FCC, Justice approve Comcast-NBCU merger - with conditions

Posted: January 19, 2011

Comcast Corp.'s proposed $30 billion deal for NBC Universal Inc. received the thumbs-up from the Department of Justice and the Federal Communications Commission on Tuesday, but it came with a long list of provisions that are expected to protect consumers and online competitors from the Comcast juggernaut.

For Comcast, it provides the nation's largest cable network with a dizzying array of entertainment and content providers.

For opponents, it gives Comcast incredible - and dangerous - competitive leverage.

A Comcast executive said the company did not find the conditions overly restrictive, though one stripped Comcast of its management rights at the Internet site Hulu, which streams for-free TV shows over the Internet. Hulu is partially owned by NBCU and is one of the most popular video sites on the Internet.

FCC Chairman Julius Genachowski said the provisions on the deal ensured that "this transaction serves the public interest."

But Michael Copps, a Democrat, the lone dissenting FCC commissioner in the 4-1 vote, warned of the "cable-ization" of the Internet.

Copps rattled off a list of dire concerns: "The potential for wall gardens, tollbooths, content prioritization, access fees to reach end users, and a stake in the heart of independent content production is now very real."

Copps has said he fears Comcast will transfer its cable-TV model of bundled programming and rates to the Internet.

As part of the deal, Comcast will gain control of the NBC broadcast-TV network, NBCU cable channels such as MSNBC and CNBC, and 10 NBC-owned TV stations, among them NBC10 in Philadelphia. The deal also includes the Universal theme parks and Telemundo, the nation's No. 2 Latino network.

The FCC and Justice approvals were obtained after months of lobbying by Comcast in Washington, and they pave the way for Comcast to close on the deal later this month, creating what many consider to be a dominant national media company, with about $50 billion a year in revenue.

"We are looking at a media world that is changing radically, and Comcast is trying to stay ahead of it," said John Dunbar, director of the media and broadband project at the investigative-reporting workshop at American University. "This is an extraordinary development. It's a new kind of media consolidation, and it will bring with it its own set of risks, concerns, and dangers."

First announced in December 2009, the deal comes as Comcast has lost more than one million cable subscribers in recent years because of unprecedented competition from satellite companies, online media, and telephone companies offering pay-TV packages.

A key concern among opponents of the deal was that Comcast would use control of must-have NBC entertainment and news to its unfair advantage in the national pay-TV wars, as it has through its control of Phillies, Flyers, and 76ers games in the Philadelphia region. By not offering the Philadelphia sports games to satellite-TV companies, Comcast virtually forces pay-TV customers to its service, many say.

Some also say they think that Comcast could use popular NBCU content to starve new competitors on the Internet of entertainment content, not giving this new medium an opportunity to challenge cable TV.

Christine Varney, assistant attorney general in the Department of Justice's antitrust division, acknowledged this fear in a conference call and said the combination of Comcast and NBCU had the "potential to stifle" online video.

Because of that concern, the Justice Department reached a settlement in which Comcast, among other things, agreed to relinquish management rights to Hulu, which is partially owned by NBCU. Some say they believe Comcast would force changes at Hulu to make it a for-pay Internet video site.

Comcast, as part of the settlement, agreed not to retaliate against broadcast networks, TV programmers, or movie studios that agree to license entertainment to Comcast competitors. The cable giant also agreed to license NBCU content to online-video providers under certain circumstances.

David Cohen, executive vice president for Comcast, said in a conference call that the cable giant did not find the government's conditions restrictive.

"None of these conditions will prevent us from operating the business as we planned," Cohen said.

The provisions for the most part will extend for the next seven years.

Comcast will not purchase full ownership of NBC Universal but instead form a joint venture and own 51 percent. General Electric Co. will own the remaining 49 percent. Comcast has the option to purchase all of NBCU - which is valued at $30 billion - after several years.

Comcast pursued the acquisition of NBCU amid the economic aftershocks in 2009. It is the second time that Comcast will acquire a major business from a U.S. corporate icon in distress. The first was the 2002 purchase of AT&T's cable business, which solidified Comcast's position as the nation's biggest cable company, with 23 million subscribers.

Comcast lobbied hard for NBCU in Washington, and the company faced persistent but somewhat fragmented opposition from competitors, public-interest groups, and politicians. Sen. Al Franken (D., Minn.), a former comedian on NBC's hit show Saturday Night Live, said the deal would lead to more media consolidation. Sen. Bernie Sanders (I., Vt.) decried the deal, as did Rep. Maxine Waters (D., Calif.).

DirecTV, in a filing with the FCC on Jan. 5, said the "unprecedented array of assets would give Comcast new opportunities to gain unfair leverage over rivals to the detriment of consumers," later noting that "Comcast has a history of anticompetitive conduct, and the proposed transaction will give it the ability to enhance and extend that conduct."

But Comcast also had its supporters, most notably nearly unanimous support by the Pennsylvania delegation in Washington. A leading supporter was Rep. Robert Brady of Philadelphia.

The climactic end to the merger review leaked out Tuesday after the five-member FCC voted in private. The agency then posted the results, along with commissioner statements on the agency's website.

Genachowski and Mignon Clyburn, both Democrats, voted to approve the deal, as did Republicans Robert M. McDowell and Meredith Attwell Baker. In a joint statement, McDowell and Baker said they thought the federal agency exceeded its authority with the conditions, but they voted to approve nonetheless.

The actual FCC order was not released publicly Tuesday, leaving many to guess at the particulars of the conditions. In a statement, chief executive officer Brian L. Roberts said it was a "proud and exciting day for Comcast."


Contact staff writer Bob Fernandez at 215-854-5897 or bob.fernandez@phillynews.com.

 

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