Comcast, NBC And The Future Of Online Video

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Cable giant Comcast is being accused of anti-competitive behavior. Its accuser, Level 3 Communications, helps Netflix deliver movies to computers in the form of streaming video. And Level 3's argument is this: Comcast, they say, is imposing a new fee on online video distributors, putting them at a competitive disadvantage with the company's own online video service. Comcast denies the charge.

And as Joel Rose reports, the disagreement highlights the growing importance of online video.

JOEL ROSE: Online video is a growing industry that includes Netflix and Hulu, among other players. And it's one of the key issues federal regulators are considering as they decide what conditions to place on the $28 billion mega-merger of Comcast and NBC Universal. Here's outgoing NBC CEO Jeff Zucker at a public event earlier this month.

Mr. JEFF ZUCKER (CEO, NBC): I think we're in the end game of the regulatory process here. I think the big issue is the future of online video, and what are going to be the conditions on the deal, really, around that.

ROSE: Online video was a relatively minor concern a year ago, when Comcast announced plans to buy NBC. But that changed over the spring and summer, when the pay TV industry suffered its first down quarters ever. The economy certainly had something to do with that. But part of the drop may be the result of so-called cord cutting: the practice of dropping your cable or satellite subscription, and watching video over the Internet instead.

Sanford Bernstein analyst Craig Moffett says regulators are definitely paying attention.

Mr. CRAIG MOFFETT (Analyst, Sanford Bernstein): This idea that the next generation of competition for the pay TV operators is going to come from the Web is front and center of everyone's mind in Washington. And that's what they're trying to get to the bottom of when they set conditions on the Comcast deal.

ROSE: Comcast is already a big player in online video.

(Soundbite of television ad)

Unidentified Man: The most movies and shows on demand and now, online. Welcome to Xfinity, only from Comcast.

ROSE: Subscribers to the company's Xfinity service can watch lots of shows and movies on their computers as long as they keep paying their cable bills. So Comcast has an incentive to keep its own customers happy - and perhaps an incentive to undermine its competitors.

Ms. GIGI SOHN (President, Public Knowledge): People are very, very concerned that Comcast will use its ownership of must-see programming to hurt a nascent industry.

ROSE: Gigi Sohn is the president of Public Knowledge, a non-profit group in Washington, D.C. After the merger, the country's biggest cable company would also control some of the most popular cable channels, including MSNBC and USA. Sohn and others worry that Comcast will use its power to raise the price its competitors have to pay to carry those channels - competitors that include so-called over-the-top video companies, like Netflix and Amazon Unboxed, that deliver TV shows over the Internet for a fee.

Ms. SOHN: Our greatest fear is that this Comcast merger will cause such a behemoth to be created, that they will have the incentive and the ability to kill over-the-top video in its crib, before it becomes a true competitor.

ROSE: There's another way Comcast could hurt its online competitors: by charging them extra fees to reach consumers. That's exactly what the company, Level 3, which delivers streaming video for Netflix, accused Comcast of doing yesterday. Comcast officials deny that charge, but declined to be interviewed for this story.

In filings with the Federal Communications Commission, Comcast argues that online video companies are doing fine and don't need special protection to survive, but there is a precedent. Comcast's existing competitors, like Satellite TV, do get protection from anti-competitive practices.

Analyst Craig Moffett says federal regulators have to decide if those kinds of rules apply to online video, too.

Mr. MOFFETT: That's a very, very interesting question because up to now, legally, we have never classified online competitors as that - as competitors. And we haven't thought through those issues economically because they haven't come up before.

ROSE: Now, regulators have to answer that question in the context of a high-profile merger, one Comcast executives hope to complete by the end of the year.

For NPR News, I'm Joel Rose in Philadelphia.

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