The proposed marriage of Comcast Corp., the nation's largest cable and broadband provider, with NBC Universal, a Hollywood powerhouse, presents the Obama administration with its first big chance to weigh in on the controversial issue of media consolidation.
The deal, announced with fanfare Thursday at NBC Universal's Rockefeller Center headquarters in midtown Manhattan, had politicians and consumer activists calling for an intense review in light of the perceived market domination the new entity would enjoy when it comes to ownership and distribution of movies, TV shows and cable networks that get piped into the home.
Comcast and NBC Universal are not head-to-head competitors, and their merger does not trigger significant antitrust issues. Nevertheless, the combined company represents complementary businesses joining forces to create a vertically integrated juggernaut that represents a formidable video gateway reaching consumers over the air, through cable and on the Internet.
"People are going to look at this as a litmus test for how aggressive the new administration is going to be in reviewing big deals," said Christopher Kelly, an antitrust specialist at the law firm of Mayer Brown and a former senior counsel at the Department of Justice. "You've got this major cable company acquiring this iconic content provider, and people's instinctive reaction to a deal like this is that the administration should look at it hard."
The $30-billion merger would create a leviathan rivaling media giants Walt Disney Co., News Corp., Time Warner Inc. and Viacom Inc. It would bring under one roof Comcast's cable systems, which reach almost 25% of homes in the country, with NBC Universal's broadcast networks NBC and Telemundo, the Universal movie studio, 26 television stations and more than 30 cable channels, including CNBC, USA, MSNBC and Bravo.
A recent analyst report sketched the effects of the merger in stark terms: Comcast-NBC programming would account for 20% of all viewing hours in the United States. Comcast itself says it would own one of every seven channels.
Before taking office, President Obama expressed concern about the concentration of media among a handful of companies and the need to strengthen antitrust enforcement. Federal Communications Commission Chairman Julius Genachowski, who was chosen by Obama, said during his Senate confirmation hearing in June that "excessive consolidation is still something that I think needs to be paid attention to."
A spokeswoman for Genachowski said the FCC would "carefully examine the proposed merger and will be thorough, fair and fact-based in its review."
FCC Commissioner Michael Copps, an outspoken critic of media consolidation, warned Comcast and NBC Universal that approval of the deal would "face a very steep climb with me."
Comcast, prepared for a snowballing backlash, has been busily organizing an offensive. In a letter sent to key lawmakers and regulators aimed at squelching concerns over the acquisition, the company billed the merger as "pro-competitive, pro-consumer and strongly in the public interest."
Comcast Chief Executive Brian Roberts, no stranger to the hurdles that big companies face when seeking to expand, expects conditions to be placed on the deal.
But he said Thursday that he believed it was an "approvable transaction."
Others beg to differ.
"No entity should have control over such a large audience," Andrew Schwartzman, president of Media Access Project, a media watchdog and public interest law firm, said in a statement. "It's the most important merger since Lucy married Desi."
Gigi Sohn, president and co-founder of the advocacy group Public Knowledge, said, "The combination of the country's largest cable company, a TV network and a movie studio could present grave dangers to a free and open Internet."
Sen. Herb Kohl (D-Wis.), who chairs the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, promised that hearings on the deal would be held.
"This acquisition will create waves throughout the media and entertainment marketplace, and we don't know where the ripples will end," Kohl said.
Also looking to hold hearings is Rep. Henry A. Waxman (D-Beverly Hills), chairman of the House Energy and Commerce Committee.
"This proposal raises questions regarding diversity, competition and the future of the production and distribution of video content across broadcasting, cable, online and mobile platforms," Waxman said.
Hearings on the deal could begin before year-end.
Anticipating such concerns, Comcast made promises that it hopes will assuage lawmakers that it won't use its market power in an anti-competitive fashion.
Among the commitments Comcast made are to keep NBC as a broadcast network and to not influence news coverage by the network or its cable channels to advance its own corporate interests. That echoes similar pledges General Electric Co. made when it bought NBC in 1986.
Comcast also said it would obey current regulations and not withhold its own channels from rival TV service providers such as satellite broadcaster DirecTV and Verizon FiOS.
On the programming front, Comcast said it would increase local news programming and commit to providing more quality children's programming on NBC stations. Comcast is already a partner with PBS in Sprout, a children's television cable channel.
Despite all the concerns in Washington about the merger, there appears to be few regulations on the books that would derail the deal.
Although the acquisition puts a lot of assets into one company's hands, the Comcast-NBC deal is not a case of two direct competitors merging -- and Washington insiders expect the pact to get through the regulatory maze relatively unscathed.
Part of the challenge for regulators wanting to put their stamp on the Comcast-NBC partnership is that many of the rules that used to govern so-called traditional media have been relaxed or lifted, leaving fewer regulations in place for the digital age that the industry is now entering.