Federal regulators approve Comcast's acquisition of NBC Universal, with asterisks

By Cecilia Kang
Washington Post Staff Writer
Tuesday, January 18, 2011; 9:26 PM

Federal regulators on Tuesday blessed Comcast's $30 billion acquisition of NBC Universal, imposing a slew of conditions on everything from competition with rivals to the price of Internet service for poor families out of concern that the firm's vast sweep could harm consumers.

The deal marries the nation's biggest cable and Internet service provider with NBC Universal's library of entertainment - which includes "30 Rock" and Bravo's "Top Chef" - and marks the first time a cable company has owned a major network.

Comcast promised that customers of competing cable providers will continue to get access to NBC shows and that Comcast subscribers will not be shut off from other networks.

For the first time, the government waded into the realm of online video, imposing conditions to ensure that Comcast provide some Internet versions of NBC shows and movies to Web services such as YouTube, Hulu and Apple TV.

The Justice Department, which approved the deal Tuesday along with the Federal Communications Commission, said that the venture would have been rejected in its original form but that the conditions give the government the power to ensure competition in the marketplace.

"The settlement we are announcing today ensures that the transaction will not chill the nascent competition posed by online competitors - competitors that have the potential to reshape the marketplace by offering innovative online services," said Christine Varney, head of antitrust at Justice.

Government approval removes the last obstacle to Comcast's remarkable rise from its humble roots as a family-owned Philadelphia cable company into a global media powerhouse. The new venture will be called NBC Universal, and the deal is expected to be closed by the end of the month, Comcast said.

Most of the conditions for the merger apply for seven years. In addition, Comcast made several voluntary commitments to the FCC to ensure that the deal would be in the public interest. It will offer more children's programming and local news. It will also offer low-income households Internet service for $9.99 a month and stand-alone broadband Internet subscriptions for $49.99.

With greater influence in the market, Comcast promised that it would not retaliate against broadcast networks or cable programmers for licensing their shows to competing firms such as Time Warner Cable or DirecTV. Comcast volunteered to treat all Internet content fairly - with similar speeds - even if the FCC's net neutrality rules are overturned by a court.

"The NBC Universal joint venture will be well positioned to compete, innovate and bring new choices to consumers," said Comcast chief executive Brian Roberts, who leads the firm his father founded.

Some lawmakers and public interest groups have said that the merger would harm Web users by slowing the migration of good content to the Web. They have also warned of higher prices that would trickle down to users and media consolidation that would lead to poorer-quality programming.

The deal "reaches into virtually every corner of our media and digital landscapes and will affect every citizen in the land," said Michael J. Copps, a Democratic member of the FCC and the lone dissenter in the commission's 4-to-1 vote for the deal. "All the majority's efforts - diligent though they were - to ameliorate these harms cannot mask the truth that this Comcast-NBCU joint venture grievously fails the public interest."

Some consumer groups said that the conditions on online video deals could help create first-time guidelines for the nascent but growing space. Cable subscriptions declined for the first time in the third quarter of 2010 as online video viewing boomed. Online streaming videos from Netflix account for 20 percent of all bandwidth consumption during peak Internet hours, according to Sandvine, an analytics firm.

The conditions appear to "provide the trigger for broader regulatory reform, while providing additional momentum for the development of the Internet as a platform for video competition," said Mark Cooper, a director at the Consumer Federation of America.

In the deal, Comcast agreed to share NBC channels to online video providers who strike deals for similar content with competitors. For example, if YouTube struck a deal with Viacom to carry streaming online reality shows from MTV, Comcast would be compelled to negotiate similar deals with YouTube for reality shows such as Bravo's "Real Housewives."

The FCC and Justice also demanded that Comcast relinquish its management stake in Hulu, the online joint venture NBC has with News Corp. and Walt Disney. But Comcast would be able to keep its financial stake in the Web site.

The list of conditions pleased some public interest groups but may rile some competing companies. Walt Disney and News Corp. warned FCC members last week against conditions that would insert the government into the online video market, saying that such mandates could harm their own business deals. In addition, a government order that NBC stations enter deals with nonprofit local news outlets could create more competition for profit-making news organizations in the same towns.

Comcast said the conditions were appropriate for its transaction.

"I think all the conditions are crafted in a way that enables us to operate our business in an effective way," said David Cohen, Comcast's executive vice president. "Whether based on experience that we have with these conditions that future regulatory or legislative activity is appropriate, I think we would have to visit that at the time."

Analysts said that if history is a guide, a similar merger between Time Warner and America Online showed the difficulties of melding businesses with too many disparate interests.

"There is a lot more evidence that this doesn't work than it does," said Craig Moffett, an analyst at Sanford C. Bernstein. "But everyone will watch to see if Comcast can achieve what no one else has, but it's not going to be easy."

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