadcaster or Web app that can sell an entire geographic market, and to provide more and better choices to advertisers, [pay-TV operators] have long worked together through local interconnect arrangements to sell local advertising," Comcast said in its statement. "These interconnects increase efficiency and help keep costs down for advertisers and are responsive to the needs of major local advertisers."
Critics, however, say that Comcast Spotlight can function as a gatekeeper for the local cable ad market and potentially harm competitors.
Viamedia Inc., an independent firm that competes with Comcast Spotlight, had concerns over Comcast's proposed merger with Time Warner Cable and believed the combined company would be a threat to its business.
A Viamedia executive said at the time of the merger review that a combined Comcast/Time Warner Cable could function as a "master switch" over the cable spot-ad market.
Formed in 2001, Viamedia sells local spot cable ads with a 300-person sales force and has major operations in Kentucky and New York.
A former attorney in the Justice Department's antitrust division said on Tuesday that a government investigation would not have begun casually, and that the agency must believe that it has something with enough substance to pursue.
An investigation seems likely to advance slowly because it does not have the urgency of a merger review, the former Justice Department attorney said. He believed that the federal agency would have to find that Comcast's practices harmed advertisers to make an antitrust case.