A new kind of company, a new challenge for feds

In the event of a merger, regulators would probably keep competing cable providers from blocking NBC shows.
In the event of a merger, regulators would probably keep competing cable providers from blocking NBC shows. (Bebeto Matthews/associated Press)
By Cecilia Kang
Washington Post Staff Writer
Friday, November 27, 2009

One is a giant of the entertainment world -- a tangle of television networks, a film studio and a stable of hit shows. The other is a cable colossus, the nation's largest provider of cable TV and Internet access. Together, the possibilities are endless.

And that prospect has caught regulators' attention.

With Philadelphia-based cable operator Comcast apparently hoping to acquire NBC Universal from General Electric, federal regulators are realizing that they may be thrust into a new era. A combination of the two would create the prospect of a single company controlling how customers access information--through cable and online -- and what they watch there.

Comcast, for instance, could consider same-day releases of Universal movies for its cable customers. With control over more news and entertainment content, it would have greater flexibility to explore online business models, perhaps offering cable subscribers free online access to certain content, such as the show "30 Rock" or CNBC or USA Network programming. Comcast already is the nation's second-largest provider of Internet access, and NBC owns a large stake in Hulu.com, where television shows can be accessed through any broadband connection.

Such are the makings of a complicated regulatory challenge. Any merger would have to be approved by antitrust officials at the Justice Department or Federal Trade Commission. The Federal Communications Commission would determine whether the deal would benefit the public.

"I do think we have a problem in that we are not revising regulatory mechanisms as the technology is progressing," Andrew McLaughlin, the nation's deputy chief technology officer, said last week at a telecom policy conference. He would not comment directly about the rumored merger but said the Internet has disrupted business models -- think newspapers, music and movies -- that were based on the scarcity of access. That's because the Web makes information instantly accessible. "We're still acting as if there are scarcities where there aren't any," he said.

Brian Roberts, chief executive of Comcast, wants to diversify the company's core cable business model by seizing on the power and possibility of the online market, in which a whole universe of content is available.

Right now, his company owns little content. But if it takes over NBC Universal, "Comcast would be calling the shots for one out of every five viewing hours in the United States," Bernstein Research said in a note. Regulators would probably aim to ensure that NBC shows aren't withheld from competing providers such as Cox and Time Warner, analysts said.

Preserving competition becomes more complicated as people watch more shows and movies online.

With control over more content, Comcast would have greater flexibility to explore business models on the Web, like its plans to begin offering subscribers of cable free online access to shows. The cable and entertainment industries are experimenting with different models for how to make money off of online videos, keeping a careful eye on problems faced by the newspaper and music industries as their businesses cope with the Internet.

"The broadband operations and the move toward greater online video would only expand the potential linkages, negotiating levers and concerns," said Rebecca Arbogast, a managing director of research at Stifel Nicholaus.

Comcast declined to talk about any plans to merge with NBC. It has said, however, that its online video strategy, part of an industry effort called TV Everywhere, is non-exclusive. So programmers like HBO could negotiate with competitors to carry shows like "Entourage." Comcast spokeswoman Sena Fitzmaurice said the company wants to "get as many eyeballs" as possible to view its content, so it wouldn't make sense to block competitors of its shows.

Many of the toughest questions will come down to the FCC, which is pushing for open-Internet rules and greater competition among carriers.

But some critics question whether the FCC has jurisdiction over online video content. The agency oversees the distributors of video content, but not the content itself.

"The commission's open-Internet proceeding is about preserving an open marketplace for ideas, services and products," said Colin Crowell, a senior adviser to the FCC chairman. "Safeguarding an open marketplace for video content online and maximizing viewing choices for consumers is consistent with both the Internet's history and the overarching media policy objectives pursued by Congress and the commission over decades."

When broadcasters dominated television, Congress and the FCC helped cable operators get off the ground with the 1984 "cable act," which helped spur the spread of cable networks. They then helped satellite operators enter the market with the cable act of 1992, which forced cable to share programming. More recently, policymakers allowed phone companies to get into the video business -- such as Verizon's FiOS and AT&T's U-Verse service -- in an attempt to bring more competition to cable.

Today, the agency is just beginning to look into online video. It is examining the lack of competition in the market for set-top boxes, devices that today control a subscriber's access to cable television but that officials believe could one day bring Internet video directly to the TV set.

Justice, meanwhile, is dissecting questions about competition that arise as cable and satellite operators transition to the Internet. They are parsing how a Comcast-NBC merger would affect pricing of Internet video for consumers and competitors, according to a source who spoke on the condition of anonymity because the merger talks are ongoing.

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