UPDATE 1-U.S. probes cable TV barriers to Internet video

Wed Jun 13, 2012 7:21pm EDT

* Justice investigating programming deals, Internet caps

* Comcast's NBC acquisition probed for breaches

* Netflix complained Comcast blocking competing services

By Ronald Grover

LOS ANGELES, June 13 (Reuters) - The U.S. Department of Justice is investigating whether cable television companies are improperly suppressing competition from Internet companies and online video services, according to two people with direct knowledge of the probe.

The wide-ranging probe centers on cable companies' long-standing practice of bundling channels into a single package and requiring subscriptions to access certain online content, one of the sources said on condition of anonymity because the inquiry has not been made public.

Justice Department investigators are also examining whether Comcast violated a 2011 consent settlement under which the cable operator is prohibited from "unreasonably discriminating in the transmission of an online video distributor's lawful network traffic," according to the second of the sources, who has knowledge of the government's information collection.

"I've been saying to myself that the cable companies are in trouble. Who needs TV?" said John Briggs, an antitrust attorney with Axinn, Veltrop and Harkrider LLP. "Any program I like is probably on Netflix."

The investigation also encompasses the industry's practice of inserting "most favored nation" clauses into contracts, which secure for cable operators the lowest prices on content, according to the second person.

Justice Department officials will additionally look at the use of caps to limit the amount of data consumers can download each month, a practice that online competitors such as Netflix have complained would block adoption of data-intensive services, according to the Wall Street Journal, which first reported the investigation.

Earlier this year, Netflix Chief Executive Reed Hastings complained in a Facebook post that Comcast - the No. 1 cable services operator - gave its own Xfinity video service priority over online services offered by Netflix, Hulu and others.

Comcast has since lifted "caps" on how much capacity its users can employ monthly, the core of Hastings' complaint.

"We have consistently treated all video carried over the public Internet the same whether it comes from our sites or anywhere else on the public Internet," the cable operator said in a corporate blog at the time it changed its policy.

Comcast and the Justice Dept both declined to comment on Wednesday.

The cable operator has spent $4.6 million on lobbying so far this year, more than any other technology company aside from Google, which has spent $5 million, according to the Center for Responsive Politics.

The five largest media companies, including content producers such as Walt Disney and cable operator Time Warner Cable, spent $10 million to influence Washington. The five largest technology companies, including Apple and Microsoft, spent a combined $8 million.

Cable operators were receiving letters requesting they meet with Justice Dept as recently as two weeks ago, said one of the sources.

"The Department of Justice has a specific hook sunk deep into Comcast, which is their consent decree," said Mark Cooper, director of research at the Consumer Federation of America. "They are a leader in broadband. It is fully understandable that they are going to test the limits."

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