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State Laws/Franchising

Comcast/NBCU Deal Lawyers: Online Video Competition Was Key Concern

10/26/2011 6:50 PM Eastern

Lawyers involved on all sides of the Comcast/NBCU merger approval agree that access to online video was a key to the conditions imposed by the FCC on the deal, and in the settlement Justice struck with Comcast to ameliorate the departments competition concerns.

That came in an American Bar Association Antitrust Section Webinar on the deal's implications for vertical mergers, which are ones that traditionally raise fewer antitrust issues since they are between a supplier and distributor rather than horizontal mergers between rivals.

Weighing in on the deal's implications were Jonathan Baker, a law professor at American University College of Law as well as the FCC's senior economist for transactions; Yvette Tarlov from the Justice Department, who is on the committee that will handle any complaints against Comcast for noncompliance; and Arthur Burke, partner at Davis Polk, who was one of the attorneys for Comcast on the deal.

While all said they were speaking for themselves rather than in their official capacities, they had plenty of insights into the thinking behind the deal vetting process.

Blake said that he thought the conditions could provide a road map for future vertical merger reviews, given that there is not a lot of precedent for dealing with the horizontal programming and distribution elements of the vertical merger--exclusionary concerns including the potential for Comcast to harm online competitors by denying them or charging them more for NBCU programming, or denying competitors access to its distribution platform as the largest cable operator and a major ISP.

He said that the FCC treated online video distributors (OVDs) as both potential and current competitors, and added that the seven-year term of the conditions, which is longer than the lifespan of most other FCC conditions, was to protect potential harms to online distributors, competitors Tarlov added were in the midst of a crucial time in their development.

Comcast had argued that online video distribution should not be the subject of conditions, but Burke said that given that they had been included, at least Justice and the FCC had recognized that OVDs were different enough from traditional MVPDs that program access rules could not just be grafted on the online space. He pointed out that the OVD access conditions the FCC did impose took
into account that potential difference, including requiring that the OVD's either deliver a linear service comparable to an MVPD channel lineup or already have a programming deal with a major media company. He also noted that the order recognized the different delivery windows for content, and did not force Comcast to violate contracts that might require it to treat OVDs or content differently based on those exclusive windows in existing contracts.

Burke said the conditions recognition that access had to be to comparable content was a key nuance to the condition that recognized the "heterogeneity" of the OVD models vs. a traditional MVPD. He pointed out there were some free, ad-supported models like Hulu, some "electronic sell-through" models like itunes, and a VOD model like Hulu Plus or Netflix. Each has a different business model, and the conditions recognize that he said, as well as comparability of program types. For instance, a library deal would not trigger access to new content.

Tarlov said that, like the FCC, it was focused on Comcast's ability to foreclose competition in its MSO markets by withholding NBCU content or make it more pricey for competitors both traditional--overbuilders, DBS, telco TV, and especially to emerging online video distributors like Netflix, Amazon, and Hulu, which she said had the potential of reshaping the video delivery market for innovative products and services.

She said that concern was the reason for the network neutrality conditions that prevent Comcast from using ISP power to degrade competition, and the condition that prohibits operational oversight of Hulu via Comcast's financial stake.

Asked how the DOJ and FCC conditions would be monitored, both Tarlov and Blake pointed to reporting requirements on Comcast as well as the ability of OVDs and others to seek arbitration of disputes--there are arbitration tracks for both the FCC conditions and Justice decree. But Tarlov also said that the oversight committee had been meeting regularly and would continue to do so.

September