Web, TV caveats imposed

Few seriously doubted that the federal government would give the greenlight to Comcast’s $30 billion acquisition of a 51% stake in NBC Universal. What they did wonder was what conditions placed on the deal would do to the media business’ competitive landscape.

The FCC and the Department of Justice gave clearance to the transaction Tuesday, meaning that the nation’s largest cable and Internet provider will, for the first time, have control over a major broadcast network and studio.

The expectation is that Comcast will close the transaction at month’s end, after which the company will have to abide by a long list of requirements that include adding 10 new independently owned cable channels to its digital platform over the next eight years, an expansion of its local news programming, the addition of more children’s programming and the offering of low-cost broadband access to low-income communities. Many of the conditions will be in place for seven years, which is longer than past major mergers.

“Our original vision for the combination remains intact so that consumers will benefit, and our competitors will be treated fairly,” Comcast chairman-CEO Brian Roberts said Tuesday.

The most anticipated and contentious conditions have to do with online video — a fast-growing segment that, at least in the eyes of federal regulators, poses a competitive threat to cable providers like Comcast, particularly if consumers “cut the cord” and opt for less expensive Web streaming.

“That’s really the battle in the next five or 10 years, between these upstarts and the traditional cable players,” said Jonathan Taplin, a USC professor and director of the Annenberg Innovation Lab. He added that the fact that Comcast agreed to the conditions, even after arguing that it was such a new market, “shows how badly they wanted to get the deal done.”

Noting that Comcast had an “inherent conflict” in providing both cable and Internet services, the Department of Justice is requiring a series of steps designed to ensure that the deal won’t put competitors such as Netflix, Apple TV and the nascent Google TV at a competitive disadvantage.

Comcast will be required to license the linear feeds of its programming to online distributors on terms equivalent to those that it makes with other cable providers. It also requires Comcast to license its broadcast, cable or film content to an online distributor who has at least one deal in place for comparable content from a rival studio or network. The content would have to be made available at “economically comparable prices and terms.”

Another provision prohibits Comcast from retaliating against a content provider, like a studio or network, that provides programming to a competing distributor, including online rivals. But critics continued to make the case that the conditions were insufficient given the leverage of the combined company.

On the other side of the spectrum, commissioners Robert McDowell and Meredith Attwell Baker, who voted for the transaction, nevertheless said that the conditions have “the potential to shape the future of entire industries,” including online video, “on the basis of a record that is by necessity limited to facts pertaining to the two parties.”

Rival media conglomerates like Time Warner and News Corp. had no official comment on the transaction’s approval, but in the past week they have met or conversed with FCC officials to express concerns that the online conditions could “distort the marketplace,” in the words of a News Corp. lobbyist, as they would set the terms for other deals.

Comcast exec VP David Cohen, in a conference call with reporters, acknowledged that the online video provisions were the most complicated “because it is such a nascent market.”

He noted that the conditions are more intricate than the program access rules that prevent cable providers from withholding channels they own from rivals, and noted that in some cases online providers will have to contend with the reality of having to pay comparable rates for content as cable or satellite providers do.

“None of (the conditions) will prevent our businesses from being competitive in the markets in which we compete,” he said.

With federal approval in hand, Roberts and Comcast chief operating officer Steve Burke are poised to hit the ground running in integrating Comcast’s channels with NBC U’s larger fleet of cablers (Comcast’s cable systems are technically not part of the merged company). The management structure of the combined entity was hammered out late last year by Burke, who will oversee the new NBC U as CEO. For the most part, it’s status quo among top execs at Universal Studios and NBC U’s cable operations. The NBC broadcast network is in for a major overhaul, with former Showtime entertainment boss Robert Greenblatt taking over programming, marketing and production operations as chairman of NBC Entertainment, while Comcast’s Ted Harbert will oversee the business side as chairman of NBC Broadcasting.

In a research note, Rich Greenfield, an analyst at BTIG, said that under the merger conditions, “It appears clear that Netflix could offer NBC U programming … as long as it was willing to pay fair-market rates for the entire package of NBC programming.” But he estimated that with retrans and affiliate fees costing more than $4-per-subscriber per month, the annual cost to Netflix would be nearly $1 billion, “which is far too high to make it a reality anytime soon.”

Comcast also will be required to give up NBC U’s management rights in Hulu, but will still have to make NBC U content available that is comparable to the programming the online site obtains from Disney and News Corp., its partners in the venture. That has led to speculation that Comcast would just as soon sell the NBC U stake in Hulu, as it poses competition with its own Xfinity online platform. But Cohen said there “is no current contemplation to divest” Hulu.

FCC chairman Julius Genachowski, in a statement, defended the merger approval, noting that it “is structured to spur broadband adoption among underserved communities, to increase broadband access to schools and libraries, and to increase news coverage, children’s television and Spanish-language programming.”Christine Varney, the assistant attorney general in charge of the DOJ’s Antitrust Division, said that the result “fully protects competition, allowing businesses to bring new and innovative products to the marketplace, providing consumers with more programming choices.”

The conditions also include a requirement that Comcast submit to arbitration to resolve disputes over prices and terms for rights to carry cable and broadcast channels, as well as regional sports networks. In certain cases, the arbitration will apply to disputes over online content as well.

It also requires that the combined company offer “standalone broadband Internet access services at reasonable prices and of sufficient bandwidth” so that consumers can get access to online video services without the need to get a cable TV subscription from Comcast.

Comcast also has agreed to abide by the FCC’s recently established net neutrality rules, which could be the source of lawsuits, and “is required to give other firms’ content equal treatment under any of its broadband offerings that involve caps, tiers, metering for consumption or other usage-based pricing,” according to the Justice Department.

The FCC is further requiring that Comcast “not discriminate in video programming distribution on the basis of affiliation or non affiliation with Comcast-NBC U.”

Smaller cable channels, like the Tennis Channel and Bloomberg, as well as Viacom, had been critical of the transaction over concerns that it would give Comcast too much leverage to favor its own channels. One condition requires that if Comcast’s cable systems group Comcast or NBC U-owned news outlets together on the channel lineup — what’s known in policy jargon as “neighborhooding,” it also must put unaffiliated news channels in the same area. The rule does not apply more broadly to other types of channels.Dan Doctoroff, president of Bloomberg LP, expressed support for the condition. “The FCC has recognized the critical importance of neighborhooding and ensuring that independent channels are treated fairly and consumers are protected,” he said.

(Paul J. Gough and Paul Harris contributed to this report.)

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