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NEW YORK – Online video firm Hulu was one key focus as regulators looked at the planned acquisition of a majority stake in NBC Universal by Comcast, and government agencies wanted to ensure that the cable giant would not sabotage its business.
When Comcast acquires a controlling stake in NBC Universal later this month, it will retain the entertainment company’s economic stake in online video firm Hulu, but must remove its three directors on Hulu’s board to effectively give up any management control.
The newly combine company must also continue to provide content to Hulu as long as it retains its stake.
The moves are part of regulatory conditions that emerged after the FCC and Justice Department approved the media merger on Tuesday.
Hulu, in which News Corp., Walt Disney and a private equity firm are also partners, will become a “passive economic” investment for the Comcast-controlled NBC Universal, Rick Cotton, executive vp and general counsel at NBC Universal, told reporters Tuesday.
Comcast executive vp David Cohen, the cable giant’s top Washington official, said his company was comfortable and “perfectly satisfied” with the Hulu setup. There is no prohibition for the firm to sell the Hulu stake (in which case a new owner would get back full management influence), but it doesn’t have any immediate plans to do so, he added. “I don’t think we know enough yet,” he said, calling Hulu one of the assets “we know the least about.”
A Hulu spokeswoman had no comment on the merger condition related to the company.
The Justice Department approved the NBC Universal-Comcast combination, but also filed an antitrust lawsuit focused on Hulu Tuesday together with a settlement that will allow consumation of the transaction.
Without giving up its management rights at Hulu, “Comcast could, through its seats on Hulu’s board of directors, interfere with the management of Hulu and, in particular, the development of products that compete with Comcast’s video service,” the Justice Department argued. “Comcast also must continue to make NBCU content available to Hulu that is comparable to the programming Hulu obtains from Disney and News Corp.”
“I don’t think any of the conditions is particularly restrictive,” Cohen said when asked how cruel the regulatory restrictions on the deal are. All will allow the company to run NBC Universal and its other assets competitively, he emphasized.
One key condition in the online video field beyond Hulu is one that states that Comcast may be required to make available certain comparable content to an online distributor if one of its competitors does so. Analysts said they want to see more about the issue when the FCC issues its final order on the conditional deal approval to judge its impact.
While some observers hope the condition will bring NBC Universal content to various new platforms, some warned that this condition depends on the willingness of content companies overall to distribute their programs online. Also, Cohen highlighted that this condition focuses on “comparable” content. For example, he mentioned that Viacom’s MTV Networks may make some of its content available to an online aggregator. If that MTV content focused on reality TV shows, for example, NBC Universal would only have to make available under comparable terms such content as Bravo’s reality series.
Alternatively, under the merger conditions, an online aggregator 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. BTIG analyst Richard Greenfield estimated that this could cost Netflix nearly $1 billion a year though – “far too high (expensive) to make it a reality any time soon,” he wrote in a note to investors, unless the merger conditions would allow for programming to be offered on an a la carte basis.
Some Wall Street observers wondered if the requirement to make content available to online distributors under certain circumstances along with a Comcast promise to offer $49.95 broadband-only service plans for several years would encourage more cord cutting, meaning the discontinuation of pay TV service to watch more content online. Cohen said though that cord cutting didn’t play a role in the talks with regulators and signalled he expects no increase due to merger conditions.
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