Thursday, March 01, 2012

Commitments and Conditions in the Comcast-NBC Universal Transaction

I believe that commitments, once made, should be kept.
And I believe the FCC's transaction review process needs reforming.
These two beliefs of mine were called to mind in recent days by two events: (1) Comcast-NBC Universal's filing with the Federal Communications Commission detailing its compliance with the conditions imposed when the agency approved the combination of the two companies in January 2011; and (2) the controversy that has broken out concerning implementation of the online video distribution condition by the FCC. (I may refer to Comcast-NBC Universal here as "Comcast." Don't worry, it is just shorthand.)
With respect to the first point, even a cursory review of Comcast's compliance report indicates the company appears to have gone "above and beyond" in its efforts to comply with the FCC's conditions. Comcast's efforts, in many instances costly, regarding expansion of local news programming, children's programming, broadband deployment and adoption, carriage of new independent networks, and so forth, are impressive.
I haven't gone back over all of the FCC's lengthy approval order, and the more than twenty-five pages of fine-print conditions. And absent someone holding a gun to my head, I won't, at least not now. But it certainly appears as if Comcast has kept its commitments. Keeping commitments, once made, is commendable.
Now, as to the second point, regular readers of this space know that I have serious, long-standing concerns regarding the way the FCC reviews license transfer applications. I've written often over the years about what I see as the frequent, unprincipled abuse of the review process. Here's a Legal Times piece, "Any Volunteers," from 2000, and here's one, "Reform the Process," from the National Law Journal published in 2005. There are many other more recent pieces I've written too.
In essence, the FCC uses the vagueness of the "public interest" standard, under which it reviews transactions, to impose conditions that are not closely related to core concerns implicated by the specific transaction and which should be considered, if at all, in generic rulemaking proceedings. As decision time for the FCC draws nigh, the applicants (supplicants, really) offer up so-called "voluntary" commitments that then are adopted by the FCC as conditions in the order approving the transaction. In other words, the agency engages in "regulation by condition." Just look at the plethora of various conditions extracted in connection with approval of the Comcast-NBC Universal transaction.
Speaking of which. When the FCC was considering the Comcast-NBC Universal transaction, I published an essay, "The FCC Risks Over-Conditioning the Comcast-NBCU Merger," criticizing the online video distribution condition the Commission was considering extracting from the applicants as the price for transaction approval. I called the online condition "problematical," especially with regard to requirements that Comcast's proprietary programming assets be shared with unaffiliated entities on "non-discriminatory" terms, and that "comparable programming" be made available to online distributors at "economically equivalent prices." In my view, such mandatory sharing conditions at government-reviewed prices, in a market as effectively competitive as the video distribution market, have the effect of stifling investment in new programming assets. And conditions that depend on the exercise of broad discretion to decide whether programming is "comparable" to other programming, and to decide whether such programming is offered at "economically equivalent prices," invite government-sanctioned favoritism for some entities over others under the guise of leveling playing fields. And, importantly, such decisions examining programming for "comparableness" are constitutionally suspect as well under the First Amendment.
So, one predictable result of such a regulatory regime is the likelihood of lots of implementation disputes concerning comparable programming and equivalent prices. Comcast-NBC Universal presently is engaged in one such (preliminary) dispute with unaffiliated content programmers regarding Comcast's ability to access licensing agreements the content providers have with other video distributors. The present dispute concerns fashioning a confidentiality agreement under which the details of the licensing deals will be disclosed to Comcast so it can determine for itself the terms on which it must offer "comparable" programming.
I don't have any interest here in opining on the current dispute, except to say that such controversies, and there are likely to be many more, were all quite foreseeable. And they were avoidable, because, in the context of video marketplace competitiveness, there was no evidence – as opposed to mere supposition -- that the costs imposed by the online video condition would not outweigh its benefits. As I pointed out in the January 2011 "Over-Conditioning" piece, "the commissioners should be acutely aware of the limits of their ability to predict future marketplace developments."
Well, I can't say that since then the commissioners have become acutely aware of their limits in predicting future marketplace developments. And I can't say the FCC transaction review process has been reformed – not yet.
But I can say that it looks like Comcast-NBC Universal is meeting the commitments it made, and that's something worth noting, and saying too.