Comcast-NBCUniversal: 6 months later
How is the Comcast-NBCUniversal (Nasdaq: CMCSA) merger going six months after the FCC gave the go-ahead for the first-ever union of a broadcaster and an MSO?
Critics lambasted the merger of MSO Comcast and broadcast giant NBC Universal, with Free Press' Josh Silver calling it a "Comcastrophe" and other critics pointing out the potential dangers of consolidating two large corporations to control a large portion of the media and entertainment sector.
In order to mollify critics and get FCC approval, Comcast had to make a number of concessions--many of them voluntary. Among them, the MSO agreed to:
- Increase the amount of Spanish-language programming available, particularly local news coverage.
- Increase the amount of children's programming.
- Make affordable, broadband Internet available to low-income households.
- Relinquish its management stake in online video provider Hulu (although it retained its ownership stake).
- Ensure that competitors have access to NBCUniversal programming if they had an agreement in place with other service providers.
- Honor the FCC's net neutrality rules, even if Congress overturned the regulations.
The perhaps unprecedented set of conditions would seem a tall order for any profit-motivated corporation. It's especially so for Comcast-NBCU, whose every move is watched like a hawk by critics. When Meredith Atwell Baker resigned her FCC commissioner post in May to take a job at Comcast-NBCU as senior vice president of government affairs, watchdog sites as well as legislators boomed with indignant fury, questioning the ethics of the situation.
But six months after the FCC approved the Comcast-NBCUniversal merger, things seem to be going relatively well. The media giant saw a 6 percent increase in cable revenue in the second quarter, with growth in triple-play subscriptions and business services, and the company made some fairly optimistic investments in NBCUniversal, such as purchasing the remaining 50 percent of Universal Orlando as well as adding new cable and network television shows.
But there are still underlying concerns about the conditions that Comcast agreed to meet in order to consumate its acquisition of NBC. How well is Comcast handling its concessions? Let's take a look at a few of them.
Telemundo's Los Angeles news station, Free Press says, broadcasts just 1 hour per day compared to the local NBC station. View the study
Comcast pledged to increase the amount of Spanish-language programming available to its subscribers across the United States. And the MSO appears to be working toward that, announcing last week that it is adding channels to its lineup in several regions, including Azteca America, Galavision, Telemundo and Univision, bringing its total number of Hispanic networks carried to eight and reaching 14 million subscribers.
However, another part of Comcast's concession was an agreement to increase the amount of local news carried by Telemundo stations. And this is where things get problematic. Comcast-NBCU "agreed to increase local and Spanish-language news programs for five years and produce an additional 1,000 hours annually of original news programs for a number of its stations," AlterNet reported in May. But a Free Press study found that "C-NBCU erroneously counted advertising content in its local news tallies. As a result, more than 1000 hours claimed as local news programming was not actually local news programming, but instead comprised interstitial commercials."
The difference, Free Press noted, is that while other NBC owned-and-operated stations (O&Os) averaged 20 percent of programming time per week, "for most Telemundo O&Os, local programming represents less than 3 percent of their weekly programming time."
Comcast did not respond to requests for comment on Free Press' findings.
Competitor access to NBCU programming
Top left, Bloomberg TV. The organization has complained to the FCC that Comcast failed to place its channel next to competitor CNBC (bottom right).
An important Comcast concession in its acquisition of NBC was that Comcast would make sure that its competitors in the cable market would continue to have access to NBCUniversal programming. For example, if an online video provider has an agreement in place with other service providers to show NBCU content, Comcast agreed to not stand in that provider's way.
However, Bloomberg recently accused Comcast of violating this condition, complaining to the FCC that its Bloomberg news channel was not placed next to its direct competitor, CNBC, on Comcast's cable systems. While the MSO did not respond to requests for comment on the situation, Comcast did fire back at Bloomberg last week in its own filing with the FCC, saying that Bloomberg was trying to "exact preferential channel placement ... through regulatory gamesmanship."
Perhaps the most watched concession is Comcast's pledge to remain committed to the net neutrality rules set forth by the FCC last year. The MSO was under fire even before making the concession, as Level 3 Communications (Nasdaq: LVLT) complained in November that Comcast was setting up a "toll booth" and charging an additional fee for streaming content (in particular, Netflix (Nasdaq: NFLX) streaming, for which Level 3 provides transport). The situation wasn't resolved by the time the merger was tentatively approved, and there wasn't much movement on the topic in the months after the FCC approved the transaction.
Jim Crowe, CEO of Level 3: "We...prefer market-based solutions...(but) certain of the players have dominant positions..."
Last week, however, Level 3 CEO Jim Crowe said in the company's second quarter earnings call that the situation is still unresolved. "We feel just as strongly as we always have. ... It's a huge battle," Multichannel News reported him as saying.
Level 3 has not yet filed a complaint with the FCC. Crowe briefly explained the company's view on the situation during Level 3's earnings call. "We, as a generality, prefer market-based solutions and bend over backwards to look for market-based solutions," he said. "But let's face it, in parts of our industry, certain parts--certain of the players have dominant positions as a result of previous government-granted exclusive franchises."
Spokespeople for Level 3 and Comcast had no additional comment on Crowe's remarks. However, hard on the heels of these comments, a federal judge may hold up final approval of the Comcast-NBCU merger and force the media giant to rewrite its proposed arbitration process for content distribution. Judge Richard Leon said he feels that the arbitration process as currently spelled out is unfair to online video providers. "My concerns are such that because of the arbitration it's not in the public interest," he said, according to the Wall Street Journal.
In response, a Comcast spokeswoman told the Wall Street Journal: "We support the prompt entry of the consent decree." A Justice Department spokeswoman declined to comment.
According to the WSJ, both entities will try to make clear why they opted for the binding arbitration mechanism as part of the merger conditions.
Thus, it's an interesting snag in a part of the merger process that is usually hitch-free.
Stephen Burke, COO, Comcast, on retrans and content deals: "...we've got a lot of investments; and we've told people that it doesn't happen in one year"
How Comcast deals with the complaints and continuing requirements surrounding the concessions it made remain to be seen. The MSO made little mention of its commitments during its second quarter earnings call on Aug. 3, though COO Stephen Burke did mention the company's progress with added programming on Spanish-language station Telemundo.
"We launched a telenovelas named La Reina del Sur that became a big hit, driving our primetime ratings up 22 percent," Burke said. "Given the growth in Hispanic market, weekend Telemundo is an attractive growth opportunity for us in the future."
However, any progress in ensuring some fairness to its subscribers and to competing service providers remained as unclear as the company's outlook for the third quarter. "A lot happens in September, so it's hard to tell obviously there is economic news on the horizon that's battled some of the markets yesterday and we just still have to see," Burke said when asked by Evercore Partner's Bryan Kraft about how well Comcast will retain subscribers going forward.
Indeed, Comcast's significant investments in the NBC and Universal properties present a financial challenge to the company that could divert its full attention from its voluntary merger concessions. "I want to caution everyone: We're in fourth place at NBC, and we've got a lot of investments; and we've told people that it doesn't happen in one year," Burke said when asked about retransmission and content distribution deals on the earnings call. "Probably won't even happen in two years. Might take three or four."
Meantime, what's chilling the blood of Free Press' Silver is that these concessions will only be in place for seven years. "Then, all bets are off, as the merger squeezes out what's left of independent, diverse voices from television dials, and forever changes the Internet as we know it," he writes.
It may be too early to tell, but Comcast's financial position since the merger, as well as how Comcast and Level 3 resolve their dispute and how the FCC responds to complaints by outlets like Bloomberg, could be a bellwether in how well these concessions take.