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Comcast-NBC merger: battle hits the hill

Jay Leno jokes aside, when proponents and opponents of Comcast and NBC Universal’s proposed $30 billion merger appear before lawmakers Thursday, they will head off in a legal linguistic battle over how regulators should view it.

Comcast has said it is a “vertical merger” without significant overlapping businesses, therefore not posing the same competitive harms that a “horizontal merger” would. Traditionally horizontal mergers have faced more regulatory scrutiny than vertical unions – of a business that combines with its suppliers or customers. But smaller competitors and consumer groups disagree.

WOW! is a small cable and Internet service operator in the Midwest that competes directly with Comcast and NBC Universal and buys content from both. The company wrote in its written testimony for lawmakers that when the companies merge, smaller competitors like them, face a litany of risks.

Comcast and NBC could force higher rates on WOW!, which distributes their content. The combined company could swoop up advertising in local markets by offering rates across their broader properties that competitors can’t match. The merged firm could force distributors of content like them to take bundles of programs, including programs consumer may not want, in order to get key shows like Heroes, Jay Leno and Saturday Night Live along with cable channels like MSNBC and Bravo.

“The problems WOW! sees in the current market are surely going to be exacerbated when the two firms come together,” WOW! President Colleen Abdoulah wrote in her written testimony submitted to the House Subcommittee on Communications, Technology and the Internet. She will be among five witnesses at the subcommittee’s hearing on the merger at 9:30 a.m. Thursday, followed by another hearing in the Senate Judiciary subcommittee at 2:30 p.m.

“Over the years, WOW!, like most of us in the cable industry, has wrestled with each of those two firms individually to obtain content, and there is little doubt that they have used their market power in these negotiations to extract additional value and obtain an advantage in the distribution market.”

Comcast CEO Brian Roberts and NBC Universal CEO Jeff Zucker wrote in their joint written testimonies that those overlaps are exaggerated. Instead, the merger will better serve consumers because Comcast will invest more in NBC content. On the flip side, by bringing a large library of thousands of movie titles to Comcast and choice shows and cable channels, Comcast will be able to extend its online strategy called Xfinity faster. Public interest groups have raised concerns that the Xfinity strategy and the merger pose the risk of withholding valuable content from Internet video distributors like Vuze and YouTube.

“Comcast is primarily a distributor, offering its customers multiple
delivery platforms for content and services,” the executives filed in their written testimonies. “Although Comcast owns and produces some
cable programming channels and online content, Comcast owns relatively few national
cable networks, none of which is among the 30 most highly rated, and, even including its
local and regional networks, Comcast accounts for a tiny percentage of the content
industry.”

Consumer groups say much of the value of the deal will be in the future, when most televisions shows, movies and news will be watched online. Comcast’s Xfinity program, which is tied to its broadband business, will compete directly with NBC’s 32 percent stake in Hulu, a broadcast site on the Web. Consumer groups are pushing for conditions that would ensure Comcast share its expanded library of content with new online companies.

Adam Thierer, president of think tank Progress & Freedom Foundation, says such concerns may be overblown. He said there is vibrant competition among video sites on the Web and it would be a bad business choice to withhold content. Besides, according to his written testimony, Thierer argues that mergers like Comcast and NBC Universal’s have been made before and mostly with bad results (AOL-Time Warner, News Corp .-Direct TV).

“Many mergers simply fail to create the sort of synergies and benefits originally ohped for and consequently die of natural causes over time,” he wrote.

By Cecilia Kang  |  February 3, 2010; 7:00 AM ET
 
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