Comcast Acquisition of NBC Universal Approved

18 Jan, 2011 By: Erik Gruenwedel and Chris Tribbey

As expected, the Federal Communications Commission and Department of Justice Jan. 18 approved Comcast Corp.’s $30 billion majority acquisition of NBC Universal, which is now set to close by the end of the month.

NBC Universal includes Universal Studios Home Entertainment.

The 4-to-1 vote paves the way for a new media powerhouse and represents the first time a cable operator has bought a studio. Disney, Fox and Warner Bros. operate, or have operated, cable platforms through parent companies. The agreement reduces General Electric’s ownership stake in NBC Universal from 80% to 49%.

“Bringing the legendary assets of NBC Universal together with the content assets and technology expertise of Comcast will create many new opportunities for consumers,” said Steve Burke, who will become CEO of NBC Universal at the close of the transaction. “The combination of these assets will allow us to bring the future of anytime, anywhere media faster to consumers in America and around the globe.”

In a statement, lone dissenter, Democrat FCC commissioner Mark Copps said the merger did not benefit consumers, and instead would consolidate too much power into the hands of one company.

“The Comcast-NBCU joint venture opens the door to the cable-ization of the open Internet," Copps said. "The potential for walled gardens, toll booths, content prioritization, access fees to reach end users, and a stake in the heart of independent content production is now very real.”

The FCC approval also triggers an agreement between the Independent Film and Television Alliance, and Comcast and NBC Universal, which gives independent producers access to Comcast’s new media platforms, more development and pitch opportunities, and access to a project development fund.

“Despite our ongoing concern about the effects of industry wide consolidation, we are satisfied that the FCC and the DOJ have acted responsibly in their approval today of the Comcast-NBC Universal merger, recognizing the significant commitments that the parties have already made to meet public and private concerns about the impact of this transaction,” said IFTA president and CEO Jean Prewitt.

Comcast is the No. 1 cable operator, with almost 23 million video subscribers.

“This is a proud and exciting day for Comcast,” Brian Roberts, Comcast chairman and CEO said in a statement. “The NBC Universal joint venture will be well positioned to compete, innovate, and bring new choices to consumers. Our original vision for the combination remains intact so that consumers will benefit, and our competitors will be treated fairly.”

The FCC’s approval is contingent on Comcast-NBC Universal to take steps to “foster competition in the video marketplace,” increase local news coverage to viewers, offer more children’s and Spanish-language programming, provide high-speed broadband to schools and libraries, and offer broadband services to 2.5 million low-income subscribers at less than $10 a month.

The FCC also is establishing a commercial arbitration process for rival cable and satellite operators, hoping to ensure they have fair and reasonable access to Comcast-NBC Universal programming. Fair access to content for online channels, including Hulu, is also covered in the FCC’s decision.

Josh Silver, president and CEO of nonprofit media reform group Free Press, denounced the decision as a “disaster” for consumers.

“Letting one company control the pipes and the content that flows over those pipes is a formula for abuse,” he said. “Comcast-NBC could soon hike up rates, take away your favorite channels or even stop you from watching your favorite shows online. Comcast has already targeted Netflix and other companies that compete with its video and Internet offerings.”

In a media call later in the day, David Cohen, EVP, Comcast Corp., said a tenet to regulators signing off on the deal was a series of seven-year conditions that mandate Comcast offer video content to third-party online video distributors, such as Netflix, at market rates.

“The online video market is a nascent market … that is not very well defined today, and therefore we were planning for [unknown] contingencies,” Cohen said.

Pundits on the call noted that the conditions represented the first steps by the federal government to establish some kind of regulation regarding distribution of video content over the Internet.

Analyst Richard Greenfield with BTIG Research in New York said the conditions theoretically allow Netflix to acquire NBC programming, which he said could cost the online DVD rental pioneer as much as $4 per month per subscriber.

“With nearly 20 million Netflix subscribers currently, the annual cost to Netflix would be nearly $1 billion, which is far too high to make it a reality any time soon,” Greenfield wrote in a post.

In addition, Comcast agreed to take a “passive” economic interest in Hulu.com, including relinquishing its board seat and voting rights with the online repurposed aggregator. NBC Universal holds a minority stake in Hulu.

“We continue to have an interest in the growth and advancement of Hulu,” Cohen said, adding that there was no immediate consideration about divesting its interest in the service.

“If we were to sell it to an unaffiliated entity, then [our] governance rights would spring back,” he said.