The spat between News Corp. and Cablevision System Corp. that blacked out Fox programming for more than 3 million subscribers may raise hurdles for Comcast Corp.’s $28 billion deal to take control of NBC Universal.
Comcast, which is buying a majority stake in the media company from General Electric Co., may receive heightened regulatory scrutiny as a result of the dispute, said James Ratcliffe, an analyst at Barclays Capital in New York. The Federal Communications Commission is reviewing the acquisition.
“In light of the Cablevision-Fox dispute, there is clearly more attention being paid to program access, making restrictions more likely,” Ratcliffe said in an Oct. 25 note to investors.
News Corp.’s Fox blocked its programming, including two World Series games, from Cablevision for two weeks, until Cablevision agreed Oct. 30 to pay what it called an “unfair price.” U.S. regulators will want to prevent Comcast from using the threat of cutting off NBC programming to gain higher fees, Ratcliffe said. Comcast, unlike News Corp., may have the added incentive of blocking channels from rivals such as Dish Network Corp. to help lure customers to its cable service.
U.S. Representative Maxine Waters, a California Democrat, said the Fox-Cablevision spat made her “increasingly concerned with the potential harm” if a dispute arose between an enlarged Comcast and competing video provider. In a letter to FCC Chairman Julius Genachowski last week, she called for “substantive and enforceable conditions” to preserve competition.
Sena Fitzmaurice, a spokeswoman for Comcast, said in an e- mail that the Fox-Cablevision dispute shouldn’t affect its deal for NBC Universal. Jen Howard, a spokeswoman for the FCC, declined to comment on the commission’s review.
Too Much Power?
The deal would give Philadelphia-based Comcast, the largest U.S. cable provider, control over the NBC network and cable channels such as USA Network, as well as a share of the video website Hulu LLC, the Telemundo Spanish-language network and the Universal Studios film studio and theme parks. The FCC and Justice Dept. are reviewing whether Comcast would have too much power over access and pricing for TV and online programming.
Comcast said last year it wouldn’t withhold the signals of NBC stations from rivals. The pledge is in effect as long as FCC rules remain in place that prevent cable companies from withholding programs they own from rivals, Comcast said. The FCC rules expire in 2012.
Though Comcast has made “good faith” pledges, regulators will examine the potential anti-competitive fallouts of the combination more closely, as disputes between pay-TV carriers and programmers increase, said Matthew Harrigan, an analyst at Wunderlich Securities in Denver.
The FCC will most likely place conditions on the deal that mirror those required of News Corp. when it obtained a majority stake in satellite-TV provider DirecTV in 2003, he said.
The FCC mandated that News Corp. accept arbitration of disputes with pay-TV providers over fees to carry local Fox stations and regional sports programming. The condition was intended to prevent News Corp. from withholding Fox from its competitors to lure viewers to subscribe to DirecTV.
News Corp. also agreed not to black out network programming or its regional sports networks while a dispute was being arbitrated. Those conditions no longer apply because News Corp. sold its majority interest in DirecTV.
The restrictions may limit Comcast’s payoff from the planned NBC purchase, said Ryan Vineyard, an analyst at RBC Capital Markets in New York.
“FCC-imposed restrictions could threaten Comcast’s ability to grow affiliate fees and profitability at the network,” Vineyard said in a note to investors.
Removing Unique Deals?
For example, to increase distribution and advertising sales of Comcast cable networks G4, Style, and Versus, Comcast may want to bundle those channels with NBC’s popular cable network USA. In order to get a distributor to agree, Comcast could threaten to black out USA. That’s exactly what the FCC would be looking to prevent, Vineyard said.
The FCC may also look to limit Comcast’s ability to price its programming differently for different pay-TV distributors. For example, the price of Fox broadcast differs as News Corp. strikes unique deals with every distributor. Distributors typically don’t know what others pay.
Comcast will most likely have to grant “most-favored nation status,” or its lowest price, to all distributors whether they are its competitors or not, Harrigan said.
Comcast lost 13 cents to $20.50 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has risen 22 percent this year.
Regulators will also focus on how Comcast’s bid affects the emerging Web-video market, analysts say. In its showdown with Cablevision, News Corp. briefly blocked subscribers from viewing Fox shows on its website and on Hulu, a free TV site.
“Fox’s decision to block online content for Cablevision customers on Hulu accentuates the pressure on the FCC to look at the online aspects of the deal,” Barclays’s Ratcliffe said.
There’s already heat on Comcast to ensure comparable online and on-demand content for its competitors, he said. For example, rivals are urging the FCC to require Comcast to give them the same Web content that Comcast puts on its Fancast site.
Comcast’s satellite competitors DirecTV and Dish share concerns over how it will use its influence online. Both companies filed documents to the FCC requesting it make Comcast submit fee disputes to arbitration and Dish asked the FCC to forbid Comcast from interfering with customers’ Web service.
“Strong conditions on the merger will be necessary to prevent Comcast from abusing its control of the broadband,” Alison Minea, corporate counsel for Dish, said in an Oct. 22 letter to the agency.
Bloomberg LP, the parent company of Bloomberg News, has filed papers opposing the Comcast-NBC Universal combination as it is currently proposed.