FCC Clock on Comcast-NBCU Restarts With New Studies

The reports commissioned by Comcast, NBC Universal and NBCU parent General Electric said competition won’t be stifled by the transaction and online video so far isn’t a substitute for pay-TV services. The combined companies would have little financial incentive to thwart online video competitors, said a study by economists Mark Israel and Michael Katz. Applying the mathematical formula that FCC aides used to analyze such vertical foreclosure in News Corp.-DirecTV “indicates that withholding of NBCU online content from an online” multichannel video programming distributor (MVPD) “would not be profitable for any reasonable set of parameter values,” the economists wrote at http://xrl.us/bhj8d6. Opponents of the deal told us Comcast-NBC Universal could hurt competition for online video and the study should have been broader.

The Israel-Katz study discussed the consequences of a huge shift in video viewing to the point that as much video will be watched online as now is seen on pay TV. At Comcast, that would mean approximately 100 times more data downloaded monthly by subscribers than the current average of the company’s broadband customers, they wrote. “If and when Comcast’s Internet access networks develop the capacity to handle this additional traffic without suffering significant quality degradation from congestion, the additional demand for broadband access services created by online viewing would promote the profitability of Comcast’s broadband” service, they said. That “would create large transport costs for online providers (based on current prices) and would place burdens on broadband Internet access networks that would lead to substantial congestion and associated degradation in service quality.” A household watching eight hours of TV daily on the Internet, some in HD, would download more than 288 GB monthly, Israel and Katz said. That compares to the current average of 2-4 GB for Comcast broadband users, they said.

Because online video and pay-TV providers are different and complementary to each other, “Comcast’s cable operations and NBCU will have no incentive and little ability to hinder the growth of these providers,” the paper said. “Comcast would have no incentive to attempt to weaken online video providers -- whether by trying to induce NBCU to withhold programming from them, or by any other means, as long as those providers offered complementary services.” Even with the emergence of at least one online distributor that directly competes with pay-TV services, foreclosure probably wouldn’t be profitable, the economists wrote. “NBCU would lose significant advertising revenue and affiliate fees it if were to deny its programming to online competitors, should they develop.” The FCC has said the top four broadcast networks are must-have content for pay-TV companies, “suggesting that withholding the rights to NBC broadcast network programming could be a particularly powerful way to disadvantage online rivals,” the paper noted. But NBC Universal can’t deny access to terrestrial TV and temporary loss of a network has had little effect on a pay-TV provider’s subscribership, it said.

Comcast-NBC Universal wants to “have it both ways,” by portraying Web video and MVPDs as not competing while in other contexts saying new media is luring away subscribers, said Research Director Mark Cooper of the Consumer Federation of America, an opponent of the deal. “There are the beginning signs of the Internet being used by a variety of entities to escape the grasp of the cable MVPD monopoly. And it’s that potential competition that the FCC and the DOJ really do have to pay attention to.” For Policy Director Corie Wright of Free Press, another opponent, “common sense dictates that this deal will harm the public and emerging online video market,” she said.

The National Telecommunications Cooperative Association sees Web video as “a smaller market” than pay TV, “but it is picking up steam,” a spokeswoman said. “Online providers’ concern over the merger is valid -- and that goes for rural communications companies as well. Sure, NBC will license their content to them, but at what cost? This goes to the heart of our arguments on the many obstacles small MVPDs face regarding tying and bundling, forced carriage, and access to reasonable rates.” Officials at the American Cable Association and Organization for the Promotion and Advancement of Small Telecommunications Companies had no comment on the filings.

The online video competition study addresses incomplete questions by considering only NBC Universal’s withholding programming from competitors, said Senior Vice President Andrew Schwartzman of deal opponent Media Access Project. He pointed to TV Everywhere, which gives Comcast subscribers online access to content from channels not affiliated with the cable operator. “If they withhold NBC Universal films from Netflix or make it available one or two months after they make it available to their own online customers, that could have a very detrimental impact on Netflix and other distributors of feature films,” he said.

Petitions to deny the deal are due June 21 and replies July 21 and there’s an Aug. 5 response deadline, the bureau notice said. “The Commission will restart the informal 180-day time clock to take account of the additional comment period.” That period gives the commission “ample time” to “weigh the information provided during the comment period, assess the legal, economic, and policy arguments in front of you, and come to a determination” on the deal, Executive Vice President Bruce Josten of the U.S. Chamber of Commerce wrote FCC Chairman Julius Genachowski on Tuesday. The group takes no stance on the merits of the deal, Josten said, but added that it believes the public interest is served when “fair conclusions” are reached “within a reasonable and well-defined time frame.”