Hulu, the FCC and the Law of Unintended Consequences

Online Video The FCC added a bit of an unexpected twist to its conditioned approval of Comcast’s bid to take control of NBC Universal announced Tuesday. According to the FCC press release, the order approving the deal will stipulate that NBC must give up all  involvement in the management of Hulu, the joint venture among NBC, ABC and News Corp. (Comcast will be able to retain its 30 percent equity stake). Hadn’t seen a lot of speculation around that prior to today’s announcement.

We might already have seen one of the effects of that stipulation, however, without realizing it at the time. The Wall Street Journal reported last month that Hulu has shelved plans for an IPO, at least for the foreseeable future. The main stumbling block, according to the Journal, was the networks’ refusal to sign the sort of long-term licensing deals for their content that Hulu would need to secure a decent valuation in an IPO.

Obviously, Comcast and NBC have been in discussions with the FCC for the better part of a year, so they clearly knew the provision barring NBC from involvement in decision-making at Hulu was likely to be in the final order. Could that have been enough to scare NBC off from granting Hulu the long-term licenses it needed?

Even after the planned IPO, NBC, ABC and News Corp. were expected to maintain equity stakes in Hulu and have some ongoing role in its management and strategic direction of the company. If barred from that role by the FCC, however, NBC could well have concluded that granting the long-term licenses was simply too risky. Once NBC put the kibosh on the licenses to its own content it would have been much easier for ABC and Fox to follow suit.

One wonders if that were really the outcome the FCC was aiming at, however. Without access to more capital, such as through an IPO, Hulu will be unable to secure the rights it needs to become more than a nice, little catch-up TV service for free broadcast content on a short leash. With an IPO off the table it’s not immediately clear where that capital will come from now.

The FCC is clearly and laudably anxious to encourage the development of a robust online video market. But a robust business requires capital. And the FCC may just inadvertently chased some away.

One other note: The full text of the FCC’s order has yet to be released, so details are still to come on some of the conditions outlined in the press release. Can’t wait to see the full definition of a “bona fide online distributor,” of the sort that will now be guaranteed “the ability to obtain Comcast-NBCU programming in appropriate circumstances.”

Presumably, a “bona fide online distributor” is one that does not engage in or tolerate online piracy. But much could turn on what other criteria one must meet to be “bona fide.”

Further reading:

Comcast Will Retain NBC’s Stake in Hulu But Be Stripped of Control

Copps: Comcast/NBCU ‘Damaging and Potentially Dangerous’

Public Knowledge Offers Praise for FCC Ruling on Comcast-NBC

Catastrophe: The FCC Approves Comcast-NBC Merger