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Analysts Predict Likely Conditions of Comcast-NBC Universal Deal

NEW YORK -- While the FCC's informal merger review clock on the Comcast-NBC Universal deal expires Wednesday, a day before Thanksgiving, Wall Street analysts don't expect the agency and the Justice Department to rule on the transaction until a later point. And while most agree that the regulators will call for conditions on the mega-combination, expectations on specific conditions diverge in some areas.

The FCC tries to finish deal reviews within 180 days when possible, and that countdown comes to an end Wednesday. The FCC doesn't have to rule after 180 days, though, and agency representatives have declined to comment on the likely timing of the completion of their review. Most observers though expect final word out of the FCC and Justice Department closer to year-end or in early 2011.

A Comcast spokeswoman reiterated the company's consistent stance that it hopes for regulatory approvals by year's end.

Meanwhile, Wall Street analysts surveyed by The Hollywood Reporter continue to expect regulatory approval to come with conditions that would curb the combined giant's market power in key areas. The question is how many and which ones.

"At a minimum, we'll see arbitration and no-blackout provisions on programming disputes" involving NBC Uni content, predicted Sanford C. Bernstein analyst Craig Moffett, echoing many of his peers. That would prevent Comcast from holding back programming from other cable, telecom or satellite TV operators when NBC Uni program carriage talks reach an impasse. Carriage issues are already in focus in Washington after high-level program disputes this year, but many big companies have been opposed to government rules in favor of private negotiations between parties.

If Comcast indeed became subject to arbitration rules, the question would be how far they would go and whether the arbitration process would be so-called "baseball-style" -- which means that an arbitrator picks the bid or the ask, but not a solution in between -- or regular. Baseball-style arbitration "raises the stakes and makes it harder for Comcast to ask for big increases for their NBC Uni programming," Moffett said.

Evercore Partners analyst Bryan Kraft expects that regulators will also "require the company to offer third-party distributors the same kind of distribution rights that Comcast's cable business enjoys [for NBC Uni content], for example, in the areas of VOD and TV Everywhere."

Small and independent programmers have also expressed concern that without regulatory conditions, they may not reach programming with Comcast's cable systems.

The big focus for many observers, however, has been on the online video market conditions that regulators may put on the merger partners given that government agencies have requested additional information on the online video front as part of the regulatory process.

"Conditions could surround open online access to content," said David Joyce, analyst at Miller Tabak. And Moffett said that regulators are likely weighing "whether to apply Program Access Rules" to protect the access of key content to online video providers such as Netflix.

But Kraft argued that the online video market "is too nascent, and NBC Uni's share of the entertainment business is too small for the government to impose conditions related to online content distribution," he said.

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Some have also called for a net neutrality provision that would make sure Comcast in its role as a broadband provider offers equal quality of access to different types of content online.

Given that many observers and critics have highlighted the emerging online video space as a key focus for regulators, Gimme Credit debt analyst David Novosel said he believes that "Comcast may also have to reduce its stake in Hulu or sell all of it." NBC Uni owns the video site with News Corp., Walt Disney and Providence Equity Partners.

Moffett expects both the Justice Department and FCC to make their final regulatory declarations by late January, while Novosel and others more broadly predict final decisions some time in the first quarter of 2011. But Joyce and Kraft believe things could still come together by the end of 2010.

Will the deal still be worth it for Comcast once all possible conditions are considered?

"I don't think the conditions will impede the financial or strategic benefits of the deal," Kraft said.

"Comcast looks like it got NBC Uni for a very good price, so they'll probably do very well with this deal," predicted Moffett. "But the regulatory conditions are central to whether Comcast and NBCU will be worth more together than they would be apart. My guess is that the regulatory conditions will hamstring Comcast's efforts to capture any vertical synergies."

And Novosel said: "It's really a matter of degree." He said Comcast probably knew going into the deal that there would be some conditions attached. "Some were probably built into their assumptions," he said.