OVD Competition Concerns Undergird Difficulty of Enforcing Some Deal Curbs
Online video distributors’ concerns on giving to executives at Comcast and its NBCUniversal access to programming deals signed with major broadcast, cable and film companies underscores for some the difficulty in enforcing government behavioral conditions on mergers and acquisitions. The now-merged companies want the FCC to change terms of a protective order so their executives and in-house lawyers can see OVDs’ deals with other major programmers so they can deliver on the benchmarking condition in the 2011 order OK'ing Comcast buying control of NBCUniversal. While it seems reasonable for Comcast and NBCU to want and perhaps get such expanded access -- outside counsel and consultants now can view the benchmarking documents -- it raises competitive concerns and shows why it’s hard to deliver on such remedies, lawyers who opposed or backed the deal said in interviews Monday.
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The commission likely will issue a public notice seeking comment on the Feb. 17 request (CD Feb 22 p4) from Comcast and NBCUniversal, industry executives predicted. The notice may have a two-week comment period, an executive said. The commission seems disinclined to grant the companies’ request without seeking comment, in part because the change to the protective order has been somewhat controversial within the media industry, another executive said. Spokeswomen for Comcast and the Media Bureau had no comment.
The objections of six other major programming companies to the request (CD Feb 29 p5) make sense, said lawyers and economists at some groups that opposed U.S. approval of Comcast/NBCUniversal. They said those firms have reason to fear having deals for OVDs to carry programming seen by decision makers at Comcast and NBCUniversal who could use that information to strike future deals, some said. “There’s some undeniable logic to Comcast that they have to know what the terms are” of programmers deals with others to reach accords with OVDs benefiting from the order’s benchmarking condition, Free Press Policy Director Matt Wood said. He can also see “some competitive concerns” from the opponents. Those companies (http://xrl.us/bmw26j) are CBS, Disney, News Corp., Sony Pictures, Time Warner and Viacom.
Foes of Comcast/NBCU see the new request as showing why remedies attempting to shape a merged company’s conduct don’t always work, while a supporter of a light government touch in M&A said the request shows why conditions aren’t often needed. The benchmarking condition gives OVDs that reach deals with other traditional broadcast, cable and film companies the rights to seek certain content from Comcast and NBCUniversal. “Subject to the confidentiality agreement, Comcast should be able to have those persons in the best position to evaluate the ‘comparability’ of the peer agreements review them,” said Free State Foundation President Randolph May.
"It’s one of these problems that you would expect to arise in the context of a behavioral remedy, because Comcast is claiming as you'd expect that they can’t provide programming to OVDs” without “access to the contracts themselves,” said Vice President Diana Moss of the American Antitrust Institute, which had told the FCC of concerns on the NBCUniversal deal. “This is one of those problems that comes out of behavioral remedies.” This case is “rubbing up against this difficult interaction between complying with the remedy and potentially impinging competition as a result of the remedy” by a competitor to traditional programmers -- Comcast/NBCUniversal -- getting access to the programmers’ deals, Moss said. The programmers “don’t want their contracts read by Comcast” because “there’s sensitive information in there,” she said. “For Comcast to be looking at that information would give them a birds-eye view into certain critical factors that go into how its rivals compete."
"This seems like Comcast trying at least in the initial stage to comply with the conditions, but finding it difficult just because of the delicate nature” of OVDs’ contractual terms, Wood said. “Well, this just shows you how hard this is to enforce those types of conditions.” For the benchmark condition to work, it “needs data to benchmark against,” said lawyer John Bergmayer of Public Knowledge, also a foe of Comcast/NBCUniversal. “There must be a way to reconcile the different interests here -- to make the OVD conditions meaningful without being unfair to either side."
OVDs are continuing to develop as competitors to traditional TV, nonprofit officials said. Comcast/NBCUniversal, by joining distribution with programming assets, threatens competition, Moss of the Antitrust Institute said. “You wonder how the market is going to develop,” she said. But “I'd say online is going to get there on the merits -- OVDs are going to seek out the best possible distribution.” The benchmarking condition takes a programmer to “test the water first,” Bergmayer said. “Some companies aren’t going to want to come forward until the kinks that are right now being worked out, are worked out.” It’s “too early to see what the benchmarking condition will do,” though he said “a better way to promote online video would have been to not approve the merger to begin with.” For Wood, it’s the “middle of this long shaking out period” among OVDs, and “it does seem like there are some different business models and the incumbents’ business model is not far and away outstripping the others,” he said. “We're in a delicate but still good place to give competitors a chance to come in and compete.”