April 27, 2010, 12:30 AM EDT
By Todd Shields and Adam Satariano
April 27 (Bloomberg) -- U.S. regulators may use their veto power over Comcast Corp.'s planned purchase of NBC Universal to demand concessions that help Web startups, analysts say.
The Federal Communications Commission extended its review of the deal this month, in part to assess the effect on online video services. The FCC may bar Comcast, the largest U.S. cable service, from interfering with Web video startups such as Roku Inc. and Boxee Inc. or from denying them NBC shows or films.
Internet programming is just taking hold as this merger comes before the government, said Paul Gallant, a former FCC aide who is an analyst for Concept Capital's Washington Research Group. The agency may consider declaring that Internet TV companies have program access rights like satellite services.
An April 6 court ruling undermined FCC efforts to regulate the Internet policies of companies such as Comcast, according to Rebecca Arbogast, a Washington-based analyst for Stifel Nicolaus & Co.. That leaves the NBC merger review as a way for the agency to push policy goals, she said in an interview.
Sena Fitzmaurice, a Comcast spokeswoman in Washington, declined to comment for this story. Rules that require Philadelphia-based Comcast to sell programs it owns to services such as Dish Network Corp., DirecTV and Time Warner Cable Inc. shouldn't be extended to Web companies, company officials said in response to questions from a U.S. Senate committee.
Boxee and Roku, both closely held, use the Web to stream movies and shows that viewers watch on demand with PCs or TVs. They need shows and films that generate pay TV revenue of $32 billion a year for studios, according to researcher SNL Kagan, as well as access to broadband networks. They want some of the $121 a month that the average Comcast user pays for TV.
A Roku box, starting at $80, lets Netflix Inc. subscribers stream rented movies from the Web to a TV. Boxee's free software allows people to view material from YouTube, Comedy Central or MLB.TV on their TVs. To attract more customers, the companies say they need more content.
The FCC will thoroughly consider all the important issues that have been raised or will be raised about the Comcast-NBC transaction, Chairman Julius Genachowski said in testimony at a Senate Commerce Committee hearing on March 12. The agency determines whether such mergers are in the public interest and can demand binding conditions. The FCC censured Comcast in 2008 for blocking customers using peer-to-peer software that can be used to share videos. The U.S. Court of Appeals for the District of Columbia Circuit said on April 6 the FCC lacked authority over Comcast's Web practices in a setback for the agency's net neutrality agenda.
Netflix, the movie-rental service with 14 million subscribers, said in a January letter to regulators net neutrality rules were needed to prevent Internet service providers such as Comcast from restricting its service.
In an interview last week, Netflix Chief Executive Officer Reed Hastings said the merger was unlikely to affect his company directly.
While the Web lets people choose when and what they want to watch, the government needs to classify it as a distribution platform with the same access to shows as cable and satellite services, said Avner Ronen, CEO of New York-based Boxee.
Studios may be reluctant to upset lucrative relationships with pay TV services, Ronen said.
There is a real concern among media companies that being more aggressive on the Internet would cause the cable companies to use their muscle, said Ronen, whose company announced a deal on April 19 to show professional hockey on its service. Roku recently signed a deal for professional basketball.
Comcast agreed in December to acquire a majority of General Electric Co.'s entertainment division, which includes NBC TV, Universal Pictures and television, and cable channels including USA Network, SyFy and Bravo. The company will pay $6.5 billion in cash and contribute its own cable channels to the business.
The combined company will have no enhanced ability or incentive to refuse to sell NBCU content, Comcast and NBC said in a filing with regulators. Withholding programming would cause the new company to lose money without drawing viewers from competitors, they said.
The FCC should ensure Web companies have equal access to licensed material, like a cable operator, and bar Comcast from restricting bandwidth based on how it is being used, said Anthony Wood, CEO of Saratoga, California-based Roku.
Comcast's purchase of NBC is an indicator that they are worried about the fact that distribution of content is moving to the Internet, Wood said. Their video distribution is at risk. The shift is happening whether they buy NBC or not.
In February, NBC Universal head Jeff Zucker was questioned by U.S. lawmakers about Boxee's loss of access to programs on Hulu.com, the online video site NBC co-owns with Walt Disney Co. and News Corp.
Zucker said Hulu management cut off Boxee because it was illegally displaying shows without any business deal. In a response on his blog, Ronen said Boxee is a supplier of a browser like Internet Explorer and doesn't violate copyrights.
Internet operators have the means and motive to discriminate against new ventures that might threaten their revenue, Los Gatos, California-based Netflix said in filing on net neutrality. Cable companies can also leverage significant content purchasing power, Netflix said.
Comcast doesn't try to prevent studios from selling shows to Web companies, the company said in answers to questions from a Senate committee. The company limits rights for certain full episodes of cable shows to be distributed free at the same time, or shortly after the shows are shown on cable.
--With assistance from Kelly Riddell in Washington. Editors: Rob Golum, Ville Heiskanen
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