As we close the book on 2009 and ready for 2010, a legal settlement takes us back to 2007 and 2008, when Comcast got into trouble with customers and the feds for throttling peer-to-peer traffic on its network.
Comcast has agreed to pay $16 million to end to a class action lawsuit alleging the broadband provider promised and advertised certain download and upload speeds, but blocked peer-to-peer traffic on its high-speed Internet network.
"Comcast denies these claims, but has revised its management of P2P and is settling to avoid the burden and cost of further litigation," according to the proposed settlement, pointed out to us by Ars Technica.
The settlement, still pending in the United States District Court for the Eastern District of Pennsylvania, goes on to say Comcast will pay up to $16 million, which per share is an amount not to exceed $16. "The settlement is not an admission of wrongdoing by any party."
As for wrongdoing, the Federal Communication Commission sees it a little differently. Comcast is in the process of appealing an FCC ruling finding Comcast's throttling of BitTorrent traffic unlawful. That marked the first time any U.S. broadband provider has ever been found to violate Net neutrality rules. The FCC issued a cease-and-desist order and required the company to disclose to subscribers in the future how it plans to manage traffic.
Comcast had said that its measures to slow BitTorrent transfers, which it voluntarily ended in March 2008, were necessary to prevent its network from being overrun. Comcast later announced plans to reduce Internet service to customers it deems to be using too much bandwidth.
Alec Baldwin fans needn't worry that Comcast will soon pull "30 Rock" or other NBC Universal shows off the Web.
The entrance of NBC Universal's office building at 30 Rockefeller Center.
(Credit: Greg Sandoval/CNET Networks)Comcast managers said Thursday, following the company's announcement it had acquired a controlling stake in NBC Universal, that it will be business as usual at Hulu, the joint venture operated by NBC Universal, News Corp., and Disney.
Ever since rumors of the acquisition began to swirl in September, questions were raised about whether Comcast would try to kill Hulu to discourage cable customers from dropping their subscriptions. Some critics of the deal said Comcast could also limit access of NBC Universal's TV shows and films to other popular distributors, such as Netflix and iTunes. It appears that some of this may happen and some of it may not.
During a conference call, Comcast executives said they anticipate that some content will appear online at Hulu, and other shows will appear on TV Everywhere, the Hulu competitor that Comcast, Time Warner, and other cable companies rolled out last summer.
"Comcast is too deep into their Internet-related investments for me to believe that they are hoping to clamp down on consumer enjoyment of NBC content," said James McQuivey, a digital-entertainment analyst for Forrester Research. "They have spent far too much money buying companies and developing infrastructure to suggest they are going to make it a 'my-way-or-the-highway' distribution scheme. It would be absolutely foolish to buy an expensive property like NBC Universal and then cut the legs off of it."
Hulu's freedom
Okay, so Hulu won't disappear once the acquisition--which still needs government approval--is finalized, but Hulu fans are concerned about how the site will develop. Many had long hoped that the service might one day offer a better selection of full-length feature films and past episodes from hot TV shows. Now, Hulu offers only a smattering of films, and to watch episodes of a TV show from a prior season, a fan must plunk down for a DVD.
Most importantly, Hulu fans want to continue watching without paying subscription fees, which has been discussed publicly by some of Hulu's backers, including Jeff Zucker, NBC Universal CEO.
Free content was the promise that made consumers so giddy about Hulu and YouTube not that long ago. Cable subscribers were thrilled by the possibility that they could watch the best shows and films without having to pay fees. The NBC Universal acquisition is just the latest sign that this dream might be in jeopardy.
Paul Gallant, an analyst at Concept Capital's Washington Research Group told The Washington Post that Comcast could "harm consumer welfare by preventing Internet video from becoming a viable cut-the-chord threat."
"It's a little bit Pollyannish to say 'I can cut cable because everything I want is on the Internet,' because it isn't," McQuivey said.
The big knock on Hulu and other legal video sites is their selection of films and TV shows is still pretty poor. Under Comcast ownership, Hulu will unlikely be unable to change that. More probable is that Comcast will use NBC Universal's content to sweeten its offering to paying subscribers.
"The goal of Comcast is not to make it hard for people to get content," McQuivey said. "The goal of Comcast in the future is to make it really easy to get content and that's what people will pay for.
"In the future, Comcast isn't going to say 'Here's 500 channels delivered to one set-top box,'" he continued. "In the future, they'll say 'Hey, you know that subscription you're paying us every month, that buys you red-carpet access to the best content. No matter what you want to watch we have the license to it. We're going to deliver it to you online, to your game console, to your connected television or Blu-ray player.'"
But what about Netflix and iTunes? Doesn't the Comcast-NBC Universal deal put them in a position of competing with a major supplier?
Is Netflix friend or foe?
Netflix looks less like a DVD-rental business and more like the Web's version of a cable company with each passing day. For more than a year now, Netflix has streamed movies over the Web to anyone who pays the company's subscription fees. CEO Reed Hastings raised the stakes in the competition with cable companies by partnering with set-top box makers and TV manufacturers to create systems that enabled Netflix customers to watch streaming films on their flat screens.
Jumping to the TV set was huge for Netflix. No longer latched to the PC, the company was now threatening cable companies on their home turf. But if content is king, then Netflix was offering only a duke.
Just like Hulu, Netflix offered cable subscribers a cheaper alternative. Just like Hulu, Netflix's library lacks new and hot titles. Without the best content, the cable companies still hold an advantage over Netflix. Since Netflix is now a direct competitor to Comcast and other cable companies, it will be interesting to see what kind of terms the Web's No. 1 rental store gets from the new NBC Universal?
As for Apple, it's highly unlikely that Comcast will tinker with NBC Universal's arrangement for digital download sales at iTunes. The very public quarrel between the companies over pricing in 2008 is behind them.
In that case, Apple gave NBC Universal more flexibility over pricing. Apple CEO Steve Jobs has shown respect for Hollywood's lucrative practice of giving exclusive film access to certain distribution platforms over specified periods, called "windows." Jobs is also purveyor of the Web's most successful video-download store, so the relationship will likely remain unchanged.
But McQuivey sees a potential problem for Apple should the company decide to broaden its video business.
Apple could become an over-the-top pay TV provider," McQuivey speculated. "Apple should say 'You buy an Apple TV from us and pay $28 a month and we'll give you access to this number of downloads and all of this TV-network content for free. They are one of the few companies that could really create this amazing little business model of mixing Internet downloads with Internet streaming with over-the-air HD broadcast...Lets be honest, Apple users have fairly shared tastes and as a result it would be easier for Apple to serve its customer base this way than it is for, say, Comcast. Comcast has to offer the world, where as Apple only has to offer what's cool."
It should be noted that in every scenario McQuivey discussed, he mentioned price. In his vision of the digital future, Internet distribution looks a lot like cable.
According to McQuivey, "All of these Internet delivery solutions are going to face some kind of reckoning over the next couple of years. It shouldn't come as a surprise that Hulu is going to evolve to include some kind of pay model."
It's official. Comcast, the nation's largest cable company, announced Thursday that it is buying a controlling stake in the TV network and movie studio NBC Universal.
The total value of the blockbuster media industry deal, which had been rumored since September, is estimated at around $37 billion. The new joint venture will merge Comcast's cable channels, which are worth about $7.25 billion, with NBC Universal assets that have been valued at around $30 billion, the companies said Thursday.
Comcast also plans to contribute about $6.5 billion in cash. The cable heavyweight will own 51 percent of the venture, and General Electric will own 49 percent. Jeffrey Zucker, who has been president and CEO of NBC Universal, will lead the joint venture.
GE, which owned 80 percent of NBC Universal before the deal, is getting about $8 billion in net cash for its contribution. The joint venture is taking on about $9.1 billion in debt, which reduces the amount of cash that Comcast has to put up for the deal. And it also provides the cash to pay GE.
The deal will make Comcast a major media player with several very profitable cable channels, including USA, CNBC, MSNBC, and Bravo. It will also have control over NBC's broadcast networks and TV stations, its film studio, and its amusement parks.
The New York Times reports that Comcast and GE had been working on the deal since March. Rumors of a pending joint venture surfaced in the press in September. But the final deal was delayed as GE negotiated a buyout with French media company Vivendi, which owned 20 percent of NBC Universal. Earlier this week, GE and Vivendi reached an agreement whereby Vivendi will get $5.8 billion for its 20 percent share. If the deal does not close by September, GE is still responsible for paying Vivendi about $2 billion, or about 38 percent of the agreed price.
Brian Roberts, chief executive of Comcast, said in a statement that NBC Universal is a perfect fit for Comcast, and it "will allow us to become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding."
Roberts tried and failed to buy another major media company, Disney, in 2004.
Will cable-bashing undo the deal?
The deal is likely to be scrutinized by government regulators, namely the U.S. Department of Justice and the Federal Communications Commission.
Craig Moffett, an equities analyst with Bernstein Research, said in a research note in late October, when rumors of the deal were heating up, that regulators may find plenty of reasons to reject the acquisition.
The biggest problem for the deal could be the fact that GE and Comcast will try to close it during a midterm election year. Politicians taking sides on Net neutrality issues and the national broadband plan may find it easy to bash Comcast. And a marriage between the nation's largest cable and Internet service provider and one of the nation's three broadcast TV stations may ignite old fights over media ownership, a la carte billing, retransmission consent, and cable prices.
"Cable-bashing in an election year is a no-lose bipartisan proposition," Moffett writes in his note. "The headline risk is quite material. Approval of a deal, should one be reached, cannot be assured."
Comcast argues that the deal will be good for consumers by getting some movies on cable TV and on-demand services more quickly, since Comcast will control NBC Universal's movie catalog. Comcast may also be able to put content more quickly on cell phones.
Still, some consumer advocates, such as Free Press, oppose the deal. They say Comcast would have too much power in the entertainment industry.
One issue of concern is that Comcast could use NBC's programming to undermine rival TV services from phone companies, such as AT&T or Verizon Communications, or from cable operator Dish Network. Comcast could charge these competitors more for cable channels, while giving its own cable TV business a better deal. Comcast officials say this is unlikely. And the company has already proven that it offers fair pricing with its existing cable channels, such as E! Entertainment, G4, and the Golf Channel.
The deal may also have an effect on online video services, such as Hulu, which is owned by NBC, News Corp., and Walt Disney Company. That said, Comcast has been experimenting with its own online video service for some premium channels for Comcast customers. The company also already has a Web-based video aggregator called Fancast, which streams full TV shows and movies for all Web users.
Comcast on Tuesday announced the launch of a pilot program for its Internet customers to keep track of how much bandwidth they're using. The company is finally introducing a Web-based metering program, which will let users check these numbers from any browser.
This comes a little more than a year after Comcast began enforcing a strict 250GB cap on download bandwidth, exiling those who went over twice for an entire year before being able to get Internet service again. In the interim the company had offered no official tool for customers to see how close they were getting to that limit, outside of a free McAfee Security software program that needed to be installed on each computer sharing that connection.
The new online meter is coming first to customers in Portland, Ore., as part of a pilot project, which could be expanded to other parts of the country beginning next year. Those in the pilot will be able to track all activity that goes through the cable modem they have rented from the company or purchased on their own. The meter shows the past three months of data use, though to begin with, users will only be able to see what they've used in December. It tracks each gigabyte used, which the company says is rounded down to the nearest gigabyte instead of rounding up. That data is refreshed every three hours.
Comcast says that this new metering system is quite accurate. To prove that, it hired consulting company NetForecast to do a comparative analysis which put Comcast's meter at within plus or minus 0.5 percent of its own internal testing (PDF).
Comcast's new bandwidth meter will only be available to those in Portland, Ore., before the company rolls it out to other markets.
(Credit: Comcast/CNET)In an e-mail, Comcast spokesman Charlie Douglas wanted to reaffirm that most Comcast customers will never have a problem with going over. "The median customer consumes approximately 2 to 4GB of data in a month," he said. And even with the new bandwidth monitor, "almost 99 percent of our customers should not be concerned about their monthly data usage or even crossing our 250GB-per-month excessive-usage threshold."
Comcast says it needs to do more testing before branching off into the rest of the U.S. In the meantime, those Portland customers who have been chosen to be a part of it will find an invitation in their e-mail to test it out.
One major obstacle seems to have been settled in Comcast's quest to buy NBC Universal from General Electric--how much to pay for it.
Both companies have reportedly agreed on a price of $30 billion for GE's movie and TV unit, according to sources cited Monday by Reuters and The Wall Street Journal (subscription required for full story).
The agreement on the worth of NBC Universal (NBCU) is a major step toward paving the way to create a new, privately held company that would combine NBC's TV stations and Universal Studios with Comcast's TV and cable stations. NBCU's Web properties include iVillage and the online video site Hulu, in which it is a co-owner along with News Corp. and Walt Disney Co.
Under the terms of the proposed deal, Comcast would own a majority 51 percent slice of the new entity, with GE owning the remaining 49 percent.
Further, the two companies have discussed an option whereby GE would sell off all or most of its ownership of the new company to Comcast over the next seven years, according to sources cited previously. Recent reports say that GE and Comcast have now decided how to price the new entity after the deal goes into effect so that GE faces no problems selling off its remaining stake.
The valuation of NBC Universal was seen as a major challenge in advancing the deal, according to sources. Comcast naturally was intent on maximizing the value of its own networks and minimizing the value of NBCU to limit the amount of up-front cash it would need to invest in the new firm. Latest reports say that Comcast would inject anywhere from $4 billion to $6 billion into the new entity.
However, both companies have reportedly agreed to base Comcast's final cash payment on NBCU's financial performance before any finalized deal closes. If its performance tanks, Comcast could end up paying less.
Other challenges remain, too. French media giant Vivendi owns 20 percent of NBCU. Vivendi has reportedly told GE that it wants to sell its stake but has yet to voice approval on any deal of its own. A valuation of the company's 20 percent ownership is currently being discussed, said the source cited by Reuters.
Of course, even if Vivendi agrees to a deal and all looks good, regulatory approval would be required, especially since Comcast would own a huge chunk of national and local media outlets. The Journal said that people close to the talks believe regulatory approval could take at least eight to 12 months.
Comcast's bid for a majority stake in NBC Universal was first revealed in early October.
Requests for confirmation to GE and Comcast were not immediately returned.
Helped by cost cuts and by growth in Internet and phone subscribers, Comcast on Wednesday reported a 22 percent jump in earnings for its third quarter.
The cable provider saw net income of $944 million, or 33 cents per share, for the quarter ended Sept. 30, compared with $771 million (26 cents per share) in the year-ago quarter. Sales also rose, hitting $8.8 billion, up from $8.5 billion in 2008's third quarter, though revenue was slightly below analysts' estimates.
For the quarter, the number of TV subscribers dropped 2.7 percent to 23.7 million from 24.4 million a year ago. But the loss was more than offset by gains in Internet and voice, two services that Comcast has marketed heavily, especially as part of its Triple-Play service.
The number of Internet subscribers rose 6.4 percent to 15.6 million, while Comcast phone customers jumped 20 percent to 7.3 million. Overall, the company saw a quarterly increase in customers of 3.4 percent to 46.8 million. Subscriber growth helped boost third-quarter sales for the cable segment by 2.8 percent to $8.4 billion.
With a focus on trimming costs, capital expenses declined 6.1 percent to $1.2 billion, due in large part to lower spending at the company's cable divison.
"The strength and resilience of our businesses combined with our continued emphasis on expenses and prudent capital management helped us achieve healthy operating and financial results in the third quarter," Brian Roberts, chairman and chief executive officer, said in a statement.
Comcast revealed no new details over its intent to acquire a leading stake in GE-owned NBC Universal. Early last month, reports surfaced that the company wanted to buy a 51 percent chunk of NBCU, with GE owning the rest, to create a new joint venture. If it goes through, the deal could transform Comcast into a major media powerhouse, with control of NBC as well as variety of TV networks and cable stations.
SAN FRANCISCO--Cable companies get a lot of criticism from the Silicon Valley set for being some of the ultimate 20th century corporate dinosaurs. Or, as Web 2.0 Summit conference organizer John Battelle put it, "a dead duck."
So the head of Comcast, a company that's taken loads of heat from tech experts--for imposing bandwidth caps, poor customer service, and an alleged failure to innovate on both broadband speeds and the convergence between television and the Web--was an interesting choice to kick off the summit event here on Tuesday. But Comcast CEO Brian Roberts spun his company to the audience as springing from the same kind of entrepreneurial spirit that the Bay Area prides itself on.
He spoke of how he took over the reins of the company from his father, who according to legend was able to make an early strategic acquisition thanks to the winnings from a Tupelo, Miss., poker game the night before. "Similar to probably almost everyone in this room, (he) wanted to work for himself, wanted to start his own business."
He previewed new features for the Comcast video hub Fancast, which it launched slightly under two years ago at the Consumer Electronics Show. The new beta of Fancast, which will launch by year's end, will make new on-demand content available online, much of it unavailable in outlets like iTunes--and integrated with DVR boxes--to Comcast cable subscribers who already pay for HBO. About two dozen content providers have signed on board, and as Roberts scrolled through the preview, he noted that there were about a thousand movies available.
Comcast CEO Brian Roberts
(Credit: Comcast)Battelle, interviewing Roberts onstage, called it "video-on-demand on steroids."
The Associated Press, referencing a briefing this week with executives at Comcast's Philadelphia headquarters, helped fill in some of the details about the service, noting that it would include such popular cable shows as HBO's "Entourage" and AMC's "Mad Men" and for now is being called "On Demand Online."
The AP said Comcast subscribers can initially watch shows and movies only on their home computers after being verified by the cable system. Online viewing, at least in the beginning, will be restricted to those who get Internet service through Comcast, not through competitors like phone companies, the AP said.
Back at Web 2.0 Summit, Roberts also said that Comcast investments in broadband technology are, in part, what has facilitated the explosion in Web innovation.
"We're going to keep investing, because we believe there are great ideas in this room and in this country and in the world," Roberts said. "In the same way, it's unthinkable that a Google or a Yahoo or a Facebook or a Twitter would be happening if we hadn't made those investments (in broadband infrastructure) 15 years ago."
Battelle asked Roberts why he believes the U.S. lags behind in broadband technology advancements. Roberts replied, "I think that that's just not true."
(The audience laughed uncomfortably.)
"We have the same equipment (as other countries), the same wires, the same infrastructure, why is the adoption different is a different question. It's not the availability and I don't think it's the lack of speed," he continued. "You get to digital literacy, you get to what language it's in, do you have the right PC or a PC at all...I don't believe the infrastructure providers haven't done enough."
As for Net neutrality, an issue where Comcast has been a frequent villain after imposing bandwidth caps and interfering with peer-to-peer file-sharing software, Roberts was vague.
"We welcome that discussion, that scrutiny, and we're going to be an active participant," he said. "The few limited examples, including our own, that have gotten notoriety usually get dealt with in ten seconds, and changes get made, because this is new technology."
More recently, it's bubbled into the press that Comcast is in talks with General Electric to obtain a controlling stake in its NBC Universal property. Conveniently, GE chief Jeffrey Immelt was slated to speak later in the afternoon at Web 2.0 Summit.
"You and Jeff Immelt must have finished the NBC deal back in the green room," Battelle joked.
Roberts replied facetiously, "It's all done."
Time Warner is not interested in a bidding war for NBC Universal, according to Jeff Bewkes, CEO of the media conglomerate.
Bewkes, who was being interviewed Friday for The Atlantic's First Draft of History conference at the Newseum in Washington, D.C., said big media mergers hardly ever work.
Jeff Bewkes, Time Warner chairman and CEO
(Credit: Time Warner)"Some deals work in media, but most have not," he added. "Over the past 10 to 15 years, there is a very low percentage of deals that have delivered what they would deliver, in terms of return on investment."
After the interview, which was streamed live online, Bewkes told a Reuters News service reporter why his company isn't interested in bidding for NBC Universal. Earlier this week, reports surfaced that Comcast, the largest cable operator in the United States, is in talks to buy a controlling stake in the media company, owned by General Electric and Vivendi.
"There's no real need or benefit for us to take on the various aspects of NBC," Bewkes told Reuters in an interview at the conference. "We have a lot of good things, and so we don't see that as particularly attractive."
Time Warner knows a thing or two about failed mergers. In 2000, it acquired AOL in a stock deal that was valued at the time at about $160 billion. When the merger was first announced, it was hailed as a major milestone, a historic marriage of online media and print and broadcast media. But only a few years into the merger, it became apparent that the deal was doomed. By 2008, Time Warner had confirmed that it was dumping AOL altogether.
Since taking the helm as CEO of Time Warner in 2008, Bewkes has tried to keep Time Warner focused on its core business of creating content. Instead of acquiring new properties and diversifying the business, Bewkes has made cuts. Besides spinning off AOL, he also shed the company of its cable division.
While Bewkes may not see a need to merge with another big media company, he does see the importance of partnering with other players, such as Comcast. Earlier this year, the companies announced that they were testing service that allows Comcast cable subscribers to view online TV shows and movies from several Time Warner cable channels, such as TNT and TBS.
Bewkes said expanding access to TV shows and movies online will actually grow the audience for its content.
"With HBO, we learned that putting shows on demand increased viewership," he said. "So viewership goes up, and viewers get to watch (what) they want, when they want. And they get to select their favorite shows from their favorite channels."
Other changes in the media business that Bewkes predicts includes the end of print magazines and newspapers. Instead, he envisions people using e-readers such as the Amazon.com Kindle to get access to periodicals. He said that soon, many manufacturers will have e-readers on the market and that these devices will be much more affordable for average consumers.
Separately, Bewkes told Bloomberg that the company was not interested in selling its Time Inc. magazine unit.
Cable giant Comcast is reportedly in talks to gain a controlling stake in General Electric's NBC Universal, in a deal that would help shape Comcast's online-content strategy and help NBC Universal keep pace amid the shifting market.
According to a Wall Street Journal report, Comcast is hoping to form a privately held joint venture that would include NBC's media content. Comcast would control the venture with a 51 percent stake, and GE would own 49 percent of the new company.
Combined, the new jointly owned media company would own more than two dozen TV networks, including NBC, along with several cable stations, such as USA Network. Comcast already operates some of its own cable networks, such as E!, the Style Network, and G4. The new joint venture would also own NBC Universal studios, plus 10 local NBC TV affiliates in cities such as New York and San Diego.
This isn't the first time Comcast has gone looking for a big media company. Five years ago, the company tried to acquire Walt Disney for about $66 billion. In the years since that failed attempt, the media and video distribution landscape has changed dramatically.
Television networks are struggling to keep advertising revenues up, and movie studios are under pressure to prevent digital piracy from eating into their profits. Meanwhile, Comcast, which is facing more competition from phone companies and satellite providers in its TV business, is also trying to figure out how best to use the Internet to deliver video content.
Individual TV channels have been putting their own TV content online for consumers to access for some time. This initially troubled cable operators such as Comcast; they saw the free delivery of video content for which they pay a hefty price as a threat to their business.
NBC and News Corp., the owner of Fox, have made a splash with online service Hulu, which offers TV shows and some movies on demand. Other media conglomerates, including CNET News publisher CBS, have made similar moves.
Comcast, too, is starting to embrace online video, teaming up with media conglomerate Time Warner earlier this year to test a new service offered by Comcast called On Demand Online. The service allows Comcast cable customers to access some of Time Warner's most popular TV shows from its TNT and TBS networks at no additional charge. Its plan is to provide TV networks and movie studios a secure way to distribute their movies and TV shows to a wider audience via the Internet.
The Wall Street Journal said that talks between Comcast and GE could still fall apart. Comcast is looking to pay as little as it can up-front. And there is an issue about what to do with Vivendi, which has a 20 percent stake in NBC Universal.
Comcast continues to sign up media partners to a trial program of the cable operator's On Demand Online service.
The service, which will make TV shows available for users to watch online, has signed 17 cable stations and has its first major broadcast network: CBS, parent company of CNET News, the cable operator said Tuesday. Comcast had previously signed Time Warner and Liberty Media's Starz.
Peter Kafka over at All Things Digital first reported last month that Comcast was wooing CBS.
Comcast's service comes at a time when mainstream consumers are catching on to the amount of material available online and as more cable customers drop their subscriptions.
This from Kafka: "The idea is to protect cable subscription revenues by giving pay TV customers--but only pay TV customers--Web access to all the shows they get on TV, and hoping this keeps them from canceling their subscriptions."
Not only is Comcast fighting back against the likes of Hulu and YouTube, which also offers a smattering of full-length TV shows and films, but Netflix is also offered a popular way to watch films and TV shows online with its streaming service.
CBS is the first broadcast network to sign on to the On Demand trial.
