Net neutrality is Comcastic! Or not.

The Media Wonk co-produced and moderated the panel discussion at the first Digital Breakfast DC event on Thursday and if you missed it, boy did you miss some first-class jaw-boning over net neutrality, fair use and the mysteries of HADOPI. Not to mention chance to practice your skills at balancing a bagel and fruit plate atop a cup of coffee with one hand, while handshaking and schmoozing with the other. There was some genuine talent in the room in that category, let me tell you.

fcc-sealOne person who was scheduled to be there but wasn’t was Rick Cotton, general counsel of NBC Universal. Cotton’s office sent word on Monday that he would likely have to cancel his planned trip to DC this week because, “something had come up,” back in NY so he wouldn’t be able to make the panel. They didn’t say what the “something” was but when the first reports of talks between GE and Comcast over a deal involving NBC broke Wednesday night two and two seemed to come together neatly to equal four (for the record, his office cautioned against putting two and two together).

While it was unfortunate that Rick couldn’t make it (thanks again to Michael O’Leary of the MPAA for stepping in at the last minute), if his absence was in fact related to the reported Comcast talks it at least was on topic. Among the issues discussed by the panel was the FCC’s recently announced plans to conduct a formal rule-making on net neutrality, and in particular chairman Julius Genachowski’s proposal that in enshrine a “principle of non-discrimination”:

This means they cannot block or degrade lawful traffic over their networks, or pick winners by favoring some content or applications over others in the connection to subscribers’ homes. Nor can they disfavor an Internet service just because it competes with a similar service offered by that broadband provider. The Internet must continue to allow users to decide what content and applications succeed.  

Should Comcast gain control over NBC Universal’s programming assets, it would raise a host of net neutrality and non-discrimination issues. NBC, for instance, owns one-third of Hulu and all of NBC.com, sites whose monetization strategies depend on being a preferred source of NBC content online. NBC U also owns multiple cable TV networks, including USA Network, Bravo, CNBC, MSNBC and Sci Fi. Much of NBC’s cable content is not available online, in part due to the concerns of cable operators, like Comcast. That calculus could change, however, if Comcast controlled those networks. Instead of fearing over-the-top competition from broadband delivery of USA and CNBC, Comcast would have a strong incentive to make that content available online, at least to Comcast cable subscribers, and to treat those bits preferentially on its broadband platform.

Image: P2PNet.net

Image: P2PNet.net

That sort of vertical integration between cable networks and broadband providers, moreover, would likely raise new questions about the anti-competitive effects of TV Everywhere, which may be beyond the domain of the FCC but not of the FTC and the Department of Justice, who would likely have to review any deal between Comcast and NBC U anyway. On what sort of terms, for instance, might Comcast make CNBC content available to other broadband providers? Inquiring minds would likely want to know.

In fact, what the FCC and other federal agencies ultimately do with respect to net neutrality, TV Everywhere and broadband/content M&A deals generally is likely to have so great an impact on NBC’s long-term value to Comcast it’s hard to see how the companies can put a price on the deal in today’s dollars. That may be one reason they appear to be contemplating some sort of merger of assets, with minimal cash or equity, within a 51/49% joint venture. (That, and the fact that Comcast investors are already hammering the stock at the prospect of a heavily leveraged cash deal or a highly dilutive equity swap.)

Yet whatever valuation the parties might ultimately come up with, it’s clear the proposed deal is not being driven by NBC’s broadcast assets. This is a deal about exploiting NBC Universal’s programming assets on Comcast’s cable and broadband platforms. I wonder, in fact, whether Comcast would even have any use for NBC’s O&Os, for instance, which are suffering anyway under the ad slump and would only create a channel conflict for Comcast’s cable and broadband content plans.  

While I believe there are plenty of good reasons for the FCC to address the issue of net neutrality, I have to admit its a bit awkward that an agency originally created to regulate broadcast spectrum could end up having an out-sized influence on the value of a deal in which broadcasting is largely an afterthought. We’ve come a long way.

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