By Paul Barbagallo, Bureau of National Affairs

As cable television providers consider ways to migrate their pay-TV business model onto the internet, the main worry of public-interest groups is what exactly will happen to online video content.

One idea embraced by Comcast Corp. is to offer cable shows online for no extra charge, but only to its pay-TV subscribers.

The industry refers to the idea as “TV Everywhere.” Comcast and Time Warner, the two largest cable distributors nationwide, held a joint news conference last June to introduce the concept of TV Everywhere, offering seven principles to the industry they say are designed to be “simple and attractive” for any programmer and any video distributor to “elect to adopt.” Among them: TV Everywhere should be “open and non-exclusive,” making available the “best and highest-rated programming” on the web for no additional charge to customers.

As it happened, Comcast was the first to roll out a TV Everywhere product in December, branded under the name Fancast Xfinity (1 DER A-10, 1/5/10). So far the company has reached agreements with 30 networks, including HBO, A&E, ABC, Travel, TLC, and Animal Planet. Comcast customers are now able to access the channels they subscribe to on up to three computers or mobile devices.

But while Comcast is not bringing in any additional revenue with TV Everywhere, the company is protecting fees from paying subscribers, providing a disincentive to cancel monthly cable TV service and opt instead to watch shows on any number of free websites including Hulu.com and YouTube.com.

Consumer Groups Warn of Collusion.

Consumer and public-interest groups have already called on the Justice Department and the Federal Trade Commission to launch antitrust investigations of TV Everywhere, accusing the companies of colluding to “divide markets, raise prices, exclude new competitors, and tie products.”

The groups fear TV Everywhere will allow Comcast to force out online competitors including Vuze, Boxee, YouTube, Vudu, Roku, Netflix, and even Hulu, which makes shows available for unlimited streaming for free to any user with an internet connection. All consumers have to do is watch advertising. A joint venture of NBC Universal (32 percent), Fox Entertainment Group (32 percent), and ABC Inc. (27 percent), Hulu carries broadcast shows in addition to programming from Comedy Central, Current TV, PBS, USA Network, Bravo, Fuel TV, FX, NFL Network, Speed, Big Ten Network, Syfy, Style, Sundance, E!, G4, Versus, A&E, and Oxygen.

Extension of ‘Gentlemen’s Agreement.’

Mark Cooper, research director for the Consumer Federation of America, said TV Everywhere is merely an extension of the “gentlemen’s agreement” among cable giants to divide the country geographically.

“The irony is that Comcast and Time Warner have never actively competed against one another in physical space,” Cooper told BNA. “Some people have invaded their service territory, such as the telephone companies [Verizon Communications, Inc., and AT&T, Inc.] and satellite providers, but they have never initiated the competition.”

With TV Everywhere, Comcast and Time Warner have taken a similar tack. Consumers in the Washington area, for example, can only subscribe to Fancast Xfinity, not Time Warner’s TV Everywhere service, since the Washington metro area is a Comcast territory.

“In cyberspace, there are no cable franchises. There are no rights-of-way, no physical infrastructure costs,” Cooper said. “All of the excuses [Comcast and Time Warner] gave us for not competing in physical space don’t exist online.”

Corie Wright, policy counsel of advocacy group Free Press, said the companies are trying to create “regional fiefdoms” on the web the same way they did in the offline world.

“The problem with TV Everywhere is not so much that content is being put behind a pay wall; it’s that that pay wall is attached to a facilities-based cable subscription,” Wright told BNA. “They are dividing up regions of markets and promising not to compete with each other in the online video market.”

‘MVPD is an MVPD.’

Steve Effros, an industry consultant and former president of the Cable Telecommunications Association, said critics of TV Everywhere have up until now raised questionable antitrust arguments.

“The people on the other side are saying, ‘in order to give others a chance to compete, we want to prevent Comcast from being able to protect its methodology of selling packaged channels.’ In other words, they think they have a better business plan,” Effros told BNA. “But in order for their business plan to work, they want to stop anybody else from using existing business plans on a new technology. That’s not antitrust law, that’s industrial policy.”

As the Federal Communications Commission begins a review of the proposed Comcast-NBC Universal merger, Effros said regulators will be hard pressed to find statutory support for conditioning approval of the deal on Comcast abandoning its TV Everywhere product.

“Comcast is an MVPD,” Effros noted, meaning multichannel video programming distributor. “It isn’t called an MVPD–but only on coaxial cable. If Comcast is an MVPD, and one of its customers has purchased a package of channels, and Comcast decides to deliver those channels to the customer’s television set, DVR [digital video recorder], and computer, what is Comcast at that point? It’s still an MVPD.”

“These are all new businesses,” Effros added. “Could you see the FCC barring a company from thinking up new business plans? That’s a pretty strange law.”

FCC Seen Having Broad Public Interest Authority.

But Andrew Schwartzman, president and CEO of the Media Access Project, said the FCC has broad authority under the Communications Act to investigate TV Everywhere.

“Unlike the Sherman Act, where you have to prove that something is anticompetitive, the public interest standard under the Communications Act gives the FCC the power to make predictive judgments–that something is likely to be anticompetitive,” Schwartzman said.

While the cable industry has discounted claims of market manipulation, Schwartzman and other opponents of TV Everywhere said some programmers have been strong-armed into exclusive contracts with cable providers, told not to air their own shows on their own websites for periods ranging from a month to a year. The programmers so far have been reluctant to come forward for fear of retaliation, according to the public-interest groups.

Media Access Project Vice President Parul Desai said she has had conversations with TV programmers who say they feel they have no other choice but to agree to the allegedly unfair terms of TV Everywhere. One of the major fears of the programmers, she said, is a MVPD deciding not to carry a certain programmer.

Comcast ‘Not Locking Up Anybody.’

Thomas Nathan, senior vice president, law and regulatory affairs for Comcast, said TV Everywhere does not have predatory aims as alleged by the consumer advocacy groups, but is merely a “value-added benefit” for consumers, providing more “choice, convenience, and an extension of a product” they already pay for on a secondary platform.

“We’re not locking up anybody. We’re not telling programmers what they can and can’t do,” Nathan said during remarks at a Practising Law Institute conference in January. “We’re not prohibiting or inhibiting anybody from doing anything.”

To Nathan and Comcast, the programmers are free to license content however they chose. The company has not told any programmer whether they should “give it away for free,” he said.

In the pay-TV world, cable networks like ESPN and TNT collect fees paid by the cable operators. TNT, for example, gets $1 per subscriber per month from Time Warner. Comcast, meanwhile, pays Disney nearly $1 billion a year to carry ESPN. The cable networks have a guaranteed revenue stream in the fees paid by Comcast and Time Warner, among others, and see carriage on the cable companies’ packages in the offline world as critical to their survival. Several programmers declined to be interviewed for this story.

But the cable industry sees TV Everywhere as an evolution of the business of providing TV services to customers.

“The fact that market participants are experimenting with models in addition to fee- or advertiser-supported models is not a sign of anti-competitive conduct,” said Kyle McSlarrow, president and chief executive officer of the National Cable and Telecommunications Association, in a blog post in response to the claims made in January by the consumer advocacy groups. “It is a sign of a dynamic and rapidly-changing market in which no one knows the ultimate outcome.”

“As publicly announced, TV Everywhere envisions separate, bilateral agreements between one content company and one or more individual distributors,” McSlarrow added. “It is purely vertical in nature–like any arrangement between a content company and a distributor. As online video evolves, various distributors and content companies may–and likely will–come to widely varying bilateral arrangements.”

Last month, HBO announced that its “Go” broadband programming service will soon be available to Verizon FiOS subscribers. HBOGO.com will contain 600 hours of programming and be available to subscribers of both FiOS internet service and HBO.

DISH Network has also unveiled a TV Everywhere service, enabling subscribers to access live and recorded programming on a laptop, mobile device, or anywhere in the home using DISH Network WiFi Monitor.

Lawmakers Confounded.

But many lawmakers, including Sen. Herb Kohl (D-Wis.), chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, have concerns about restricting online video content only to subscribers of a pay-TV service.

Kohl sent a letter last month to Jeff Zucker, president and CEO of NBC Universal, questioning a decision by the network to limit online coverage of the Olympics to fans who can validate a subscription to a home cable, satellite, or Internet protocol TV provider such as AT&T.

“I fear that this practice of locking up certain content only for pay-TV subscribers may be a preview of what is to come with respect to TV programming shown on the Internet, particularly in the context of the proposed Comcast/NBC Universal merger,” said the senator. “Video over the internet has the potential to become a significant competitive alternative to traditional pay-TV subscriptions, and it appears policies such as the one described … may have the effect of limiting the prospects of such competition.”

Copyright 2010, The Bureau of National Affairs, Inc.