Online video brings new antitrust concerns to Comcast's door

handout photo from netflix.com
handout photo from netflix.com
Posted: June 24, 2012

New fears that Big Cable will squash online-video competition has caught the attention of the Justice Department — and is one of several antitrust issues now facing cable giant Comcast Corp.

Investigators have sent the equivalent of civil subpoenas to Comcast, other pay-TV providers, and programmers, in a broad sweep for information about contract provisions related to online video. It's an industrywide probe.

Comcast's proposed deal to sell wireless spectrum through a consortium of cable companies and partner Verizon Wireless to market quad-play bundles — wireless phone, wireline phone, Internet, and cable TV — is being analyzed separately by the Justice Department and the Federal Communications Commission. Critics say the deal amounts to a business truce between Comcast and Verizon Communications Inc., which controls Verizon Wireless and also competes with Comcast with its FiOS TV and Internet products. Comcast and Verizon officials say that there is no truce and that they still will compete.

In addition, Judge John R. Padova has scheduled for trial in September a class-action antitrust lawsuit that, since late 2003, has been wending its way through federal court in Philadelphia. The suit claims that Comcast clustered its cable systems in the Philadelphia region through swaps with other cable companies, leading to market power and higher prices for consumers.

Legal issues in the three cases are different, and, Comcast officials say, the matters are unrelated. But observers note that a common thread is the company's willingness to push legal limits when pursuing growth.

Experts say that it's very early in the online-video investigation, but that the probe seems serious.

"Online television is now getting to the point where it is a real threat to cable companies, and anything the cable companies do to undermine that threat will draw antitrust scrutiny," said Ankur Kapoor, a partner and antitrust specialist with Constantine Cannon, a New York law firm.

"The antitrust authorities have pretty consistently looked very closely at deals that impact consumers' wallets," Kapoor said, referring to the Justice Department's opposition to AT&T Inc.'s proposed deal to acquire T-Mobile.

Justice Department spokesman Daniel Stratton had no comment when asked about a possible investigation.

"Comcast is committed to complying with all applicable laws and regulation to the benefit of our customers, and we are very proud of our record in this regard," D'Arcy Rudnay, the company's chief communications officer, said in a statement Thursday. "We are a large company that spans several exciting and complex markets, and it is hardly surprising that we will face some litigation or government inquiries. We are confident that the result of any such inquiries would reinforce our history of compliance with all applicable laws."

No one thinks Comcast or pay-TV companies can turn back the tide of online video. The issue is whether an online-video business model can develop that offers consumers a viable, and cheaper, alternative to traditional cable.

Some view consumption-based billing for Internet broadband users as a direct threat to Netflix, Hulu, YouTube, Apple TV, and Google TV. Consumption billing, they say, would have a chilling effect on online video because it could lead people to refrain from watching it, fearing that they were running up the broadband bill. Cable companies are the major providers of residential Internet in the United States. Comcast itself is the largest, with about 18 million broadband subscribers.

It's not clear whether the Justice Department investigation is specifically looking at consumption-based billing.

Cable companies hold another economically powerful card, some say: They distribute Hollywood and New York programmers' content over their cable-TV systems, providing those programmers with billions of dollars in revenue. A concern is that cable companies can leverage this economic power over programmers to somehow restrict them from offering their content online.

The perceived danger to online video has gained currency with concerns over "authentication," in which people can watch certain online programming only if they have a cable- or satellite-TV subscription. In July and August, viewers will be able to watch streamed Olympics coverage at www.nbcolympics.com, for instance, if they authenticate themselves as pay-TV customers on the Internet site.

No pay-TV subscription? No streamed Olympics coverage.

"It's all about protecting the cable model and wringing as much as they can out of their consumers through the monthly cable subscription and the broadband subscription," said Joel Kelsey, policy director with the advocacy group Free Press and a frequent Comcast critic. "The intent is to make it difficult for online distributors to get content they want."

But programmers also have an incentive to preserve the current model because of the stable per-subscriber fees they are paid by cable- and other pay-TV operators.

The Justice Department explored some of these issues intensively during its regulatory review of the Comcast deal to acquire control of NBCUniversal, approved in early 2011, and Comcast agreed as a condition of the deal's approval to make NBCU programming available to online competitors.

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

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