Merger plans for Comcast, NBC ignite battle over television access

By Cecilia Kang
Washington Post Staff Writer
Friday, December 4, 2009

Comcast, the nation's biggest cable and broadband Internet company, on Thursday announced plans to take over NBC Universal, creating a new kind of media colossus that would not only produce some of America's most popular entertainment but also control viewers' access to it.

The roughly $30 billion deal set off immediate reaction from consumer groups and lawmakers in Washington, heralding an epic regulatory battle over concentrating so much power in one company. Almost one in four cable subscribers in the U.S. is a Comcast customer. NBC Universal owns cable networks such as Telemundo, MSNBC and Bravo, TV shows such as Jay Leno's, regional stations such as Washington's WRC (Channel 4), and Universal movie studios.

Sens. John D. Rockefeller IV (D-W.Va.), chairman of the Commerce Committee, and Herb Kohl (D-Wis.), chairman of the Judiciary antitrust subcommittee, called for hearings to review the deal's impact on television competition and consumers. Michael J. Copps, a Democratic member of the Federal Communications Commission, said that the merger faces a "very steep climb with me" and that it raises many doubts over whether it would be in the public's interest.

Analysts said the deal would face a lengthy regulatory review -- from one year to 18 months -- but would probably be passed with significant conditions. A great part of the debate for federal regulators will be how the merger would impact the future of television programming, which will be viewed online on mobile devices and computers as well as on the box in American living rooms.

"My long-standing skepticism about the harms imposed by so few controlling so much persists," said Copps, a staunch advocate of media-ownership rules that prevent consolidation between newspapers and broadcasters in the same market.

Critics worry that the consolidation of the two big companies could drive up cable TV bills and make some content off limits to anyone who doesn't subscribe to Comcast's services. The Philadelphia company has said it wants to keep NBC and Univeral entertainment available to the widest possible audience. It did not address the cost issue on Thursday.

The deal also must overcome the poor track record of previous mergers between media giants, most notably the disastrous pairing of AOL and TimeWarner.

In a conference call, Comcast chief executive Brian Roberts touted the synergies of the merger, saying the acquisition would further his family's vision of developing the company into an entertainment powerhouse from its humble beginning as a single cable system operator in rural Mississippi. Roberts said he thought the deal was "approvable" by regulators.

"This is pro-consumer and is going to accelerate what I believe consumers want, which is to access all different types of content on different platforms at different times," he said.

Appeasing regulators

Comcast made several commitments to fair play in the television market to appease regulators. The company said it would keep NBC's local television stations and expand programming to diversify its offerings. It said it would abide by program access rules that require it to share shows and channels with competitors.

The FCC will review the deal to see whether it benefits the public. Antitrust watchdogs at the Justice Department or Federal Trade Commission will scrutinize whether it would harm competition in the market.

Under the deal, which has been in the works for months, Comcast would pay $6.5 billion in cash upfront and contribute $7.25 billion in cable assets to acquire a 51 percent stake in NBC Universal from its current owner, General Electric, which would retain a 49 percent stake. Comcast would control the joint venture's day-to-day operations. GE would take $9.1 billion in debt to finance the deal. In all, the joint venture would control more than one out of every five television-viewing hours.

NBC's chief executive, Jeff Zucker, would remain as head of the joint venture, based in New York. NBC Universal owns 34 TV stations around the country and 13 cable networks, the biggest of which are USA, CNBC, MSNBC, Syfy, Bravo and Oxygen.

While NBC Universal is still highly profitable, some of its major holdings, particularly NBC and the Universal studio, are struggling. But NBC still has some significant assets, such as a contract with the NFL to broadcast games on Sunday nights and the rights to the 2010 Winter Olympics in Vancouver, B.C., and the 2012 Summer Games in London. It also has a prestigious news division that produces the top-rated morning show "Today" and gives its parent company stature in Washington via such programs as "NBC Nightly News With Brian Williams" and "Meet the Press." In addition, WRC has been the most popular local news station in Washington for more than a decade.

Comcast will contribute its cable-network group to the marriage, including such channels as E! Entertainment Television, Style Network, Versus, Golf Channel, Major League Baseball channel and 10 regional sports networks. Among the latter is Comcast Sports Network in Washington, which carries the Capitals, Wizards and University of Maryland basketball and football games locally.

Impact on online video

Public interest groups are particularly concerned about the deal's impact on the nascent but growing market for online video, where new operators such as Hulu, YouTube and Netflix are changing the media landscape with free or low-priced products.

Analysts say the merger will be a test for how regulators will deal with the Internet video market, which doesn't fall directly under the FCC's jurisdiction. But the agency is exploring competition in online video, and it could use the merger to implement conditions that would set guidelines for the burgeoning market.

"The transaction gives the FCC a vehicle to explore policy issues relating to Internet video in ways that might have negative implications for Comcast as well as other cable operators and satellite TV providers," said Paul Gallant, an analyst at Concept Capital.

The FCC imposed conditions on AT&T's merger with Bell South in 2005 that kept the company from controlling customers' Internet access, and consumer groups said they would seek similar rules in exchange for approval of the Comcast deal.

Ben Scott, head of policy for the public interest group Free Press, said such conditions would keep Comcast from potentially charging more for Disney content by metering Internet video consumption of those shows but not for NBC shows.

"A broadband provider has a financial incentive to prioritize that content over someone else," Scott said.

David Cohen, an executive vice president for Comcast, said in an interview that such concerns are being addressed in the FCC's net neutrality proceeding and shouldn't apply specifically to the merger. And he said that Comcast doesn't give better services or prices for its own content today.

"There is no incentive in this transaction for us to favor our content," Cohen said.

Competitors, meanwhile, said they are warily watching the deal.

Herndon-based RCN said Comcast doesn't abide by program-access rules and fears that with more content in its grasp, the company could hurt smaller cable competitors.

"Existing program access rules and prior merger conditions have been largely ineffective in controlling the discriminatory impact of Comcast's existing integration of content and distribution and would be woefully inadequate to mitigate the potential for anticompetitive actions by a combined Comcast-NBC entity," said Richard Ramlall, senior vice president of strategic and external affairs.

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