By Shalini Ramachandran and Joe Flint
At the 2013 Allen & Co. conference in Sun Valley, Idaho,
executives from Walt Disney Co., 21st Century Fox and Comcast Corp.
met to discuss the future of Hulu, the online video service the
media companies co-own that was up for sale.
Comcast's role in the company was restricted due to its
agreement with the Justice Department. Its stake in Hulu came
through its purchase of NBCUniversal, and as part of that deal the
cable company had agreed to stay out of Hulu's management and be a
silent partner.
Yet Comcast's assurances at the Sun Valley meeting played a
significant role in how its co-owners evaluated the sale process,
people familiar with the other owners' thinking said. Comcast told
its partners it would help make Hulu the nationwide streaming video
platform for the cable TV industry, which would boost the site's
growth and make it a stronger rival to Netflix.
That influenced Disney and Fox's decision to call off the sale
when the conference was ending, people familiar with those
companies' thinking said. Among the top bidders for Hulu were
Comcast rivals DirecTV and AT&T Inc.
The episode at Sun Valley raises questions about how involved
Comcast was in the owners' decision to take Hulu off the block. And
it is a prime example of how the conditions the government laid
down for the NBCUniversal merger may have, in practice, played out
in messy form in the real world. They are tricky to abide by and
just as difficult to enforce.
Those lessons could loom large for Comcast and the Justice
Department as both sides sit down Wednesday for another round of
merger conditions talks--this time related to the cable company's
proposed $45.2 billion purchase of Time Warner Cable Inc. Broadly,
regulators are worried about the clout the deal would give Comcast
in the broadband Internet and pay television marketplaces.
Comcast, at times, has felt hamstrung by some of the conditions
it agreed to in the NBCUniversal transaction, people familiar with
the company's thinking say.
Hulu's aborted sale process, meanwhile, is among the issues that
have captured the interest of the Justice Department in recent
weeks, according to people familiar with the matter.
Comcast spokeswoman Sena Fitzmaurice said in a statement that
"Comcast has no role in making, evaluating or reconsidering any
management decisions at Hulu. Pursuant to the NBCUniversal Consent
Decree, Comcast is essentially a passive investor in Hulu. All
strategic decisions at Hulu are made by the other partners and not
by Comcast."
As part of that decree--a government document spelling out
merger conditions--the Justice Department ordered Comcast
"relinquish any veto right or other right to influence, control, or
participate in the governance or management of Hulu" as long as the
cable company owns a piece of the service. In that deal, Comcast
also agreed not to discriminate against online video distributors
or retaliate against other networks, cable programmers or studios
for licensing content to Comcast's competitors.
There has been confusion in the industry over the
conditions--for example, whether Comcast must make NBCUniversal
channels available to emerging online TV distributors if rival
channels are on board.
It isn't clear whether Comcast will be able to offer concessions
that will ease regulators' concerns about the Time Warner Cable
deal. If it perceives that the conditions required for approval are
too onerous, Comcast is prepared to walk away from the transaction,
which has no breakup fee, people familiar with the company's
thinking say.
NBCU programming is available through Hulu. But Comcast, as the
nation's largest cable operator, was in position to help the
service sign up more paying subscribers. Comcast told its co-owners
it would support Hulu's efforts by marketing the service to its
customers and integrating it into Comcast's systems, the people
familiar with the discussions said.
In the end, Comcast and Hulu never did consummate such a
partnership. Months of discussions were bogged down as Comcast
indicated it would want any viewer accessing Hulu to be redirected
through Comcast's own video players and platforms--a way to make
sure Comcast has a window into the customer data, the people said.
Hulu pushed back on that approach.
Eventually, Fox and Disney came to the conclusion that Comcast
was more focused on rolling out its own video platforms--including
its "X1" Internet-connected set top box and Xfinity streaming
apps--than supporting Hulu, people familiar with the owners'
thinking say. Hulu still doesn't have an app available on Comcast's
X1 box.
21st Century Fox and The Wall Street Journal were part of the
same company until mid-2013.
Brent Kendall contributed to this article
Write to Shalini Ramachandran at shalini.ramachandran@wsj.com
and Joe Flint at joe.flint@wsj.com
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