Analysts: Comcast-NBC Universal Conditions Won't Promote Cord Cutting

BTIG analyst Richard Greenfield says: 'Unless others make bad decisions with their content, nothing changes.'

NEW YORK -- Will the regulatory conditions on the Comcast-NBC Universal deal encourage cord cutting and give "over-the-top" broadband video providers a new edge?

A day after the media mega-merger received regulatory approvals with a range of conditions, analysts on Wednesday generally concluded that there wouldn't be any major cord cutting fallout driven by the deal conditions.

"The industry debate on "over-the-top" Internet- delivered video (and video cord cutting) remains mostly unchanged by the deal," said Morgan Stanley analyst Benjamin Swinburne in a report. "While the conditions should prevent Comcast from using its vertical market power to stymie competition, we also see little that actively promotes "over the top."

One key online video-focused condition states that Comcast may be required to make available certain comparable content to an online distributor if one of its competitors does so. 

For example, if Viacom's MTV Networks made some of its reality shows available to an online aggregator, NBC Universal would have to make available such content as Bravo's reality series, but under comparable terms.

Alternatively, under the merger conditions, an online player such as Netflix could offer to carry NBC Universal like a multi channel TV operator, but would then have to pay for the whole array of NBC Universal content like any cable or satellite TV operator. The online firm would also need an agreement with at least one of NBC Universal's peers, and more than 55% of its programming would have to come from outside of NBC Universal.

"While the government is not using the deal to explicitly spawn the development of online video (e.g. program access rules were not broadly extended to Internet-based providers), a key focus was to ensure that if the industry moves toward over-the-top then NBCU's behavior should be broadly consistent with media peers," Swinburne said.

Evercore Partners analyst Bryan Kraft said that the online video space was the area with "the only condition that we were disappointed with...but we think it is manageable, particularly if the other entertainment companies behave rationally."

He said that the scenario of an online player paying fees for all of NBC Universal's content seems unlikely. "We don't view this second scenario as a viable business model for the online video distributor," he said.

"Unless ABC, CBS or Fox do very bad things, the FCC/Department of Justice NBCU [online video) conditions are meaningless," echoed BTIG analyst Richard Greenfield. "Unless others make bad decisions with their content, nothing changes."

Wunderlich Securities analyst Matthew Harrigan said even if Netflix – or others – had success with such an approach, "this is tantamount to creating a "me too" competitor rather than instigation of a flexible a la carte approach that would foster over-the-top cannibalization of the video business."

Most analysts concluded that the merger conditions were largely as expected.

Collins Stewart analyst Thomas Eagan even upgraded his rating on Comcast shares from "hold" to "buy" with a price target of $32.

"Although there were conditions for the approval, we expect the benefits of the transaction to remain intact, including an improvement to nearly all Comcast operational and trading metrics," he said. "With the regulatory discount gone, we now expect the stock to trade on its results which we also expect are improving."

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