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Policy

What Next?

1/24/2011 12:01 AM Eastern

Washington — The Peacock has landed.

After nearly a year of vetting by the Federal Communications
Commission, the Justice Department
and Congress, the deal to put Comcast, the nation’s
largest cable operator and broadband provider, in
control of NBC Universal, one of the largest U.S.
content companies, has received the government’s
blessing.

From the outset, Comcast claimed its strategic desire
was to become owner of all of NBCU’s content and cable networks, yet the
government’s focus seemed to be on the nascent online video space, where multichannel
video will increasingly be delivered anyway.

Cover_Story_Image_1/24After scores of protesters weighed in on Comcast’s size and potential for market
abuse, the government extracted dozens of conditions from the Philadelphiabased
cable operator, many of them voluntary provisions to get the final approvals
it so desperately desired.

Still, the final vote was not unanimous — Federal Communications
Commission member Michael Copps, a Democrat and consolidation critic, was
the lone dissenter, spoiling chairman Julius Genachowski’s hope for an undisputed
resolution.

How the new NBCU — a $30 billion, Comcast-controlled
joint venture combining the General Electric division with
the MSO’s national programming assets — performs going
forward is now less of a regulatory issue, much to the relief
of Wall Street investors, and more a question of strategy for
a sprawling behemoth. And its success with online video
will be thoroughly scrutinized as a bellwether for similar
eff orts industry-wide.

The new NBCU, a 51%-49% partnership between Comcast
and GE, will have to make its content available to
online distributors, but the rules fall short of requiring
wholesale open-access conditions.

ACCESS, WITH STRINGS

Essentially, Comcast’s online video competitors can access
NBCU content under certain circumstances, but
the TV Everywhere authentication model is left intact.
Comcast said the deal allows it to price a content lineup
to an online video provider as if it were an established
multichannel video programming distributor generating
similar ad revenue.

Perhaps most importantly, Comcast will also have to
abide by network-neutrality conditions for the next seven
years, regardless of what may happen to the FCC’s
new rules in court. (Verizon Communications last week
launched the first legal challenge)

The FCC has in many ways created an insurance policy
for its network-neutrality rules, ensuring that even if they
are thrown out by the courts, the nation’s largest cable operator
and broadband-service provider will have to adhere
to those requirements for the next seven years.

Comcast had urged the Republican commissioners to
vote for the network-neutrality condition, which they were
reluctant to do, given their opposition to the just-voted
FCC network neutrality rules and general concern about
a deal with so many conditions — some 25 pages worth.

That hurdle was cleared when Comcast and Genachowski
agreed to remove the net-neutrality provision and have
Comcast file a letter essentially agreeing to it — making it
an enforceable part of the order, but not subject to the vote.

That allowed commissioner Robert McDowell, the FCC’s
senior Republican, to vote for the deal, but not for network
neutrality.

In a nod to GOP legislators’ pledge to review the FCC
merger-review process, which McDowell called too coercive
and too lengthy, he said, “It’s healthy to have a discussion of what the FCC’s authority should be in further
merger reviews.”

Comcast executive vice president David Cohen last
week said the FCC order and the Department of Justice
consent decree “will not impede our ability to operate the
business or to compete at all.” In fact, Cohen could not
find anything to criticize in the merger approvals, which
he said were fair and balanced.

An FCC official speaking on background backed up the
general tenor of the condition negotiations, saying that
Comcast was basically trying to avoid crippling conditions,
and that was how the agency approached the matter.

Comcast even came in at the last minute with additional
voluntary commitments, including naming an ombudsman
to oversee its compliance with all of its pledges.

The conditions drawing most of the attention are related
to over-the-top video. By mandating that Comcast make
its content available to online video distributors, the FCC
and Justice were further signaling that they viewed broadband
as an increasing competitor to traditional video distribution.

The FCC said it included a three-year mandate that
Comcast deliver standalone broadband at a set price and
minimum speed, “so that customers can access online
video services without the need to purchase a cable-television
subscription from Comcast.”

But Comcast has long provided standalone cablemodem
service, has no plans to change that, and, Cohen
pointed out, has been aggressively marketing such a service
to satellite-TV customers.

Cohen said he was “comfortable” with the way the online
conditions turned out. “They were focused and defined in a way that, while we would have to play fair in this
space, we would have the rest of the playing field to innovate
and run our business,” he said.

He was not ready to say the same conditions should be
applied industry-wide to the online video space, though
they are now a de facto benchmark if another broadband
Internet-service provider — such as AT&T or Verizon
Communications — wants to bulk up in the content area.

FALLOUT UNCLEAR

“It remains to be seen what the effect of the FCC’s action
is,” agency commissioner McDowell told Multichannel
News. “Obviously, Comcast feels that the regulatory risk
it has taken on is worth the bargain.

“It is impossible to predict how this marketplace is going
to develop … especially with online video, nobody really
knows where that is going to go,” he added. “I meet with
media executives all the time and in candid moments they
will tell you they have no idea how it is going to evolve and
how they are going to monetize it.

“Our concern was creating some sort of regulatory
framework that might distort the state of the market and
stunt future development of it,” McDowell said.

But McDowell agreed with Comcast that it was time to
get the deal done.
NBCU general counsel Rick Cotton said the online conditions
were a common-sense approach to dealing with
competition in the emerging online space.

Under certain circumstances, Comcast will have to
make its content available to online video
distributors (OVDs). Cohen said the
circumstances are sufficiently narrowly
tailored that no broad mandate forces it
to make all its content available online to
anyone, and there will be an arbitration
gauntlet that OVDs must run in order to
get access.

One potential shot across the bow
came from the Justice Department,
which said it would be getting into the
online video oversight business. Assistant
Attorney General Christine Varney
said last week, in announcing the consent
decree, that the department would
share jurisdiction over online videorelated
condition.

While the government conditions will
allow so-called OVDs access to linear
channels, essentially allowing distribution
of that content without a Comcast
cable subscription, Varney said the government
is not trying to shape the online
marketplace.

ANTI-TRUST ISSUES

Varney said her goal was to enforce antitrust
laws. “What I am very concerned
about is the nascent competition here
and the potential for the new entity to inhibit
competition,” she said.

With control of NBCU, Varney said,
Comcast has the ability and incentive to
raise its rivals’ costs and withhold its rivals’
content, and the Justice Department
was prepared to block the deal without
conditions.

“Our view is that there are two ways for
an OVD to enter the marketplace. One is
an OVD willing to ‘step into’ the traditional
role of being an MVPD, so long as they
are willing to undertake the same terms,”
she said.

So long as they are willing to undertake
the same terms as traditional cable operators,
she said, Comcast has agreed they will
license a linear feed.

The second route is by negotiating a deal
with a Comcast competitor — establishing
a benchmark, as it were — before coming
to Comcast/NBCU, and even then, NBCU
programming doesn’t have to be made
available unless it is comparable content
under a comparable business model.

Varney said the Justice Department was
concerned about online video competition,
which means that nascent competitors will
potentially have two willing audiences for
their complaints and two government entities
ready to follow up.

“We will investigate and reserve the right
to go to arbitration under our consent decree,”
Varney said of online access complaints.

The deal’s conditions are varied and
specific. Among the winners: Independent
programmers, minorities and low-income
families looking for more affordable
broadband

POST-MERGER: WHAT TO WATCH FOR

ONLINE VIDEO: STATUS QUO?

Comcast’s conditions won’t do much to accelerate TV content
on the Web, according to analysts.

Far from pouring gas on the cord-cutter fire, the Federal Communications
Commission’s requirement that a Comcast-controlled
NBC Universal offer video programming to “legitimate”
online video distributors on the same terms it is available to
pay TV providers reinforces the cable model, according to VideoNuze
analyst Will Richmond.

“This provision means that Comcast doesn’t need to give
Netfl ix, Apple, Amazon or anyone else any special deal terms,”
he wrote in a blog post last week.

The cable giant also agreed to an FCC condition to make comparable
programming available to online distributors that have
agreements with “one or more of Comcast-NBCU’s peers.” However,
as BTIG analyst Richard Greenfi eld noted last week, this
would be triggered only if, say, Fox struck a deal with Google for
its broadcast and cable network feeds.

Moreover, “Even if Netfl ix or Google [were] able to satisfy all
these conditions, they would still need to offer [the programming]
broadly, meaning they would not be able to offer a la
carte access to NBCU programming,” Greenfield said. In other
words, it would be an extremely pricey proposition.

NO RUSH TO GET MARRIED

Don’t expect the deal dominos to start falling in the wake of
Federal Communications Commission approval, say most analysts
who follow the cable sector, despite the agency’s light
conditions on the deal.

Why? Cablevision Systems and Time Warner Cable only recently
unbundled programming from distribution. As for telcos
like Verizon Communications and AT&T looking at content to
beef up their video distribution, don’t look for a fast deal. Many
analysts believe their attention is more focused on their highermargin
wireless businesses.

RETRANS REFORM

Many operators saw the Comcast-NBCU deal initially as a victory
for cable on the retransmission-consent front. But as the
approval process wore on, and Comcast was consistently vague
about the joint venture’s position on retrans, that optimism
waned substantially.

For its part, Comcast has said that it hoped the partnership
would play a “constructive role” in the retransmission-consent
debate, and no one is expecting any radical moves.

For many, it remains a wait-and-see issue. “The retrans
impact [of the deal] is a big question with an indeterminate answer
at this point,” said Miller Tabak media analyst David Joyce.

MINORITY REPORT

Executives of minority-owned and operated cable networks say
that the Comcast/NBCU commitments as part of the merger
will benefit overall programming diversity.

Comcast has committed to adding eight minority-owned or
partially owned-and-operated networks — including four African-
American targeted networks. In addition, the company has committed
to spending at least $7 million in minority-owned media
next year.

For entrepreneurs like HBCU Net president Curtis Symonds,
the merger promises to be beneficial to minority programmers.
HBCU Net is expected to launch this summer with a mix of
sports, educational and entertainment programming from historically
black colleges and universities.

Johnathan Rodgers, CEO of African-American-targeted network
TV One — in which Comcast already holds a minority
financial interest — added that Comcast’s commitments will
help develop more diverse content for minority viewers.

“It’s an excellent deal for minority programming, and I speak
from experience — I truly attribute a great deal of our success
to [Comcast’s] early involvement,” he said. “If Comcast does for
these new networks what they did for us, I think they’ll be in a
great place.”
— Todd Spangler, Mike Farrell,
John Eggerton and R. Thomas Umstead

COMCAST’S WEDDING VOWS

After months of negotiations, a look at some of the Comcast-NBC Universal deal commitments:

• Adding four independent Hispanic-owned and/or managed networks, four African-American majority-owned networks and two other
independent channels.

• Spending at least $7 million more in 2011 on advertising in minority-owned media;

• Establishing diversity advisory councils;

• NBCU adding 1,000 hours of news and information programming on NBC-owned stations;

• NBCU adding 1,000 more hours of news each year on Telemundo-owned stations;

• Comcast offering low-cost high-speed broadband to eligble low-income households;

• Comcast carrying for “several years” any noncommercial TV station that gives up its spectrum as part of an incentive auction spectrum
reclamation effort by the FCC;

• Comcast committing to not migrating public, education and government channels to digital until a system goes all-digital or unless a
community agrees to it.

SOURCE: Federal Communications Commission

September