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Comcast will retain NBC's stake in Hulu, but is stripped of control

January 18, 2011 |  1:49 pm

Call it the Hulu Handcuff.

The federal government is making sure that Comcast Corp. won't be able to use its newfound clout when it takes control of NBC Universal to sabotage the online video website Hulu.

On Tuesday, the Federal Communications Commission and the U.S. Department of Justice gave their blessing to the proposed $30-billion combination of NBC Universal and Comcast. But the Obama administration attached comprehensive conditions that will make it difficult for Comcast to stifle competition, particularly in the burgeoning area of online video distribution.

Media industry executives have been particularly interested to see how regulators would manage Comcast's ability to influence Hulu -- which NBC Universal helped create and currently owns about a 30% interest in. Other big media companies, News Corp. and Walt Disney Co., along with Providence Equity Partners, are co-owners of the site.

In court filings Tuesday, the U.S. Justice Department explained the challenge that Hulu presented: "Comcast has an incentive to prevent Hulu from becoming an even more attractive avenue for viewing video programming because Hulu would then exert increased competitive pressure on Comcast’s cable business. If the proposed transaction were to be consummated without conditions, [Comcast] would hold seats on Hulu’s board of directors and could exercise their voting and other governance rights to compromise strategic and competitive initiatives Hulu may wish to pursue."

In other words, the government wanted to make sure that viewers could still watch "30 Rock" and other popular NBC shows online, and not solely on television.

But the federal government stopped short of requiring Comcast to surrender NBC's stake in Hulu. Instead, regulators said they were seeking a more effective mechanism to blunt Comcast's ability to undermine the website. A Justice official said because it would be a "direct conflict" for Comcast to sit on Hulu's board, the government is forcing Comcast to give up its voting rights or its ability to remove NBC television programming from the site.

"Comcast/NBC Universal will continue to provide content to Hulu in a manner consistent with Hulu's other broadcast network owners," the company said in a statement.

Comcast will largely be kept in the dark on Hulu matters. The Justice Department said that Comcast would not be able to receive "confidential or competitively sensitive information concerning Hulu."

An FCC official explained that the government wanted to protect Hulu and take away any incentive by Comcast to "drive it into the ground."

-- Meg James

 

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