Susan Crawford on the DOJ and the Comcast Deal

The following entry, analyzing the work being done by the Department of Justice to mitigate the anti-competitve effect of the Comcast/NBC deal, was originally posted by Susan Crawford at Scrawford.net.

The DOJ’s work on the Comcast/NBCU merger is significant. Here’s the press release.

The bottom line is that the US (represented by DOJ) and California, Missouri, Texas, Florida, and Washington states have filed and propose to settle a civil antitrust complaint against GE, Comcast, and NBC Universal.

Their claim is that the proposed transaction would likely reduce competition substantially for long-form video distribution to consumers - giving Comcast leverage to raise its rivals’ cost of doing business. The key element is that DOJ considers “emerging online video distributors” to be part of the pool of future competitors whose interests need to be protected. They may have small market shares now, but their potential competitive significance is huge. (Hulu, Netflix, and Apple are on the list, but the list will eventually be much longer and much more interesting - if DOJ’s platform works.)

DOJ got to this conclusion by interviewing more than 125 companies, reviewing tens of thousands of documents, and consulting with all the experts they could locate. It’s safe to say that there is an enormous cadre of people inside DOJ who now understand the twists and turns of the modern bundled-media distribution market.

DOJ discovered that the growth of these new online video distributors is dependent on “how quickly ISPs expand and upgrade their broadband facilities and the preservation of their incentives to innovate and invest” - and only paranoia-inducing competition will preserve those incentives. DOJ also discovered that the potential anticompetitive effects of the transaction could potentially affect ALL Americans, because of Comcast’s substantial market power in so many key populous areas.

What could Comcast do? It could withhold/charge a lot for crucial NBCU programming (USA, CNBC) from traditional pay-TV distributors as well as new OVDs (new acronym!), making it difficult for them to compete. That would lead to higher prices for consumers. As a tradeoff, Comcast claims that it will be eliminating “double marginalization” (essentially, overhead associated with running two separate customers) and thus saving money by doing the deal. But there’s no guarantee that these cost-savings will be passed along to consumers, and DOJ doesn’t believe these efficiencies over-balance the potential consumer harms associated with the venture.

So, to fix the situation, DOJ is ensuring that OVDs will be able to license the new Comcast’s content. (This will be difficult: “Subject to some exceptions, the JV must make available to an OVD any channel or bundle of channels, and all quality levels and VOD rights, it provides to any MVPD with more than one million subscribers.” The exceptions and the details will be tricky, but remember that hundreds of DOJ employees now get this marketplace.)

Here’s the fascinating part: OVDs will be able to get content from Comcast that is roughly comparable to what the other media conglomerates are licensing. (”JV [required] to license to an OVD, broadcast, cable, or film content comparable in scope and quality to the content the OVD receives from one of the JV’s programming peers.”) This is the “if-Viacom-is-doing-it” clause. If daylight opens - if a big programmer is willing to abandon the cable cabal TVEverywhere scheme online - that will provide the moment for the new competitors to get access to Comcast’s good programming as well.

If disputes can’t get worked out, the parties will go to arbitration, either under the FCC’s process OR (and this is very significant) under DOJ’s own process. And DOJ is empowered to have a judge hear disputes as well. This is a big deal, because FCC’s process will not be the only route for disputes.

There’s more. Comcast has to give up its voting/governance rights over Hulu, has to not retaliate against OVDs, has to not discriminate in the transmission of lawful data over its Internet access service, and subjects Comcast data traffic to the same usage-based-billing caps as other traffic. Comcast can’t gut these provisions by providing “specialized services” that are just filled with Comcast-affiliated content and has to keep its Internet access services at video-quality speeds.

All of this will last for a judicious period:

“[T]he Final Judgment will expire seven years from the date of entry unless extended by the Court. The FCC Order also lasts for seven years. The Department believes this time period is long enough to ensure that the JV cannot deny access to Comcast’s OVD competitors at a crucial point in their development but otherwise short enough to account for the rapidly evolving nature of the video distribution market.”

So here are the questions that immediately arise:

Do these moves by DOJ actually create daylight for online video competition to arise?

How will DOJ’s role with respect to net neutrality/open Internet elements of its own decree work out? They’re not doing this because of the Communications Act - they’re doing this based on their own economic and market concerns. That could be good in the long run.

There are details in the Final Judgment about contractual provisions that will be frowned on - tricks of the trade - but will they actually work?

How will all of this benchmarking work, tying the relief to OVDs to whatever one peer media conglomerate does?

DOJ is trying to wrest daylight for this nascent industry from the darkness the Division apparently thought the deal would create. It’s a big lift. It just might work.