recent approval, by a 4-1 margin, of the merger between Comcast
and NBC Universal effectively transforms the nation’s biggest cable company into its largest media company as well. The $30 billion joint venture which was first announced in 2009 has many—including News Corporation, Time Warner and Disney—calling foul. To nobody’s surprise, the affirmative ruling
(all 279 pages of it) came with some significant strings attached, including provisions around Net Neutrality, Over the Top (OTT) distribution and transparency, broadband affordability, as well as the new company’s role with Hulu
Net Neutrality: Special Rules Unit
The FCC’s Net Neutrality ruling last December was a compromise of sorts, leaving none of the interested parties particularly happy. In essence, the decision created “rules of road” for the Internet, though different rules for fixed and mobile services. As stated previously, we believe that the final disposition of this issue will take place in the Supreme Court.
It is interesting, then, that one of the “voluntary commitments” (as opposed to “conditions”) of the deal concerns net neutrality. The order states that “neither Comcast nor Comcast-NBCU shall prioritize affiliated Internet content over unaffiliated Internet content,” Furthermore, the order protects the commitment against any future (and probable) modification. It states, “in the event of any judicial challenge affecting the latter, Comcast-NBCU’s voluntary commitments concerning adherence to those rules will be in effect.”
What this commitment essentially does is to lock NBCU into Net Neutrality, irrespective of the potential disposition in the courts. The implications could be significant if NBCU-Comcast eventually finds itself subject to rules that its competitors aren’t.
OTT, OVD, FCC? OMG!
One condition that could potentially open the floodgates to new Online Video Distributors (OVDs) is the provision stating that “Comcast offer its video programming to legitimate OVDs on the same terms and conditions that would be available to an MVPD,” and that it make “comparable programming available on economically comparable prices, terms, and conditions to an OVD that has entered into an arrangement to distribute programming from one or more of Comcast-NBCU’s peers.
From an OTT video service perspective, the conditions that FCC attaches to the merger approval do not harm—and could actually benefit—the value proposition of OTT services. The FCC requires that Comcast make available certain comparable content to an online distributor if one of its competitors does so. Although it does not imply a dramatic change to the current media distribution environment, it shows the FCC’s gesture to ensure OTT video services to have an equal opportunity of acquiring content and competing with MVPDs. Given emerging OTT services’ efficiency of formulating and executing strategies, an equal competitive environment gives them the upper hand to out-innovate those larger and slower MVPDs.
The single OTT video service that will benefit most from this merger approval is Netflix. As Comcast is spending its time integrating NBCU and probably will have to restructure or realign the company and redesign its online distribution strategy, Netflix is running far ahead in terms of expanding its content catalog, releasing more apps on different platforms and CE devices and improving user experience.
The Matter of Hulu
Another provision of the ruling requires Comcast/NBCU to relinquish managerial control. uncertainty has mounted around Netflix’s main competitor in the online video space, Hulu, as Comcast/NBCU will have to relinquish managerial control in the online video distribution site. It makes possible for NBC to pull back its investment from a venture it would have little control, making Hulu less attractive to consumers and financially weaker than it is now.
For Hulu, the provision requiring Comcast to relinquish the managerial control of the OTT service could be beneficial as long as Comcast continues its investment in Hulu both in terms of financial backing and content availability. But different from NBCU, the new Comcast has had its own online strategy, which might be at odds with Hulu’s proposition. So Comcast may not want to invest in the Hulu business as much as NBC did before. On top of that, Comcast might eventually prefer to reduce or sell off its stake in Hulu due to the relinquishment requirement of managerial control on Hulu’s board.
Nobody wants to buy something that they don’t know much about and cannot control. If that were to happen, Hulu could still get NBC content as the approval requires, but it would lose its favorable position in the OTT space as the son of NBC--especially important when it comes to content deal negotiation.
Overall, the merger approval makes the prospect of Hulu fuzzier, if not gloomier.
‘Naked’ Broadband, Soviet Style
One of the most under-reported and potentially worrisome provisions of the order requires that Comcast provide standalone broadband access at “reasonable” prices. In theory, of course, this makes sense. Consumers should not be required to take on a cable package in order to receive broadband, nor should it be constructed in such way that a bundled offering is, as the report notes, “the consumer’s only reasonable economic choice.”
Where it gets hairy, though, is in the details. The order goes so far as to mandate the minimum acceptable package and pricing (“At a minimum, Comcast shall offer a service of at least 6 Mbps down at a price no greater of $49.95 for three years”). Seeing the FCC set pricing and package specifications should send a chill down the spines of free market enthusiasts.
Critics of the merger—and there are many— fall into two camps: those who feel the conditions go too far, and those who fear that they don’t go far enough. Dissenting FCC Commissioner Michael Copps pointed out that the ruling has implications on every corner of the media landscape, and that it “confers too much power in one company’s hands.” Others call it a regulatory shakedown, setting a potentially worrisome precedent of the FCC inserting itself in the workings of an industry over which it has no mandate or authority.
-Ben Piper and Jia Wu