Merger May Get an OK, but After Heavy Scrutiny

Looser media ownership rules might make it easier for Comcast Corp. to secure a federal blessing for its $51-billion bid for Walt Disney Co., but not before regulators, lawyers and politicians give the deal a good thumping.

The government’s top regulator told Congress on Wednesday that the proposed union would get a thorough review.

“A merger of that magnitude will undoubtedly go through the finest filter ... possible,” said Federal Communications Commission Chairman Michael K. Powell, who has spearheaded the Bush administration’s relaxing of media ownership rules.

As Powell spoke in Washington, though, lawyers here in Comcast’s hometown complained bitterly to a federal appeals court that cable companies like Comcast routinely receive less government scrutiny than other media companies.

Comcast’s unsolicited bid for Disney coincidentally fell on the same day that the U.S. 3rd Circuit Court of Appeals heard a legal challenge to FCC rules that make it easier for media companies to merge and consolidate.

The rules, crafted last summer, have been criticized by Congress and others who fear a few big media companies will control the nation’s news and broadcast outlets.

If successful, Comcast’s bid for Disney would make it the world’s largest media company based on revenue -- surpassing Time Warner Inc., which won regulatory approval for its 2001 merger with America Online.

Against that backdrop, some experts said any deal between Comcast and Disney would receive a closer look in Washington than it otherwise might have.

“There has been in the past a reluctance to regulate cable like TV, but I think the cable industry is finally getting caught up in the political fervor over media concentration as well as questions about indecency in the media,” said Yale M. Braunstein, an economics professor at UC Berkeley. Braunstein once served on an FCC task force that examined federal regulation of the cable industry.

Under normal circumstances, Braunstein and others said, the deal would not attract tough government scrutiny because Comcast and Disney don’t directly compete.

Comcast is the country’s largest cable company with 21.5 million subscribers.

Disney owns theme parks and studios as well as 10 television stations and more than 60 radio stations.

Antitrust enforcers are expected to examine whether the proposed combination would raise TV advertising rates in markets where Disney owns television stations and Comcast has the cable franchise. They also will look at whether a merger would hinder competition in program production and distribution.

“I think Comcast is going to face some difficulty,” said Thomas W. Hazlett, a fellow at the Manhattan Institute, a conservative think tank. “Politically the atmosphere has become very charged.... There’s the media ownership issue, it’s an election year and the Bush administration desperately wants to appear tough on corporate issues.”

Already Wednesday, congressional critics of media consolidation were criticizing the deal.

“Good God, when are we going to stop?” Sen. Ernest F. Hollings (D-S.C.) asked. Said Sen. John McCain (R-Ariz.): “How much is too much?”

Ultimately, said Scott Cleland, chief executive of the investment firm Precursor Group, a deal is “highly likely to get approved.”

Regulators might impose conditions on the deal the way they did last year with News Corp.’s acquisition of El Segundo-based DirecTV, the largest satellite TV service. For instance, the FCC might demand that Comcast and Disney not withhold movies or other content from rival cable systems.

“The consumer groups hate it, and politicians concerned about media concentration will hate it,” Cleland said. “But that won’t stop it.”

Bloomberg News was used in compiling this report.