Comcast and NBC Universal: The End of Free Web TV?

In July, 158 million people watched free television shows online, according to market tracker ComScore Inc. That number marked the largest audience ever recorded. But could the figures plummet if Comcast Corp. (CMCSA) makes good on its plan to buy the majority stake – worth about $35 billion – in media and entertainment giant NBC Universal? More to the point, could Comcast even get away with monetizing Web TV?

Comcast, the largest cable operator in the United States, very well could put a price on NBC’s Hulu, the go-to site for programming from popular first-run shows such as “The Office” to feature-length films of yore (“Fear and Loathing in Las Vegas,” anyone?). Such a move would put Comcast in front of its rivals in the race to monetize online video – even the gurus at Google Inc. (GOOG) have yet to make YouTube profitable. However, Comcast could not implement the strategy without substantial resistance from lawmakers.

To be sure, charging for online video-on-demand presents the sort of advantage Comcast wants and needs. That’s because, in the second quarter of 2009 alone, Comcast lost 77 percent of its Internet subscribers. Even though the company reported higher profits than expected, the boost came from increased rates. Meanwhile, Comcast competitors, particularly telcos and satellite providers, are attracting consumers to their lower-priced, often more generous packages. Comcast needs an edge. But there’s no guarantee consumers will be willing to pay for TV content online they can get for free through their TVs. Still, if Comcast does find a way to make money off of Hulu, the impact could prove deadly to similar sites such as Joost, as well as Fancast, Comcast’s response to Hulu.

Comcast’s pursuit of NBC Universal comes from a defensive place, analysts say.

The company “believes it needs content to protect its landline distribution platform,” Richard Greenfield, analyst at Pali Research, wrote in an Oct. 2 note. "It wants to mitigate the risk of becoming that scary 'dumb' pipe."

‘Silly and Suicidal’

If it accomplishes that aim, Hulu “will just become another choice of Comcast’s pay-TV buffet,” Kaufman Bros. analyst Todd Mitchell told Reuters.

But Comcast’s motivation runs deeper than dollars – the company needs a lasting Web presence. Jumpstarting the end of free Web TV, however, may not be in the company’s best interest, said Mike Jude, program manager of consumer communications services at Stratecast, a division of research firm Frost & Sullivan.

Once Comcast's programming assets are married to the NBC Universal holdings, Jude explained, Comcast would then have incentive to discriminate against other companies wanting to use its network to deliver content over the Internet.

Comcast would need to tread with care. The cableco already has raised the FCC’s ire for blocking and throttling certain Web traffic. That leads Jude to believe Comcast’s majority stake in NBC Universal “would not mark the end of free Web TV,” he said. “The FCC and Congress are both contemplating very pervasive net neutrality regulation. For Comcast to provide them ammunition would be silly and suicidal.”