Movie Studios, RSNs Seen as Potential Issues in a Comcast/Fox

Movie studios and regional sports networks (RSNs) could become antitrust sticking points for a proposed Comcast buy of Fox's nonbroadcast assets, antitrust experts told us. Comcast said Wednesday it's preparing an all-cash offer for the same Fox nonbroadcasting assets that Fox agreed to sell to Disney. It said the structure and terms of its offer, and the regulatory risk provisions, "would be at least as favorable to Fox shareholders as the Disney offer."

Experts said since Comcast/Fox, like Disney/Fox, wouldn't involve transfer of significant broadcast licenses (see 1712130010), the deal likely wouldn't need FCC review. With Comcast willing to match Disney's regulatory breakup fees, Disney is likely to add $10 billion in cash to its Fox offer, MoffettNathanson analyst Michael Nathanson wrote investors.

American Cable Association President Matt Polka said Disney's owning the Fox programming will harm consumers by increasing prices and limiting choice, and Comcast/Fox would be "even more harmful" since Comcast has incentive and ability to use NBCU programming to hurt competition. With FCC conditions on Comcast/NBCU having expired (see 1801220030), the operator can keep raising programming prices "by threatening to withhold all of this programming at once" and carry its own content at more favorable terms and rates than rivals' content, he said. Comcast/Fox will only worsen those problems, with New Comcast owning most RSNs nationwide having an even bigger roster of popular national networks, Polka said.

When Fox last month expressed reluctance about a bid believed to be from Comcast (see 1804190003), it seemingly was concerned antitrust regulators would oppose that although they wouldn't oppose Disney/Fox, though Comcast believed any competitive overlaps could be curable by asset sales, said Pennsylvania State Law professor John Lopatka. One possible such divestiture might be a Comcast studio sale, he said. Comcast likely first will try to make the case it wouldn't reduce competition and that focus needs to be on emerging technologies, streaming and direct-to-consumer media provision, and that thinking about TV studio and movie studio markets misses the point, he said. That would make Comcast/Fox arguments almost identical to AT&T/Time Warner arguments, he said. Blocking AT&T/TW by the U.S. District Court for the District of Columbia "would not bode well" for Comcast/Fox, Lopatka said. That DOJ is challenging AT&T/TW doesn't mean the agency would have similar reluctance about a vertical merger in other industries but does point to it seeing problems with vertical media deals, he said.

Justice will consider Comcast's Universal combining with Fox's movie and TV production assets, and Disney/Fox could face a tougher challenge given Disney's share of the theatrical market, said an antitrust lawyer. The attorney said DOJ also would question the effect on first-run movie theater owners and what Comcast/Fox or Disney/Fox would mean for the ability to change terms on those owners, as well as what either combination would do for studios that distribute through others and whether they would lose a significant distribution route. Department analysis of RSNs could be very different between Comcast/Fox and Disney/Fox, since Disney/Fox involves ESPN and there could be big concerns about Disney's ability to use sports content in negotiating with MVPDs, the lawyer said. DOJ's 2011 lawsuit/settlement of Comcast/NBCUniversal pointed to Comcast not allowing either Dish Network or DirecTV to carry one of its RSNs.

Traditionally, antitrust views TV and movie production as not particularly ripe for formation of a cartel since it’s not that concentrated, has somewhat low barriers to entry and there's a possibility of "make or buy sponsored entry," with distributors back-integrating into production of their own content, said Temple University law professor Salil Mehra. So while Comcast/Fox has a horizontal component, arguments for a problematic increase in market power might not be strong, he said.

The rise in over-the-top providers shifted power toward content producers and aggregators, and Disney's bid for Fox is to try to become "a content powerhouse" with greater leverage against MVPDs plus better ability to create and package its own content bundles to sell directly to consumers, said Hemant Bhargava, professor of technology management at the University of California, Davis. Comcast/Fox is about market efficiencies and being a vertical player with content it can offer subscribers, he said.

Traditionally, vertical mergers haven't been seen as problematic in antitrust circles, but that doesn't necessarily hold true for this market because of MVPD and ISPs' semi-monopoly, Bhargava said. Comcast, as a cable ISP, could face concerns it would disadvantage content rivals to benefit its Fox assets, especially with Communications Act Title II regulations, he said. Bhargava said there's an argument that horizontal mergers are increasingly necessary in media because of the need for content powerhouses to counterbalance market strength of ISPs.

Macquarie analyst Amy Yong wrote investors that Comcast's overture raises questions about its organic growth prospects and that any regulatory review is likely to be "prolonged" and could complicate this year's expiration of the NBCUniversal consent decree. However, she said, Fox assets could benefit both Comcast's cable and NBCU sides, with Fox RSNs giving the MVPD business more selling points to retain subscribers and giving its content business synergies with Fox's studio and IP and international cable assets.

Comcast/Fox raises more antitrust issues "to dig into" than Disney/Fox, Columbia Law School professor Tim Wu told CNBC. He said RSNs could be a particular issue for antitrust regulators, with Fox's and NBC's RSN holdings potentially leading to monopolies in certain markets -- though he acknowledged Disney, through ESPN, isn't "irrelevant in the sports market." Wu also said the movie studio issue could get antitrust scrutiny. Wu has said he is considering a run for New York attorney general.