Web TV could come with a price tag after Comcast-NBC

NEW YORK Sun Oct 4, 2009 3:04pm EDT

An NBC Universal logo is pictured at the NBC Universal Summer press tour in Beverly Hills, California July 21, 2008. REUTERS/Fred Prouser

An NBC Universal logo is pictured at the NBC Universal Summer press tour in Beverly Hills, California July 21, 2008.

Credit: Reuters/Fred Prouser

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NEW YORK (Reuters) - Free TV shows on the Internet could be harder to find if Comcast Corp succeeds in acquiring a majority stake in NBC Universal.

Comcast would become a partner in Hulu, the video website which allows viewers to watch TV shows on the Web for free, a business potentially worth billions of dollars if consumers had to pay to watch the shows.

The video website is jointly owned by NBC Universal, News Corp and Walt Disney Co. Hulu is the most popular site in the United States for watching TV shows, according to comScore.

Comcast is in talks with General Electric Co, to buy 51 percent of NBC Universal, which would allow the cable operator to combine its cable assets with NBC's cable networks, movie studio and theme parks, according to people familiar with the talks.

Cable operators have downplayed investor fears that customers will drop cable for free TV on the Web. But privately they've warned TV networks they may stop paying affiliate fees if free TV shows keep cropping up on the Web.

Hulu had nearly 40 million unique viewers in August, web measurement company comScore said. That is more than Comcast's 24 million paying subscribers, which account for about $5 billion a quarter in revenue.

"We suspect Comcast believes it needs content to protect its landline distribution platform," Richard Greenfield, analyst at Pali Research, wrote in a note to investors on Friday. "It wants to mitigate the risk of becoming that scary 'dumb' pipe."

Comcast, the largest U.S. cable operator, has approached the Web's free TV threat by getting behind a service called TV Everywhere with Time Warner Inc. The idea behind TV Everywhere is to allow consumers to watch shows on the web -- so long as they are paying cable subscribers.

"This deal (Comcast-NBC) has major implications on the success of TV Everywhere," said Thomas Eagan, an analyst at Collins Stewart. "Comcast may decide to change Hulu to some degree to facilitate a premium Hulu service much faster."

Comcast has even tried to match Hulu with its own free TV website, Fancast. But while Hulu has come from nowhere to become the sixth most visited video site in the U.S. in just 18 months, Fancast hasn't even cracked the Top 10.

"Hulu was started by NBC and Fox so they could compete with Comcast. So this is a defensive move to some extent by Comcast," said Kaufman Bros. analyst Todd Mitchell. "Hulu will just become another choice of Comcast's pay-TV buffet."

If Comcast has a stake in Hulu's future, as Mitchell suggests, it effectively reduces competition to the cable sector.

Since web video is still a fledgling sector, however, it is unlikely to raise the hackles of U.S. regulators, said analysts.

Indeed, the Federal Communications Commission is likely to focus on other concerns if General Electric Co, which controls NBC Universal, decides to sell a 51 percent stake to Comcast, as sources have said the two sides are talking about.

Namely, the FCC may be concerned about combining NBC Universal's national broadcast network, NBC, and its huge range of cable networks, like Bravo and USA, with the largest cable operator in the country.

Paul Gallant, a telecom regulation analyst with Washington-based Concept Capital, said the deal would likely be approved by antitrust regulators and the FCC.

"The primary reason is that the two companies do not have a great deal of product overlap, and thus the competitive concerns appear to be fairly limited," Gallant said.

Gallant said the FCC already has program access rules that ensure that cable operators who own programming sell it to competitors at reasonable rates.

TV operators such as DirecTV Group, DISH Network, Verizon, AT&T may ask the FCC for a more effective enforcement process.

"Should the FCC pursue this angle, it could potentially hinder Comcast from realizing the full value of NBCU's programming," Gallant said.

(Additional reporting by John Poirier in Washington; Reporting by Yinka Adegoke; Editing by Carol Bishopric)

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