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Comcast, Netflix and net neutrality

By: NASDAQ.com News
Posted: 1/20/2011 4:51:00 AM
Referenced Stocks: CMCSA;GE;NFLX

Now that the Federal Communications Commission has approved the acquisition of 51 percent of NBC-Universal from General Electric ( GE ) by Comcast ( CMCSA ), some are raising tough questions about the implications for the future of the open web.

Though the two companies have the go-ahead from both the Department of Justice and the FCC, the new media conglomerate has a laundry list of rules and obligations, including a commitment to provide the poor with cheap broadband service, rules to prevent discrimination against particular types of traffic and limits on Comcast's ability to put pressure on the video-sharing site Hulu.

Hulu is an interesting test case, because it and its business model represent one of the most significant threats to Comcast's old-school subscription cable model. Rather than paying Comcast a subscription to access all its shows, customers can pick and choose à la carte. Because NBC owns a significant stake in Hulu, along with Fox, ABC and Providence Equity Partners, the fear is that Comcast would use its stake to pull shows from the service or even slow down Hulu traffic on its broadband networks to make all content harder to watch.

Another company that's looking askance at the merger is Netflix ( NFLX ), which is increasingly pushing its customers away from DVDs and its ubiquitous red envelopes and towards streaming video. While both distribution models threatened Comcast's core cable business, the streaming model actually uses Comcast's web infrastructure, which might tempt the company to put up technological or financial roadblocks between Netflix and its customers.

The Justice Department and the FCC have basically banned Comcast from undertaking these actions, it's true, and there are some who view the list of conditions imposed upon the merger as onerous and excessive. It may be that Comcast will play nice with its competition - but the stakes are high, and there's a lot of money to be made or lost.