What Comcast/NBCU means for competition

Comcast (NASDAQ:CMCSA) and General Electric (NYSE:GE) made their intentions to acquire NBC Universal official this week, creating a joint venture majority-owned and operated by Comcast. Now the leading cable company essentially owns one out of every five viewing hours on the television. There has been no shortage of anti-competitive concerns and speculation on the implications of the deal for Comcast, but there will also be significant ramifications for Comcast’s pay TV and online competitors.

Regulatory approval of the deal could take up to a year, and opponents such as the Free Press and Consumer Federation of America (CFA) are working to make sure no antitrust considerations are ignored. In a white paper released yesterday, Mark Cooper, research director for the CFA, said that the merger would hurt competition in the traditional video markets as the new entity could leverage its control over content to raise prices for its rivals and, as a result, its customers. He also noted that the merger would hurt competition in the emerging online video market as well. Comcast, the largest residential broadband service provider, teaming up with a content powerhouse that also happens to have substantial interest in online video provider Hulu, there will be powerful motives at play to "starve competing online video sources by denying them access to vital content," he said.

"The pundits who are predicting this merger will be a cakewalk haven’t done a careful analysis of the damage it will do to the competitive fabric of the video marketplace," Cooper wrote. "This merger’s potential to foreclose competition and stifle innovation is significant and real."

For Comcast, which claims it intends to keep the peace, the acquisition was targeted at enhancing its role in the digital and mobile realms. Comcast chair and CEO Brian Roberts told attendees on a media conference call that the two companies merged "will allow us to become a leader in the development and distribution of multiplatform ‘anytime, anywhere' media that American consumers are demanding." But Forrester Research analyst James McQuivey said that what the deal is not intended for is saving cable’s hide by clamping down on runaway digital video content. The future of cable is entirely dependent on digital, as is the future of all media of any sort, he said.

"Parsing the business, trying to separate digital from traditional delivery in the future will be a pointless exercise because there will be no distinction — not in how consumers experience it, not in how devices deliver it," McQuivey wrote in Forrester’s blog. "Whether it comes over the proprietary cable network, over the open Internet, or over a wireless broadband connection — the smartest players know that all content will eventually be digital (even if an analog linear experience persists alongside it for many years, which it will) and should therefore act accordingly, starting today. That's what this acquisition is about."

As far as existing online digital content provider Hulu goes, Roberts said it will be complementary to Comcast’s TV Everywhere initiative. He also said there are no current plans to alter the free, ad-supported business model, although many feel that a subscription or premium service is inevitable. It also announced plans this week to re-launch its OnDemand Online service as a more robust Internet video service, ‘Fancast Xfinity TV.’

For all pay TV providers one of the most significant byproducts of Comcast’s acquisition of NBCU could be that it acts a catalyst to changing the business model for all entertainment, according to In-Stat Research. The firm noted that free-to-air TV is on pace to lose 20% of their average annual revenues and that producing scripted TV programs remains expensive for a business that relies solely on advertising and predictable program licensing fees. Pay TV providers are already beginning to deploy advanced advertising technologies for audience targeting, and In-Stat said that this cable-driven technology will become the de facto standard for pay TV, Internet service providers and even mobile operators.

"With the merger, Comcast will be in the driver’s seat [to] re-tool their business models and optimize revenue streams from subscriptions, pay-per-use, and advertising," In-Stat analyst Gerry Kaufhold said in a release. "The deal would put an enormous opportunity in the hands of the country’s largest cable TV service provider. Over the past decade, Comcast has shown the ability to execute on a very long term vision, and drive that vision forward by creating partnerships within the entire industry."