Wednesday, June 13, 2012

Justice Department investigates cable and online video companies

According to The Wall Street Journal, the U.S. Justice Department has launched an investigation of the online video market. Justice Department officials have spoken to representatives from Netflix and Hulu, as well as Comcast, Time Warner Cable and other cable operators, about whether the cable companies are acting illegally to limit the access of online video companies to content, limit consumers' access to online video content, and limit the bandwidth that consumers need to access that content.

According to the article, online video services have expressed concern that data caps imposed by cable operators will give those operators an unfair advantage, a fear reinforced when Comcast announced in March that data used by its own Xfinity app running on Xbox 360s wouldn't count toward subscribers' data caps. Netflix's Reed Hastings accused Comcast of trying to skirt FCC rules that prevent Internet Service Providers from giving preferential access to their own content.

The Wall Street Journal's sources say that the Justice Department is examining whether Comcast is violating the legal agreements that it agreed to in order to get permission to acquire NBCUniversal in 2011. It's also looking into whether the TV Everywhere initiative first developed by Comcast and Time Warner is illegally requiring consumers to have a cable subscription in order to access some online programming.

Another area of investigation is the distribution contracts that programming providers sign with cable operators. These contracts usually include "most favored nation" clauses that require programming providers to give the top cable operators the lowest price and best terms and conditions that they give to any of their other customers. The Justice Department is looking into whether there are valid business reasons for these clauses, or whether they're intended to prevent programming suppliers from dealing with over-the-top video providers.

Most favored nation clauses are also part of the Justice Department's case against Apple and five of the Big 6 book publishers. In that case, those clauses were used to insure that all eBook resellers sold eBooks from the publishers under investigation at the same price.

It's important to remember that an investigation doesn't necessarily mean that the Justice Department will prosecute anyone. In some cases, the companies under investigation voluntarily change their practices in order to forestall prosecution.
 
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