The Blog

Here’s a quick briefing on the FCC’s order [warning: large PDF] approving the Comcast/NBCU merger.

Now that Comcast is deeply invested in content as well as distribution, there’s a substantial risk that it will wield its power to favor its own programming.  It has a built-in conflict of interest.

Because Comcast doesn’t face real competition for bundled services (very-high-speed wired Internet access, voice, video) in the communities in which it operates, that conflict of interest isn’t constrained by market forces.

The agencies have established conditions that they believe will mitigate the risks of the transaction for the public.  Some of the conditions have to do with protecting competitive online video services that have the potential to constrain the pricing of Comcast’s pay-TV services.

Nugget:  Joining control over a major distribution channel on one hand and over marquee programming on the other creates potential for public interest harms – most notably to slow down or skew competition and innovation that promises substantial benefits for consumers – but the conditions we impose in this Order are designed to neutralize those possible negative impacts.

Some under-reported elements of the FCC Order:

1. FCC creates a market.

• A big lawyerly moment happens on p.4:  the creation of the new acronym for the imagined market on which the agencies have focused so much attention.
  
• Right there, FCC says that a group it calls “online video distributors,” or “OVDs,” have concerns.
• If you follow telecom law, you get used to a blizzard of acronyms – the category for Comcast’s traditional pay-TV services is called “multichannel video programming distributors,” or “MVPDs.”
• Page four is the moment when the Commission asserts that there is in fact a separate category of players like Netflix, Hulu, GoogleTV, and iTunes whose interests need to be protected.
• That category, OVD, now has a boundary – an inside and an outside.  That’s a big deal.  (Just to keep things interesting, it looks as if some OVDs may also be MVPDs – for more on that, lots of people will be hiring lots of lawyers.)
• “We conclude that Comcast-NBCU will have the incentive and ability to discriminate against, thwart the development of, or otherwise take anticompetitive actions against OVDs.”

2. FCC says that nascent market needs protection.

• Comcast had argued that the OVD industry was so new that the FCC shouldn’t guess about its development.
• Here’s where the Commission profited from its coordination with DOJ – those merger guidelines I linked to a few days ago came in handy – “Although the Commission must be mindful of uncertainty, it is under an obligation to ensure that this transaction does not unnecessarily harm online video.  See Horizontal Merger Guidelines.“

3.  FCC doesn’t move the existing program access regime over to the online world.

• Rather, it is trying the single-peer approach – if one of your buddies (one of the other media conglomerates) moves to license material to an OVD, you have to as well: “Once an OVD has entered into an arrangement to distribute programming from one or more Comcast-NBCU peers, we require Comcast-NBCU to make comparable programming available to that OVD on economically comparable terms.”
• It’s likely that the Rs wanted “two or more” peers to be the benchmark.  The market is so concentrated that there aren’t enough peers to make that sensible, though.  It’s like going to a high school in a vanishingly-small town – there’s only one clique.  So it’s a relatively low requirement that triggers the obligation to license.
• On the other hand, there’s a risk that if the peers all stay in lockstep or find a way to out-lawyer the requirement the OVD conditions won’t make any difference.
• Lots of questions here; if you don’t like this element of the deal, you’d say “what’s the problem FCC is trying to solve?” and “why is the FCC skewing the media marketplace in favor of OVDs, when they seem to be doing fine?”

4.  TV Everywhere stays in place.

• Lots of people argued that allowing Comcast to tie access to its own video packages online (TVEverywhere, or Fancast) to having a subscription to Comcast’s traditional cable services (MVPD! see, you’re getting used to this) would give them the power to suppress online competition.
• The reasoning was that people would come to believe that online video was “free” (with a cable subscription) and so no one would pay for a new competing fee-based service online.
• The FCC didn’t think it was appropriate to banish the “authentication” business model.
• So, instead, they are trying to minimize the risks of harms to competition by requiring Comcast to license its online rights to other MVPDs and, on “substantially similar” terms, to OVDs.
• Disputes will be resolved by baseball-style arbitration, under which both parties make their last best offer and the arbitrator chooses.
• Bottom line:  It looks as if the TV Everywhere “authentication” model is here to stay – and, if Comcast and the others play their cards right, it may become the model for long-form online video programming over time.
• We decline to impose a condition in this proceeding restricting Comcast-NBCU’s ability to limit the online availability of certain programming to individuals who subscribe to MVPD service.

5.  FCC ports open Internet conditions to set top boxes.

• Most people get their boxes from their cable company.  As everything converges, and the box allows access to both the Internet and cable programming, there’s a risk that the set top box (the STB!) will favor the cable company’s content.
• The FCC is requiring that “neither Comcast nor Comcast-NBCU shall prioritize affiliated Internet content over unaffiliated Internet content,” for purposes of both its broadband Internet access service and its equipment.
• The FCC makes clear that STBs aren’t required to access the Internet – but if they do, access has to be offered in a non-discriminatory manner.

6. FCC tries an experiment in supporting local journalism.

• Lots of people are worried about the fate of local news coverage.  Rather than requiring NBCU to have particular numbers of journalists on staff, the FCC decided to embrace the Voice of San Diego model.
• “We also welcome Comcast-NBCU’s commitment to engage in cooperative arrangements between certain of its NBC O&Os and locally focused non-profit news organizations that provide reporting on issues of interest to each such station’s market or region.  Within 12 months of closing, at least half of the NBC O&Os will have in place such cooperative arrangements, and that they will continue such activities for three years.”
• It’s fascinating – we’ll see how it pans out.

7.  Although there’s no wholesale access requirement, there’s a requirement to provide retail standalone Internet access at reasonable prices.

• The FCC requires Comcast to continue to provide standalone broadband “Internet access service to customers with offerings consisting of speed tiers currently offered in each service area at reasonable market-based prices.” 
  
• “At a minimum, Comcast shall offer a service of at least 6 Mbps down at a price no greater than $49.95 for three years.”
• To avoid the risk of an invisible offering, FCC solemnly says that Comcast needs to “visibly offer and actively market” this standalone retail service.

8.  The process was coordinated.

• It’s apparent that DOJ and FCC worked very closely together for months.  This is a big deal.
• The ex parte records filed at FCC show that DOJ personnel were part of meeting.  That the resulting approval documents harmonize both on theory and remedies represents a substantial improvement in process and in expertise-sharing from many perspectives.

This blog is now on hiatus. More once the manuscript is in.