Comcast’s Web video worry

Critics want content to be shared

While Comcast’s proposed joint venture with NBC Universal has generated a lot of noise from supporters and opponents as it makes its way through the Washington regulatory chain, other media congloms and small startup ventures say there is one issue that may set the stage for the rest of the business: Web video.

Sources say that the Justice Department and the Federal Communications Commission are focusing part of their review on the nascent market for streaming movies and TV shows which, depending on how you view it, is either a complement to cable TV or a threat to its existence. A big question is whether the DOJ or FCC will address demands from interest groups and lawmakers that Comcast be required to make its online video available to competitors — the same way that cable operators are required to make their TV channels available.

While Comcast and NBC U have made dozens of public interest commitments on diversity, news programming, affiliate relations and cable carriage, few of those commitments have involved online video.

Comcast has long held that the online video market is in its infancy and that it’s far too early to declare where it is headed.

It maintains that online video is a complement to, not a substitute for, TV that consumers pay for every month.

It also contends that online video is not a big player, noting that its share of basic cable viewing is 13% and that, as a broadband provider, it controls less than 20% of the U.S. market.

But at a series of hearings, and in thousands of pages of testimony, some critics have called for conditions on how Comcast distributes Web video.

Sen. Al Franken (D-Minn.) asked whether Comcast CEO Brian Roberts would guarantee that NBC and Comcast’s current and future shows would be available on the Internet, or whether they would be provided only to cable customers. Roberts responded that the company cannot “make guarantees about how the marketplace will evolve.”

On the other side of the regulatory perspective, the worry on Wall Street is that Comcast, in looking to placate regulators, will agree to too many conditions and concessions, including those having to do with online video.

“I’ve thought from the beginning that the FCC and the DOJ would impose conditions that would cost Comcast more than the synergies the merger can produce,” said Sanford Bernstein cable analyst Craig Moffett. “In short, it’s likely to produce negative synergies.”

Other media executives said privately they worry that conditions placed on a single deal by regulators will serve as a proxy for regulating the entire industry. “What Comcast has done is open a can of worms for all of us,” said one Washington, D.C.-based executive of a large media company.

Jerry Kent, CEO of small cable operator Cequel III, added, “Comcast is running a regulatory gauntlet and the question is whether it is putting itself at risk of not being able to execute its business plan.”

After some early trepidation, media companies are finally embracing the idea of putting content online not only on their own websites, but also on services like Hulu Plus, Netflix and those operated by cable and satellite distributors.

With sales of iPads soaring and with smart phone sales expected to soon exceed those of PCs, online video is an increasingly important strategy for entertainment outfits.

Regulators, however, might determine that consumers who opt not to subscribe to a cable or satellite service — or who can’t afford to — are entitled to programming on another platform, like the Internet. If so, they could require in approving the proposed joint venture that Comcast and NBC U make its content available everywhere. That could signal to other content and video service providers that this is how federal regulators view the market.

Diana L. Moss, VP of the American Antitrust Institute, which has raised concerns about the combined entity, said that much depends on “how ambitious the DOJ is likely to be in framing how this merger could affect competition.”

While Comcast argues that the combined company’s interests would account for only 5% of online video views, critics have focused on whether the company will have too great a say on how the emerging market evolves.

“It depends on how creative (the DOJ) want to be, how aggressive they want to be, on this merger,” she said. “And then there is a question of whether they have the political will.”

Comcast is so worried about how it is perceived when it comes to online video that it has suspended discussions with smaller cable operators that wanted to pay Comcast to use its online service Xfinity as a template for their own video offerings.

The deadline for filing comments on the Comcast/NBC U proposed joint venture passed more than a month ago while regulators have continued to work on the merger.

But at the FCC, the pace has been slow, and sources said the commission may not offer a ruling on the deal by year’s end, as had been anticipated, but in early 2011. The FCC’s review comes as the commission is also undertaking the formidable task of figuring out how to regulate net neutrality.

FCC chairman Julius Genachowski told reporters this week: “I think with transactions like (Comcast/NBC U) we have an obligation to operate efficiently and also to tackle the significant issues that it raises. So both of those principles inform our process and our schedule. People are obviously working very hard on it and I just don’t have more to say on timing and when we’ll tackle it.”

(Ted Johnson contributed to this report.)