June 27, 2012
by Harold Furchtgott-Roth
Various cable companies and Verizon Wireless have begun marketing some of each other's products in certain geographic markets. Antitrust authorities are still reviewing the cross-marketing arrangements, and only time will tell whether the deal passes government muster.
Economic muster may be even harder for the cross-marketing arrangement to pass. Consider that few national firms consistently engage in cross-marketing. Toyota does not market Bridgestone tires or vice versa. Safeway does not direct customers to buy just Pepsi products, and Pepsi trucks do not steer people to Safeway stores. Perhaps these and just about every other major company are missing out on an opportunity to make money. Or perhaps these companies are concerned about antitrust review. Or, more likely, these companies have concluded that cross-marketing is difficult to conduct effectively.
Of course, there are countless temporary exclusivity deals between companies. Exclusivity deals are not the same as cross-marketing. Coca-Cola may pay McDonald's to sell exclusively Coca-Cola rather than other beverage products, but such exclusivity deals are far different from cross-marketing. Coca-Cola spends billions on marketing its products, but does not market McDonald's meals. Nor do McDonald's clerks advise customers about the sale of two-liter bottles of Coca Cola at local supermarkets; McDonald's does not sell two-liter bottles.
Companies can and do profit from selling one another's products and services without cross-marketing deals. AT&T Mobility paid Apple substantial sums for the temporary exclusivity of selling the iPhone. Even during the period of exclusivity, AT&T still marketed other handsets, and Apple marketed its vast array of consumer products that could be used by other means, such as Wi-Fi or wireless interfaces, on the wireless networks of other companies. AT&T never has and never will tell its customers that they should buy a wide range of Apple products such as Macs or iPods from AT&T. Nor are Apple stores in the habit of selling a widerange of AT&T services to Apple's customers.
But perhaps the most important challenge to the cross-marketing arrangement is that some cable services, and a large portion of Verizon Wireless services, are sold through third parties unrelated to either Comcast or Verizon Wireless. These third parties have no incentive to cross-market services, particularly those for which they are unlikely to be compensated.
While cable has some third-party distribution, it is far more common for wireless. How common are third-party distribution channels for wireless? To see both the present and part of the future, consider the distribution market for wireless services in Aspen, Colo. First, there are no company-owned wireless stores here. One cannot find an AT&T store, a Clearwire store, a Cricket store, a MetroPCS store, a Sprint Nextel store, a T-Mobile USA store or a Verizon Wireless store.
Don't worry. Aspen is not a wireless desert. Wireless services from all major carriers work in Aspen, although not in the surrounding mountains. Surely, the city officials of Aspen have not banned shops for major cellular companies.
Indeed, Aspen has wireless stores, just not owned by national brands. AT&T phones and services can be purchased through an authorized retailer, Active Communications, a local company which exclusively sells AT&T services and even mentions AT&T in its storefront windows. Verizon services can be purchased through Ensignal, a local company and an exclusive Verizon retailer, or through GreatCall, a MVNO using Verizon Wireless services. Unless the cable companies pay them, neither Ensignal nor GreatCall are likely to be interested in cross-marketing cable services.
Wireless services may also be purchased from third-party distributors such as Walmart in distant towns such as Glenwood Springs, Colo.
The only method in Aspen to purchase services directly from a wireless company is to purchase them online or consumers can purchase wireless services online. While many wireless services are sold online, many Americans still prefer to hold and test a new handset before purchasing it.
In much of the United States, branded wireless stores are everywhere. They are in shopping malls and strip malls, in downtown office buildings and suburban office parks. They are ubiquitous. But not in Aspen.
Aspen, Colo., is a trendsetting place. Designer clothes, food fashions and stunning architecture are part of the Aspen scene. What you see in Aspen today is what you may see imitated in other towns across America tomorrow. In the town of Aspen, one can find a Prada store, a Louis Vuitton store, a Gucci store, a Dior store, a North Face store, a Ralph Lauren store, and a Burberry store. But not a store owned by a national wireless carrier.
And therein, ironically, may be a key to understanding some of the nuances of the cross-marketing arrangements between Verizon and various cable companies. If Aspen is a harbinger of retail wireless services of the future, there won't be much in the way of cross-marketing opportunities between cable and wireless. Then Verizon and various cable companies will join a long line of American companies that considered cross-marketing arrangements and may even have attempted cross-marketing arrangements. But ultimately, they, too, will discover that cross-marketing arrangements do not easily work.
Welcome to the competitive marketplace known as America.
Harold Furchtgott-Roth is a Senior Fellow and Director of Hudson Institute's Center for Economics of the Internet.
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