Update: Two days before Christmas, Julius Genachowski, the chairman of the Federal Communications Commission, recommended approval of the Comcast-NBC Universal merger. The draft order, which still requires majority approval by the five-member FCC, includes a condition that will in some form require Comcast to provide NBC Universal programs to online-only competitors, like Google TV and Hulu, according to a source familiar with the document. The Justice Department, which also must approve the transaction, worked closely with the FCC and will likely follow its lead. The pre-holiday timing of the announcement undoubtedly deflected attention from the chairman’s decision, which consumer groups may oppose, but it also came in advance of a new Republican majority in the House of Representatives, which may object to the conditions placed on Comcast.
Those in the know say you don’t need a television to watch TV anymore. All you need is an Internet connection and a screen. Missed last night’s episode of 30 Rock? No worries. Log on to Hulu and watch it on your laptop. Once you’ve done that, it’s just a small step to drop your cable or satellite subscription and save a bunch of money, right? Not so fast. Watching your fill of free TV online isn’t so easy, especially if you want to see this week’s episode of Glee at the same time as your cable-connected friends or view special events like the Super Bowl. And Comcast’s plan to acquire a majority stake in NBC Universal—marrying the king of distribution with a household name in programming—is likely to make free Internet TV trickier, not easier.
The Federal Communications Commission and the Department of Justice are closely reviewing the proposed merger because the combined company could play a major role in shaping the future of Internet TV competition.
Brian Roberts, Comcast’s chairman and chief executive, told Wall Street analysts when the deal was announced in December 2009 that the venture would make Comcast “strategically complete.” He said the transaction is pro-consumer because it will allow the company to “become a leader in the development and distribution of multiplatform ‘anytime, anywhere’ media that American consumers are demanding.”
Not everyone believes that Comcast’s prime motivation is to make its customers happy.
Where’s the Competition?
Comcast’s roots are firmly intertwined with its cable brethren, a tight-knit, largely interdependent group of companies that own and distribute content. Cable and satellite companies, like Comcast and DirecTV, make their money by charging subscribers for access to their distribution networks. They then take a big chunk of that money and use it to negotiate with content companies, including ABC network owner Walt Disney Company, Time Warner, and Viacom, for the rights to carry the programmers’ broadcast and cable channels. The content creators make money by collecting these fees from cable companies and also from advertising.
It is a largely closed system that has been difficult for competitors to break into—more competition would hopefully mean lower prices for subscribers and better service in an industry that is not exactly known for it.
Some had hoped that the Internet would give rise to companies that would challenge the all-powerful cable industry, following in the footsteps of online avengers who took down record companies and news media empires.
Logic dictates that if viewers can watch what they want via their Internet connection, it makes no sense to keep paying for both broadband and cable or satellite service. But Comcast in 2009 collected more than $19 billion in revenue from cable TV service and nearly $8 billion in revenue on its broadband service. It is number one in both categories, with more than twenty-two million TV subscribers and more than 16 million Internet subscribers. The company wants to keep both revenue streams, and to grow them.
One way to do that is to keep competition in check. Comcast would be in a unique position to do just that, especially because, by adding NBC Universal to its holdings, Comcast will become one of the nation’s largest television programmers, too—the only company to have such a large position in programming, cable, and Internet distribution. Because it will control not only what content gets produced but also how it is distributed, the powerhouse will be in an unrivaled position to resist competition from Internet TV wannabes. Merger opponents are concerned that the company could disrupt competitors’ content flowing over its broadband connections, meaning it could make Comcast-produced shows easier to watch over its online network than shows produced by others. It could also refuse to provide its content to online competitors—thus depriving them of any lifeblood—and it could extend its practice of requiring customers who want to watch popular shows online to prove they are subscribers to their local cable service.