Comcast-NBC Deal Won't Stop Cable Price Hikes

Dec. 4, 2009 — -- Anyone who hoped that Comcast's takeover of entertainment giant NBC Universal would slash cable prices is in for a disappointment. In fact, the cable distributor now has more power to keep prices high and limit free access to NBC shows online.

"Comcast is hostile to the open, free models that NBC has been supporting for many years," said Colin Dixon, a media analyst at Diffusion Group. "That should be a serious cause for concern."

NBC airs network programs such as "The Biggest Loser" and "The Office" for free to anyone with a television, while also offering cable shows from the Bravo and USA channels for free on the Hulu Web site. Comcast, on the other hand, is a cable provider that makes most of its money from distributing content over cable lines in return for a monthly subscription fee. It's only natural, Dixon and others said, for Comcast to want to maintain a tight grip on subscribers.

"A cable operator doesn't make any money when a channel distributes its content for free," said Dixon. "It's in their interest to try to make that content pay and make it difficult to get."

Comcast announced plans Thursday to buy 51 percent of NBC Universal from General Electric for $13.75 billion. The deal gives Comcast, the country's largest cable distributor, control of NBC, Telemundo, more than 20 cable channels and the Universal Pictures movie studio.

Some consumers hope that the merger could result in lower cable bills, now that Comcast can negotiate lower rates for NBC content. But analysts say that's not likely to happen.

"This is not about getting cheaper content," said Craig Moffett, a media analyst at Bernstein Research. Instead, he said, the merger is meant to help Comcast tap into new revenue streams.

In fact, Comcast has little power to set the prices it pays to NBC for content, unless it's also willing to lower prices for other buyers such as Time Warner Cable and Verizon.

"The parent company could flex their muscles, but it doesn't want to weaken NBC's ability to get a higher fee from someone else," said Greg Ireland, a research manager at IDC. In addition, because the television industry is closely regulated by the Federal Communications Commission, any attempt at gaining an unfair competitive advantage will raise red flags.

The deal comes at a time when cable companies are beginning to lose leverage because more consumers are getting their content for free on the Internet. It is sure to highlight the ongoing struggle between distributors and programmers for Americans' dollars.

Because of the recession, programmers such as NBC, ABC, HBO and Fox have seen advertising revenues drop. To replace the lost income, programmers have begun asking cable distributors for a higher cut of subscription revenues.

Time Warner cable, which has several contracts – with Fox and The Weather Channel, among others -- expiring at the end of the year, says that some programmers have asked for fee increases of up to 300 percent. As a negotiating tactic, programmers often pull shows from a distributor, which makes viewers angry at their cable providers.

"When a programmer comes to us and asks us for a 300 percent price increase for their content, that's what causes your cable bill to go up," says Alex Dudley, a spokesman for Time Warner Cable, arguing that programmers already get their fair cut.

Last year, Time Warner received $16.3 billion from subscribers, and paid $3.7 billion – almost a quarter – to companies such as News Corp (which owns Fox) and NBC Universal. While that seems like a small percentage, Dudley points out that maintaining a national network of cables and wires to deliver the content is pricey.

"It's an ongoing war. Distributors want as much of the money as possible, and the people who create the content want their share," said Carl Howe, director of media consumer research at the Yankee Group. Consumers, meanwhile, are being squeezed on both sides.

"The only way your cable bill will go down," said Howe, "is if you cancel your service."