Comcast-NBCU Rules to Frustrate OTT Players
As Comcast EVP David Cohen explained to reporters Tuesday afternoon soon after the Federal Communications Commission (FCC) and Department of Justice approved the deal, there are a number of rules, remedies and circumstances that OVDs will have to abide by as well.
And they won't be happy about them if they thought the government would create conditions that would easily let them strike deals for all (or at least some) of the content owned by the new joint venture, which will be 51 percent owned by Comcast, and 49 percent owned by General Electric.
Cohen explained that the conditions create "two doors" that OVDs can open in their pursuit of NBCU content -- the "Benchmark Door" and the "Full Freight Door."
In the Benchmark Door scenario, an OVD that has a content deal with a defined set of NBCU "peers" -- Viacom Inc. (NYSE: VIA), for example -- can get comparable content from NBCU under the same business model, and under similar terms and conditions.
So, if an OVD has a deal with Viacom for music videos or reality content, that doesn't mean it then has similar rights to get scripted dramas or sports content from NBCU. Likewise, if the OVD has an "electronic sell-through" agreement with Turner Broadcasting System, for example, it can't come to NBCU and ask for a content deal involving streaming or on-demand content.
Under the Full Freight option, an OVD without a deal with one of NBCU's peers can ask NBCU for access to its full linear lineup, which is typically made available to more traditional MVPDs (multichannel video programming distributors) such as MSOs, telcos and satellite TV companies.
However, the OVD can't "cherry pick" programs or channels, and would have to pay the same as an MVPD, including affiliate fees, retransmission fees, and other revenues NBCU might stand to lose when its content is delivered online.
And the OVD would be on the hook for any advertising revenue shortcomings, since it's possible that those revenues would be higher in the MVPD format than it would be online. In those scenarios, the OVD could end paying more for that access.
And, due to the financial risks involved, at least one analyst suspects that over-the-top video service providers won't be willing to try out this option right away.
BTIG Research analyst Richard Greenfield estimated in a research note issued Tuesday that a company such as Netflix Inc. (Nasdaq: NFLX), with 20 million subscribers, would have to cough up nearly US$1 billion if it were to pay fair-market rates (including retrans fees and affiliate fees) for NBCU's entire stable, which includes the broadcast NBC channel as well as cable channels such as USA and SyFy. That figure "is far too high (expensive) to make it a reality any time soon," Greenfield predicted.
Also under the conditions, Comcast can't have any managerial control of the Hulu LLC Web video joint venture, but isn't being asked to divest its stake. "We're perfectly satisfied with that," Cohen said, noting that there's no current plan for Comcast to divest its stake.
Nothing in the FCC order prohibits Comcast from delivering "authenticated" video online to cable TV subscribers, so the "TV Everywhere" concept will live on. (See Comcast's TV Everywhere Play Breaks Out of Beta .)
Likewise, NBCU must make its authenticated content available to other MVPDs, so long as they have the requisite security and infrastructure in place to support it.
More detail about the online video conditions is expected later this week, when the FCC issues the order. Cohen said Comcast expects the deal to close by the end of January.
— Jeff Baumgartner, Site Editor, Light Reading Cable