Restrictions, Reality Mean Comcast-NBCU Can't Run Wild -- Yet

Comcast Gives Up Input on Hulu but Primes the Pump for High-Tech Ads on NBC Channels

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NEW YORK (AdAge.com) -- The arguments about Comcast's acquisition of NBC Universal are over. Now comes the test.

Opponents have decried the concentration of content and distribution that would result ever since Comcast, the country's biggest cable company and a provider of internet access to boot, struck a deal for 51% of NBC Universal, owner of NBC, cable channels such as USA and Bravo, Universal Pictures and a big stake in Hulu.

Comcast called the deal "pro-consumer" because it would help the company give customers more content on more platforms. But opponents worried that an expanded Comcast could refuse rival distributors access to its programming, for example, or slow down web video services such as Netflix if it considered them a threat.

Now that the Federal Communications Commission and the Department of Justice have signed off on the deal, we'll find out who was right.

However much power Comcast accrues through the merger, however, it's unlikely that the company will simply have the run of the playground.

The government, for one thing, has imposed some strict conditions on the new combination. They are limited in term -- some expire in seven years, others sooner -- but they should keep Comcast from swinging all its new weight around right away.

No more vote at Hulu
Under terms of the deal's approval, for example, Comcast must continue to supply programming to Hulu, the online video service jointly owned by NBC Universal, Walt Disney and News Corp. Comcast has its own video portal, Fancast, a competitor of Hulu's with less TV content, though it does have access to CBS shows, which are not part of Hulu.

But Comcast is also giving up NBC Universal's voting rights and board representation at Hulu, which was originally born out of a project at NBC. That means NBC Universal still owns its Hulu stake but is shut out of its governance, key decisions about its evolving business model, and whether and when it files for an IPO.

Comcast must give rival distributors access to not only broadcast and regional sports network channels but also cable channels such as Bravo and Syfy. The commission has not previously mandated the availability of cable networks, an FCC official said, but cable has become much more important in recent years.

Can't 'disadvantage' Netflix
Comcast must also offer its video programming to online-video distributors on the same terms and conditions it would offer a more traditional programming distributor. And it can't "disadvantage" rival online video distributors through its broadband web access services or set-top boxes.

Some rivals seemed satisfied. "We appreciate that the FCC and the Department of Justice listened to industry concerns and placed strong conditions on the merger, particularly with respect to net neutrality and program access," EchoStar's Dish Network said this afternoon after the deal won government approval. "Those conditions, among others, will help protect consumers and ensure competition."

And Comcast, for its part, obviously thought the benefits outweighed the restrictions. "None of them will prevent us from executing on our business plans or will impair the competitiveness of any of our businesses," said David Cohen, exec VP in public policy at Comcast, in a blog post after the deal's approval.

Marrying content and technology
"I don't think Comcast just agreed to it," said Michael Kassan, CEO of MediaLink, an industry consultancy that does business with Comcast. "They've given tremendous thought to this and know where they are going."

The restrictions on the deal do not prevent Comcast from trying to marry its distribution systems and newly expanded content array to offer NBC's advertisers, for example, interactive or targeted TV commercials on a large scale.

Comcast's competitors are most concerned with its "opportunity for advancement in technology and advertising capabilities," Mr. Kassan said.

Steve Burke
Steve Burke
Steve Burke, the Comcast executive who will take control of NBC Universal, will spend much of the immediate future trying to remedy NBC's struggles in prime time. But the bigger goal will be hitching Comcast's huge cable footprint and its set-top box technology to hours of NBCU content to deliver new, higher-tech advertising -- and that could help Comcast navigate the market pressures it still must confront even after the merger and all its stipulations.

Changes since deal announced
Local competition has been busily proliferating in the months it took Comcast to win approval for the deal, said Mark Fratrik, VP of local-media research firm BIA/Kelsey. "There is an ever-expanding marketplace with new social websites, out-of-home media opportunities, etc., opening up every day that they have to contend with," Mr. Fratrik said.

The same can be said for content distribution, despite Comcast's imposing position. The company has indicated an intent to create new models for video on-demand and home-entertainment windows with the movie studios, but subscription-based streaming video companies such as Netflix as well as potential cord-cutting machines such as Roku, Boxee and Google TV are quickly changing the conditions underfoot.

"There are so many new opportunities, openings and growing demand for access to programming via the internet that the combined Comcast-NBCU company would have tremendous incentive to play in the game appropriately," Mr. Fratrik said.

Expect Comcast cable subscriptions to become more competitively priced as the pay-TV industry struggles to recover from two consecutive quarters of significant subscriber losses, Mr. Fratrik said. "Given the competition with other cable companies, satellite producers and Verizon Fios or Uverse, and even now with over-the-top apps getting some of this programming available by the internet, they're somewhat constrained by competitive pressures," he said. "I'm not so sure cable will be able to pass on whatever cost increases they might like to."

The deal is expected to close by the end of January.

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Contributing: Michael Learmonth, Nat Ives

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