House, Senate Scrutinize Consumer Effect of Comcast-NBCU

A central question is how the deal would affect consumers, House Subcommittee Chairman Rick Boucher, D-Va., said in an opening statement. He asked the FCC and Justice Department to act quickly but to consider conditions if it’s determined that there could be harm to consumers. Two months after the deal’s announcement, House Commerce Committee Chairman Henry Waxman, D-Calif., is “even more certain” that the joint venture would “trigger dramatic changes in the way consumers access video programming, in the way independent programmers distribute their works, and also in the way all video distributors compete for customers,” he said in his opening statement: “The best way to protect consumers is competition, but will competition be sustainable through the largest video and broadband provider controlling huge quantities of content?”

The deal probably won’t mean the end of media, House Commerce Ranking Member Joe Barton, R-Texas said. “Put me down as skeptical on that. ... There don’t appear to be any major overlaps in the markets. There do seem to be some synergies for the two companies coming together.” Ranking Member Cliff Stearns said there’s “little to suggest” the deal would “seriously threaten competition in the media [and] entertainment industries.” The companies don’t compete in “most segments of the market,” and combined would represent only 12 percent of the national cable programming market, behind Disney-ABC and other major media companies, he said.

Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., said “strong conditions” are “essential” if the FCC and Justice Department permit the transaction. He called Comcast’s voluntary commitments “only a starting point to determine what conditions will be necessary to protect consumers.” Kohl said he has concerns that Comcast could deny some NBC programming to rivals, move free over-the-air TV to cable, make it tougher for independent programmers to get Comcast to carry their new cable networks and stifle the growing Internet video market.

Ranking Member Orrin Hatch, R-Utah, said the deal looks mainly vertical. Horizontal mergers are more often criticized, but “vertical mergers also have the potential to pose significant problems for competition,” he said. Calling the pay-TV industry a “dog-eat-dog world,” he’s concerned Comcast could use NBC content as a “weapon” to harm competitors and raise consumer costs.

Noting he owed much to NBC for his success in show business, Sen. Al Franken, D-Minn., said there’s “reason to be nervous” about the “conflict of interest” that could come from a major video access provider combining with a major content provider. The companies’ voluntary commitments are too little, he said. “You'll have to excuse me if I don’t trust these promises. ... And that’s from experience in this business.”

Philadelphia-based Comcast won praise from Sen. Arlen Specter, D-Pa. Specter called the company a “very good corporate citizen” in the state, and said “the competency of their management is brilliant.” The senator added that his son plays squash with Comcast Chairman Brian Roberts.

Markey Talks Neutrality

House Democrats and Republicans clashed on whether net neutrality should be part of the debate about the deal. Rep. Ed Markey, D-Mass., said he wants to ensure the combination “does not enable the creation of discriminatory fast lanes and slow lanes on the Internet to the detriment of users.” Stearns said any conditions must be narrowly tailored to the transaction. Lumping in net neutrality rules as conditions would be “inappropriate,” especially since he said Comcast seems “near victory” in their case against the FCC at the U.S. Court of Appeals for the District of Columbia Circuit. The judges there seemed skeptical the commission has authority over companies’ net management practices, he said.

Roberts said any future net neutrality rule should apply “across the board” to all Internet companies. He believes the Comcast-NBC Universal deal won’t change any conditions in the market related to net neutrality, he said. Asked by Markey to commit to the principles of nondiscrimination, Roberts said it wasn’t in the company’s business interest to unfairly discriminate.

Other questions in the House focused on consumer rates and the deal’s implications for competition. “Numerous” constituents are asking if the deal means higher cable rates, and if they will continue receiving “independent programming they are used to, without any unwarranted interference or preference,” Rep. Doris Matsui, D-Calif., said. “The merger should not leave consumers with less choice, lower quality, less diversity and higher programming costs.”

Waxman asked if Comcast would treat NBC content more favorably than other networks’ content if the deal went through. Roberts said video service competition from Verizon, satellite companies and others requires Comcast to have “great content.” Comcast has no financial interest in six out of seven channels it carries, he added. Meanwhile, NBC Universal CEO Jeff Zucker told Waxman NBC wants its content to be “as widely seen as possible.”

Boucher sought a promise from Roberts that Comcast would not migrate online NBC content to its TV Everywhere service, restricting access to Comcast subscribers only. Roberts replied that video over the Internet is “a friend, not a foe,” and the company would not place NBC content exclusively on TV Everywhere. He agreed that competitors to Comcast should get online content on reasonable terms. However, Colleen Abdoulah, CEO of Comcast competitor WideOpenWest, said her company has been denied access to Comcast’s online content.

Stearns peppered foes of the deal with questions about their concerns. He asked Consumer Federation of America Research Direct Mark Cooper to give a “worst-case scenario” in a specific market. Cooper said he’s most worried about shutting out competitors in Philadelphia and 11 other key Comcast markets. Abdoulah said she worries Comcast will withhold content or condition its use.

Asked by Rep. Steve Buyer, R-Ind., about the application of program access rules to the new company, Roberts said he’s “prepared to discuss” with the FCC eliminating the rules’ sunset for Comcast, even if it’s not for other companies as well. Comcast’s “motivation” behind the deal isn’t to take NBC content away from competition, he said.

Franken Asks if Comcast is Trustworthy

In perhaps the most heated exchange of both hearings, Franken condemned Roberts’ claim that program carriage rules sufficiently protected consumers from potential harms cited by opponents of the deal. In 2008, Comcast argued that the First Amendment stopped the FCC from enforcing program carriage rules, Franken said. When Roberts visited the senator’s office, he said he didn’t know the company had argued that, Franken said. “How are [consumers] to trust you when you come in and tell [me to] my face something that you either know isn’t true, or you didn’t know? And I don’t know which is worse.”

Kohl asked whether Comcast intended to raise costs of NBC programming to increase costs to competitors. Specter asked the company to clarify its commitment regarding program access. Roberts said the company is “comfortable” making program access rules binding, even if they're later overturned in court. Kohl pointed out that the cable operator has opposed program access rules in the past. Comcast’s new position seems “pretty inconsistent with what you've said prior,” he said.

Sen. Amy Klobuchar, D-Minn., asked if the deal would change the availability of NBC video online on Hulu. Comcast has “no intention” of changing NBC’s policies on that front, Roberts said. “You'll still be able to watch Saturday Night Live on Sunday morning.”

‘Fierce’ Competition?

The deal will help NBC Universal “compete in the new media world,” said Zucker in an opening statement. He predicted “more change in our space in the next five years than the last 50.” In joint written testimony, Zucker and Roberts emphasized the vertical nature of the combination. “Antitrust law, competition experts, and the FCC have long recognized that vertical combinations can produce significant benefits,” they said. “Experts and the FCC also have found that vertical combinations with limited horizontal issues generally do not threaten competition.”

“The companies’ limited shares in all relevant markets, fierce competition at all levels of the distribution chain, and ease of entry for cable and online programming ensure that the risk of competitive harm is insignificant,” the executives said. “Moreover, the FCC’s rules governing program access, program carriage and retransmission consent provide further safeguards for consumers as do the additional public interest commitments made by the companies to the FCC.” They said the merger would forward public interest goals of diversity, localism and innovation.

But the deal “is not a mere vertical integration of Comcast’s distribution assets with NBC Universal’s programming assets,” Abdoulah said in written testimony. “The deal greatly increases horizontal concentration by effectively combining key content assets from the two firms, as well as important distribution assets.” That could threaten competing video distributors, she said. Abdoulah urged “meaningful relief” to remedy harms the deal might create, and warned against “traditional behavioral remedies” for which companies have found loopholes.

NBC affiliates are encouraged by Comcast’s stated commitments, but won’t support the deal without “clear, specific and enforceable conditions” defining what it means “in practice” for the new company to commit to the network-affiliate model and free, over-the-air television “that has served the public so well for so long,” said NBC Affiliates Board Chairman Michael Fiorile. The deal raises questions about whether the partnership between NBC and its affiliates will “survive, and even thrive, in the years ahead,” and whether the “the combination of our network with our largest distributor [will] create undue leverage to the detriment of affiliates” and the public, he said in written testimony.

Regulators “will not be able to tame the video giant that will come from this merger,” Cooper said. “Allowing the largest cable operator in history to acquire one of the nation’s premier video content producers will radically alter the structure of the video marketplace and result in higher prices and fewer choices for consumers,” his written testimony said.

Regulators should allow “market experimentation” like the Comcast-NBC deal, Progress & Freedom Foundation President Adam Thierer said in written testimony. The only “harm” to come from previous major media deals like AOL-Time Warner, News Corp.-DirecTV and XM-Sirius “was not to consumers or content providers, but to the merging firms themselves and their shareholders,” he said. -- Adam Bender

Comcast-NBCU Notebook ...

Most FCC members haven’t much scrutinized Comcast’s proposed purchase of control of NBC Universal yet because the companies made their public interest filing last Thursday and haven’t since met with commissioners, agency officials said. Outside the office of Chairman Julius Genachowski, the deal doesn’t seem to be getting extensive attention yet, said officials. That may change as the companies begin lobbying commissioners and a team of staffers from various bureaus meet to evaluate the deal (CD Feb 4 p1). -- JM

----

The stakes are too high to let the Comcast-NBC Universal deal go through as-is, Dish Network General Counsel Stanton Dodge wrote key lawmakers. The deal endangers competition in video distribution and broadband, touching “almost every aspect of our lives,” he wrote House Communications Subcommittee Chairman Rick Boucher, D-Va. and Ranking Member Cliff Stearns, R-Fla., and Senate Antitrust Subcommittee Chairman Herb Kohl, D-Wis., and Ranking Member Orrin Hatch, R-Utah. On broadband, Comcast should “at minimum” be required to offer consumers a “robust” stand-alone service, wholesale service to other providers that want to offer competing bundles and be barred from discriminating against competitive services sent over its broadband network, Stanton wrote. He said evading program access rules by delivering content through alternative means should be prohibited. Comcast should be required to submit to arbitration with interim carriage if negations over affiliated content break down and to offer all affiliated programming to competitors on a standalone basis, the direct broadcast satellite company said.

----

Boxee disagreed with the way NBC Universal CEO Jeff Zucker characterized its spat with Hulu, during congressional testimony Thursday. Responding to questions from House Communications Subcommittee Chairman Rick Boucher, D-Va., Zucker said Boxee was illegally taking content from Hulu without a “business deal” and that Hulu would be open to talks about reaching such a deal. First, Boxee software doesn’t “’take’ the video. We don’t copy it ... The video and ads play like they do on other browsers or on Hulu Desktop and it’s certainly legal to do so,” Boxee CEO Avner Ronen wrote on the company’s blog. Moreover, Zucker told the committee that it was Hulu management’s decision to limit Boxee’s access to Hulu content, but Hulu CEO Jason Kilar wrote in a Feb. 18, 2009, blog post on Hulu that its “content providers requested” the move, Ronen said, http://xrl.us/bgumiq.

----

The government should give Comcast’s deal for NBC Universal “a chance,” said a group that often opposes regulation and that didn’t testify at Thursday’s hearings. The companies together would control 1 percent of online video viewing, the Competitive Enterprise Institute said Thursday. “Intervention by politicians or regulators in the Comcast-NBC deal will undermine the competitiveness of the media marketplace and thwart the evolution of both content and network industries,” Associate Director Ryan Radia said. “Even if the Comcast-NBC deal is ultimately green-lighted, saddling the combined firm with draconian ‘public interest’ restrictions will hurt consumers, substituting political demands for actual consumer preferences.”