Comcast faces Chinese antitrust probe over $3.8B DreamWorks deal

The DreamWorks deal, which closed in August, gives Comcast a planned theme park in Shanghai and greater access to the Chinese movie market through the Kung Fu Panda movie franchise and Oriental DreamWorks, a joint venture with Chinese partners that circumvents foreign film quotas.

Comcast also plans a Universal theme park in Beijing -- a project reaffirmed by Steve Burke, chief executive of its NBCUniversal unit, in a presentation at an investor conference on Wednesday. NBCU releases films in China through Universal Pictures.

In a market as huge as China's, economic experts say, Comcast does not pose an anticompetitive threat. The investigation seems to be economic saber-rattling on the global stage, foreign-policy observers say, and a Chinese poke in the ribs of a politically powerful U.S. company at a time when relations between the United States and China have cooled.

Shen Danyang, a spokesman for the Ministry of Commerce, disclosed the DreamWorks investigation earlier this month, as global leaders were gathering in China for a G20 economic summit.

Chinese officials think "American movies and TV shows are like a hidden front to pollute Chinese minds," said James Lewis, senior vice president at the Center for Strategic and International Studies in Washington.

Lewis believes that the U.S. government — perhaps the Department of Justice or the State Department — will have to push back against the Chinese on a DreamWorks antitrust investigation. Comcast itself will have to tell the Chinese "there is no monopoly here. But they have to say it respectfully," he said.

Comcast had no comment Thursday on the investigation.

China's antitrust probe shows how difficult it is for the rapidly growing Comcast to acquire assets even overseas without attracting the attention of regulators. Last year, U.S. officials rejected the cable-and-entertainment giant's proposed mega-deal for Time Warner Cable Inc., the nation's second-largest cable operator, which since has been acquired by Charter Communications.

With the Federal Communications Commission limiting Comcast's telecom acquisitions, one area in which to expand has been with entertainment-content companies such as DreamWorks.

Jeff Shell, chairman of the Universal Filmed Entertainment Group, disclosed in an internal memo Thursday that DreamWorks is cutting 200 jobs, or about 9 percent of the company's workforce, to streamline costs as part of the new Comcast ownership.

"Those who will be impacted by these decisions will be notified this week and many will be working with us over the next several months as a part of the transition. These are difficult but necessary moves as we work to integrate our organizations and we will be as generous as possible to those who will be leaving the company," according to the Shell memo, seen by the Inquirer on Thursday.

Comcast CEO Brian Roberts and NBCUniversal's Burke have said China could be a growth engine for Comcast. And analysts considered the DreamWorks properties in China a critical part of the premium price Comcast paid for the Hollywood studio.

At a Bank of America investor conference on Wednesday, Burke said, "We are hard at work on a Beijing theme park, which should be open in 2020." He also said that NBCUniversal will own 30 percent to 40 percent of the theme park.

Eswar S. Prasad, an economics professor at Cornell University and author of the about-to-be-released book Gaining Currency: The Rise of the Renminbi, said,  "China wants to send a strong and unambiguous signal that it won't be soft on companies that are large and important to advanced economies."

Chinese officials are telling Comcast that "they have to play by China's rules rather than international rules" or they will erect roadblocks, Prasad said. The Chinese government will be looking for "obeisance" from Comcast, he said, adding that "it does seem that Comcast was blindsided" by the Chinese.

Amy Yong, an equities analyst with Macquarie Securities, said Wednesday that she did not think Comcast would have proceeded with the DreamWorks deal "if they did not think they would have a presence in China." She called Chinese action a "potential negative headline risk" but not a financial threat.