Comcast announced early Thursday that it will buy a controlling stake in NBC Universal in a deal valued at roughly $30 billion, setting up the Philadelphia-based cable company to achieve its ambition of becoming one of the nation's most powerful entertainment companies.
Comcast is not only the nation's top cable provider, serving about 24 million households, but is also one of its leading broadband Internet providers, with nearly 16 million subscribers.
Assuming the deal passes regulatory review by federal agencies, Comcast will acquire the struggling NBC broadcast network, the movie studio Universal, 10 local stations, the Spanish-language Telemundo channel, and cable channels Bravo, CNBC, MSNBC and SyFy. In addition, it will take control of NBC's stake in the entertainment Web site Hulu, which provides high-quality online movies and TV shows — currently at no cost.
The deal for a 51 percent stake in NBC Universal involves relatively little cash, as GE would receive about $6.5 billion. Instead, Comcast is contributing its regional sports and news networks, as well as its cable channels: the E! entertainment and gossip channel, the Golf Channel and the sports channel Versus.
"With this transaction, I believe our company is strategically complete," Comcast Chairman and CEO Brian Roberts told investors in a conference call this morning. "We believe that we have put together with GE a smart and elegant structure that aligns our interests and unlocks value in our programming assets."
Roberts hardly alluded to the NBC network in his initial remarks, repeatedly citing the strength of the NBC Universal cable channels as the engine driving the deal. He said consumers could expect to enjoy entertainment in new ways from the new joint venture.
"We think the combination of both is going to be a winner for our shareholders and our customers," Roberts said.
Comcast had failed several years ago in its effort to take over ABC and its parent company, the Walt Disney Co. But analysts say Comcast is well poised to make this purchase, as it is carrying relatively little debt and is acquiring cable properties that are providing significant annual revenues and profits.
"There's an interesting intersection between content and distribution that Comcast has always hoped to capture in a bottle," says Craig Moffett, senior cable satellite and telecommunications analyst at the investment company Sanford C. Bernstein. He pointed to video on demand, in which Comcast has been a leader. It could push to make movies from Universal studios available on demand the same day it they hit theaters.
In addition, Moffett said Comcast could pose a threat to rival cable giant ESPN by blending its regional sports and cable sports channels, and the programming of NBC Sports in football, golf and especially the Olympics.
But Moffett pointed out that the Comcast deal involves ignoring a recent history of big media mergers. The AOL-Time Warner deal is now widely seen as having been a disaster.
"I've always been skeptical of whether there's any there there in the concept of vertical integration," he said. "It's been tried by Time Warner and others and not with very much success.
"At its heart though, Brian Roberts and Comcast see this as an attractive opportunity to buy an interesting set of assets," he added. "While I don't want to discount the vertical integration opportunities, there's a lot of this that has the smell of simple diversification — that is, they're buying a business that they happen to like."
Advocates and opponents alike say the role the new Comcast would play in the media landscape cannot be understated. A combination means the company will own a significant piece of the nation's entertainment, news and possibly sports programming on the local and national levels — both on TV and online, free and for a fee.
As a result, the deal is expected to go through lengthy regulatory review, both from the Federal Communications Commission and from the U.S. Department of Justice's antitrust division.
Ben Scott, the policy director for the public interest group Free Press, said Comcast would hold too much power over entertainment and TV news by controlling both significant content and the means by which it is delivered to viewers.
"In the case of Comcast and NBC, the combination of these two players who are both amongst the largest of their type in the industry is unprecedented," Scott said. "They will have an unprecedented grip of market dominance on those three sectors: Internet service, broadcasting and cable."
Free Press is among the many advocacy groups seeking to get regulators to block the union.
"That kind of control of the industry is very worrisome to us," Scott said. "We think it runs afoul of antitrust standard and certainly runs afoul of public interest standard in communications law."
Scott asked whether viewers might find themselves unable to watch TV programs or movies owned by NBC Universal if they didn't subscribe to Comcast's cable or broadband Internet services in areas where they are available.
And he raised additional scenarios. NBC is one of the key owners behind Hulu, the entertainment Web site where people can watch high quality streams of network and cable shows and movies. It is expected to put some of its material behind a pay wall. So Scott asks whether Comcast's broadband service might slow downloads or streams from competing online entertainment services, such as Netflix. Conversely, Comcast could charge rival cable companies more to carry content from NBC Universal's popular cable channels — a cost that might be passed along to subscribers.
Comcast took pains in Thursday's announcement to underscore what it said were protections being offered to viewers that most of its content would be available for free and that non-Comcast customers would not be prevented from seeing its newly obtained programs.
The deal was forged over months of negotiations between GE Chairman and CEO Jeffrey Immelt and Comcast founder Fred Roberts and his son Brian. It hinged on GE buying out the 20 percent stake of its previous minority partner, the French conglomerate Vivendi, for $5.8 billion. And while GE retains a 49 percent stake in the company, it is expected to sell it off in coming years.
GE has been hit hard by the recent credit crunch. Immelt had acknowledged that television was not a core business for the financial and engineering conglomerate. NBC has not been able to rouse itself from its fourth-place finish in prime-time networks, despite the strength of NBC News. And he decided it was not worth the distraction.
NBC Universal Chairman Jeff Zucker will stay on to lead the entertainment venture and will report to Comcast's chief operating officer, Steve Burke.
In a memo to NBC employees, Zucker wrote, "In this joint venture we will have a new parent that is a pure media company with an unsurpassed distribution business. And they are committed to growing and investing in NBCU."
