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Comcast and NBC: Stay tuned for answers

By Rob Pegoraro
Sunday, December 6, 2009

What script will the $30 billion deal that Comcast announced last week to take over NBC Universal follow?

Will this be a sequel to the dot-com disaster flick that was AOL Time Warner, a "Citizen Kane"-esque tragedy of hubris and overreach, or a creative remake of the TV business as we've known it? The Philadelphia cable giant's words and actions leave room for interpretation.

The market power involved -- Comcast brags that it's the biggest provider of TV service and home Internet access in the United States -- rule out treating this union as just another corporate coupling. The combination of its distribution and NBC Universal's broadcast programming, TV stations (including the District's WRC), cable channels, movie studio and 4,000-title film library would be unmatched in the media industry.

Comcast's first hurdle will be simply making this work as a business proposition. Highly touted media mergers have a way of coming unglued: Time Warner, having already moved to divest its cable division, is now unloading AOL. NBC Universal itself exists only because of a series of past deals, and its performance hasn't made current owners GE and Vivendi (now being bought out by GE) happy enough to want to keep the company around.

Comcast says it already knows the entertainment business, as the owner of channels such as Comcast SportsNet and E! and sites such as Fandango. It plans to merge those properties with NBC Universal to create a new company (first owned 51 percent by Comcast and 49 percent by GE) that should make more than enough money to buy down GE's stake over time and service the $9.1 billion in debt it will pick up in the deal.

But the more important issue here is what Comcast, should it successfully execute that plan, proposes to do with its newfound control over how people can watch NBC's programming and movies. That, more than the market-share figures of the combined company, is what the government should focus on in its ritual antitrust examination of the deal.

Here's the issue: Years after the music industry began selling nearly every song ever released online, most movie and TV studios stubbornly resist granting their customers that same choice.

Such sites as Hulu (partly owned by NBC) and Comcast's own Fancast provide free access to a good variety of TV shows, but movies and sports remain largely inaccessible online -- unless you're willing to download fraudulently distributed recordings on file-sharing networks.

(Disclaimer: The Washington Post Co. owns a small cable company, CableOne.)

Too many of the entertainment industry's tepid attempts to offer programming online have been weighed down by crude restrictions protecting their existing business models. NBC's Olympics site, for example, allows online viewers to watch "premium" content only if they can prove they already subscribe to a TV service -- they cannot just pay for the privilege.

You can see a similar control-freak logic in a project called TV Everywhere, backed by Comcast, Time Warner and others. Under this scheme, you could watch, in theory, anything offered via cable or satellite programming on the Internet -- but only after authenticating your status as a paying customer of one of these services.

You couldn't just type in a credit card number for an online-only TV Everywhere subscription. So much for the old economic rule of "If somebody wants to give you their money, let 'em."

When Comcast has a much bigger stake in the content business, will it open its eyes to that idea and stop treating online viewers as second-rate customers? Or will it treat its new acquisition as another tool to defend its core cable-TV service -- or bludgeon competitors?

The company's executives say the right things, noting that their content is worth more if it's widely distributed and pledging fair treatment of other TV providers.

This company's prior conduct hasn't brought it much credibility, though. It got caught interfering with Internet subscribers' connections, then imposed a broadband usage cap but gave users no way to tell they were nearing that limit until more than a year later. (It's fair to interpret that policy as another move by the company to stop viewers from migrating to the cheaper, more open Web.)

In the TV market, Comcast has slowed innovation in cable boxes and video recorders, hasn't hesitated to throw its weight around when negotiating distribution agreements with other TV providers for the cable channels it owns (witness its feud with DirecTV over Comcast's Versus sports channel), and has racked up some woeful customer-service ratings in the process.

Given that history and that of the TV business in general, it's easier to see ways for this merger to go wrong than for it to go right. Comcast will need a better line than "trust us" when making a case for this merger.

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