How NBC-Comcast leads to more government regulation

January 24, 2011: 1:18 PM ET

The perverse impact of deregulation is  that the FCC would be less involved with the media industry if it simply had said "no deal" to the Comcast-NBC merger.

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By Dan Mitchell, contributor

Later this week -- January 28th -- will be the first official day that Comcast is in control of the operations of NBC Universal. But as is turns out, it's not the only one sitting in the driver's seat: The government's approval of Comcast's merger with NBC Universal will yield far more governmental intrusion in the marketplace than if the combination had simply been disallowed.

That might seem counterintuitive – banning a merger is pretty intrusive, after all. But this agreement is far moreso: it makes the government a micromanager of media deals. It even goes so far as to force Comcast to sell its content to outside distributors if certain conditions apply.

Hardcore laissez faire types might prefer that the government had just stayed out of the deal entirely, but that would have certainly left us with the nation's biggest cable provider and one of its biggest content creators independently  determining who can create and distribute what content, and who can have access to it.

Yet despite the FCC's caveats, that danger still lurks. All kinds of bad things can happen when the owner of content also owns the means by which that content is distributed. The best outcome for everybody except Comcast (CMCSA) and NBC (except for former corporate parent General Electric (GE) ) would have been if the FCC or the Justice Department had simply nixed the deal to begin with.

Instead, the government imposed all kinds of restrictions and requirements on Comcast, in large part to "protect" the burgeoning business of online video distribution. So if, for example, Viacom (VIA) were to sell a package of reality programming to Netflix (NFLX), Comcast would have to do the same, at the same price.

The list of conditions is long and complicated: Comcast also must sell its films and television shows to online distributors at the same price it offers to other cable and satellite providers. It must offer standalone Internet service to customers who aren't Comcast cable subscribers. It must create more foreign-language and children's programming. It must offer low-priced Internet access to low-income consumers. It must remove itself from decision-making at Hulu, the online-video service it co-owns with Fox and Disney's (DIS) ABC.

Also: Comcast must over the next three years make broadband service available to 400,000 additional homes, and must offer 6 megabits-per-second service for no more than $49.95 per month (which it was probably going to basically do anyway).

Mandated dealmaking. Price limits. This is still a capitalist country, right? The federal government is engaged in nothing less than central planning here. Not that this is a brand new phenomenon in the telecommunications business (where, after all, AT&T (T) was for decades a de facto branch of government). But we should have learned by now that this kind of stuff just doesn't work.

What does work is a sensible antitrust policy – one where the extent of the government's involvement ends at making the playing field fair for all. If Justice and the FCC had simply said "no" to the merger, nascent online video outfits wouldn't need to be "protected" from the monster that has been created. There would be no monster. Or at least, it wouldn't be so monstrous.

And it's far from clear that the Netflixes of the world, or consumers, are protected at all. The conditions set by the FCC are riddled with ambiguity. For instance, Comcast may not "unreasonably" restrict the availability of online video, the FCC says. What does "unreasonably" mean? That might eventually have to be determined by an arbitration panel.

FCC Chairman Julius Genachowski said in a statement that the conditions "include carefully considered steps to ensure that competition drives innovation in the emerging online video marketplace." He didn't include any historical examples of the FCC's "carefully considered steps" having ever produced competition and innovation. The FCC, in fact, has been stifling competition and innovation since it first gave the radio business to RCA/NBC in the '20s, then essentially banned FM radio for a few decades (again to protect NBC), then did the same for early television (NBC again).

If there's any doubt that the FCC has received the message Comcast's lobbyists have been spreading, one need only have heard Comcast's executive vice president David Cohen say during a conference call on Tuesday: "I don't think any of the conditions is particularly restrictive."

If the FCC's caveats work than what's the point of the merger?

And even if they are restrictive, they expire in seven years anyway. What happens then? Nobody knows.

For the sake of argument, though, let's say that the conditions will yield just what the FCC says they will – effective separation of Comcast's ISP and cable businesses from its content business, at least when it comes to dealmaking. What, then, is the point of the merger? If Comcast can't leverage its content to benefit its distribution business, or vice versa, why combine at all? Just look at what happened with Time Warner's (TWX) ownership of both AOL (AOL) and Time Warner Cable (TWC): it turned out that those businesses were incompatible with Time Warner's core media business, and so they were both spun off. (Time Inc., owner of FORTUNE, is a division of Time Warner.)

Maybe something similar will happen with Comcast and NBC, and we won't have to worry about what might happen seven years down the road. In the meantime, watch for Comcast to find ways to slip through as many loopholes as it can find.

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