Regulators Approve Comcast-NBC Universal Deal With Conditions

The cable giant is expected to close its acquisition of a 51% stake in the entertainment company later this month.

NEW YORK - The FCC on Tuesday approved the $13.8 billion Comcast-NBC Universal deal with conditions in a 4-1 vote, followed by the announcement of a similar conditional approval by the Department of Justice.

Democratic commissioner Michael Copps was the lone dissenter at the FCC. The two regulatory agencies worked more closely together and coordinated more intensely on this deal than they have done in the past.

Cable giant Comcast's acquisition of a 51 percent stake in the entertainment firm is now expected to close later this month.

The deal will give the largest U.S. cable operator a big content business and for the first time bring together a cable company and a major broadcast network. On a combined basis, Comcast and NBC Universal will be the largest media company with 2009 revenue of about $51 billion, compared to around $36 billion for Walt Disney. However, when excluding Comcast's cable systems, combined revenue was closer to $17 billion that year,

The regulatory approvals came with a whole range of conditions, which critics argued showed the potential competitive risks of the original deal, but which Comcast executives said would not affect their operating plans or hurt their ability to compete effectively.

Wall Street analysts said most conditions were were no shock. "The conditions are largely as expected," said Miller Tabak analyst David Joyce. But their sheer number will require focus and resources to ensure the combination works out as well as management hopes, he and others said.

“None of them will prevent us from executing on our business plans or will impair the competitiveness of any of our businesses,” Comcast executive vp David Cohen said about the merger conditions in a blog post.

Conditions include some that Comcast voluntarily proposed and some that regulators required in return for their approval, Particularly the Justice Department was concerned about the original deal proposal and how it would affect competitors.

The conditions on the deal, many of which will be in effect for a longer-than-typical seven years, include program access rules designed to prevent the merged company from abusing its market power, rules for program disputes, a commitment to net neutrality and safeguards to ensure innovation and somewhat limited power of the merged company in the emerging online video space. There are also rules on broadband pricing and access for underserved communities, schools and libraries, as well as commitments to increased news coverage, children's shows and Spanish-language programming.

Online video venture Hulu, in which NBC Universal has a stake, is one key asset covered by the conditions. Regulators didn't force the company to divest its Hulu stake, but the Comcast-controlled NBC Universal must give up its board seats and can't unreasonably withhold content from Hulu.

Another key online video-focused condition states that Comcast may be required to distribute certain comparable content online if one of its competitors does so.

Meanwhile, an arbitration process that the FCC established for cases where rivals believe that Comcast isn't making NBC Universal content available to them at fair rates could in some cases mean the company will fetch lower price boosts than it may otherwise be able to do, according to observers. But Comcast emphasized Tuesday that the process also ensures more clarity for its own management team.

In another key condition, NBC Universal had promised to keep NBC network programs on free over-the-air TV stations.

FCC chairman Julius Genachowski last month suggested a conditional approval of the mega-merger. In doing so, the head of the regulatory agency determined that the joint venture meets the FCC-mandated "public interest" requirement.

Comcast, which made its submissions for FCC approval a year ago, had been hoping for approval by the end of  2010, but final negotiations ended up running into the new year. The delay left NBC rudderless at this month's TCA.

In mid-November, Comcast had made official the new management structure for NBC Universal, which will be headed by Steve Burke as CEO.

Comcast chairman and CEO Brian Roberts has long been looking to get his hands on a major content firm. He tried to make a play for the Walt Disney Co. a few years ago.

"After a thorough review, we have adopted strong and fair merger conditions to ensure this transaction serves the public interest," Genachowski said. "The conditions include carefully considered steps to ensure that competition drives innovation in the emerging online video marketplace."

The Justice Department said it allowed the deal as long as the merger partners agreed to “license programming to online competitors to Comcast’s cable TV services, subject themselves to anti-retaliation provisions and adhere to open Internet requirements.”

“The Antitrust Division worked in close cooperation and unprecedented coordination with the Federal Communications Commission to reach a result that fully protects competition, allowing businesses to bring new and innovative products to the marketplace, providing consumers with more programming choices,” said Christine Varney, assistant attorney general in charge of the Department of Justice’s antitrust division. “The conditions imposed will maintain an open and fair marketplace while at the same time allow the innovative aspects of the transaction to go forward.”

The conditional approval of the Comcast-NBC Universal combination immediately triggered reactions from various interest groups.

The Writers Guild of America, East expressed disappointment, arguing that “entertainment and news media already are too consolidated” and that “too few multinational mega-corporations control what people watch on television and in movie theaters.”

Said the guild: “While we also appreciate that the FCC has conditioned its approval on a number of commitments made by Comcast and NBCU, with all due respect, we think these conditions simply make the venture a little less disastrous. Time will tell if writers and other creators will be squeezed out of the internet, and if a small handful of powerful entities continue to control what people watch.“

Another Hollywood group was more positive on the deal. “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 Independent Film & Television Alliance president and CEO Jean Prewitt.
IFTA struck a four-year agreement with the merger partners that includes increased development and pitch opportunities, a development fund devoted to independents and greater access to Comcast’s new media platforms. “We hope that this agreement can be a model that can be implemented across the industry,“ Prewitt said.

"Free expression online and on television will be worse off as a result of today’s action," said Andrew Jay Schwartzman, senior vp and policy director of the Media Access Project. "Commissioner Copps was right to dissent, since the conditions adopted by the Commission do not go far enough to justify approval of this deal."

He warned of the risk that this approval will lead to additional mergers. "Perhaps the worst thing about today’s announcement is that it sends a message to other phone and cable companies that they, too, can buy up content providers," Schwartzman said. "We may be about to see a new wave of media consolidation as a result."

Free Press president and CEO Josh Silver similarly spoke of "a failure of the agency to live up to its own public interest mandate, as well as Barack Obama’s promise to promote media diversity and prevent excessive media concentration." Comcast will get "unprecedented control over both media content and the physical network that delivers it," he highlighted. "The FCC has opened Pandora’s Box, and we can soon expect a whole new swarm of mega-mergers that will have dire consequences for media and the Internet."

Meanwhile, the American Cable Association commended the FCC for imposing "meaningful conditions" on Comcast.

"We applaud the FCC chairman and commissioners for producing an order faithful to the exacting review that FCC staff performed in response to transaction-specific harms demonstrated by [the American Cable Assoc.] in numerous filings and economic studies during the past year," ACA president and CEO Matthew Polka said. "Under Chairman Genachowski, the FCC has set a high standard by which future transactions involving media giants with  formidable market power will be judged."

Satellite TV operator Dish Network also said it was pleased that regulators have posed "strong conditions" on the merger. "Those conditions, among others, will help protect consumers and ensure competition."

The regulatory approvals with conditions will allow the combination to close later this month, Comcast said.

“This is a proud and exciting day for Comcast,” said Comcast chairman and CEO Brian Roberts. “The NBC Universal joint venture will be well positioned to compete, innovate and bring new choices to consumers.”

He added: “Our original vision for the combination remains intact so that consumers will benefit, and our competitors will be treated fairly."

Jeff Immelt, chairman and CEO of GE, which currently controls a majority of NBC Universal, said: “NBCU has been a great business for GE over the past 20 years, generating an average annual return of 11 percent."

He added: "We are confident the NBCU team will continue to be in good hands under Brian Roberts, Steve Burke and the Comcast team’s leadership.”

Burke, who will serve as NBC Uni's CEO, said the deal will bring together the "legendary assets of NBC Universal together" with the content assets and technology expertise of Comcast. "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,” he said.