October 3, 2009

Comcast Bid For NBC Universal – Opportunities For The Future

The growing popularity of watching videos and other content via the Internet and over mobile phone networks is making the cable networks less important as a conduit for delivering entertainment and other content.

This competitive pressure has resulted in cable firms losing basic cable subscribers to rivals amid slowing growth within their Internet and phone businesses and increasing fees to programmers.

Comcast Corp., the nation's largest cable operator, is now in discussions with General Electric Co. to acquire a 51 percent stake in NBC Universal, whose assets include the NBC network, movie studios and several cable channels.

According to an Associated Press report, Comcast is expected to pay $4 billion to $6 billion in cash, merge its cable networks into a spun-off NBC Universal, and help carry $10 billion to $12 billion of debt at the new company.

By owning the content itself, Philadelphia-based Comcast would be in position to generate revenue regardless of where and how the content is viewed.

"This is about the future of content distribution," said Forrester Research media analyst James McQuivey.

"It's going to be different. It's going to be multiplatform," McQuivey said during an interview with the Associated Press.

Comcast's position in the deal strengthened on Friday, after Time Warner's chief executive Jeff Bewkes told conference attendees in Washington, D.C., that he was not interested in NBC Universal.

Time Warner, which owns HBO, CNN and other cable networks, is already slowing the number of films it delivers each year.  And while the company could have a better fit with NBC Universal's cable networks, it says it's not interested in those assets either.

GE CEO Jeffrey Immelt told reporters in India on Friday that "discussions are ongoing" over his company's plan for NBC.

Those discussions include an IPO or "other partnerships," Immelt said, although he did specifically mention the Comcast discussions.

Comcast's control of NBC Universal would give the cable operator a big stake in the future of online video. The free video streaming site is jointly owned by NBC Universal, and Comcast is currently in trials to make cable TV shows available via the Internet at no cost to subscribers.

A deal with NBC Universal would allow Comcast to generate revenue from programming fees it would charge cable and satellite TV operators and telecom companies that offer video.  It could also shorten the time it takes for films to become available as on-demand video. 

The deal would also put an end to fees Comcast pays NBC for content.

"It gives them an opportunity to shape the digital future," Chris Marangi, an analyst at Gabelli & Co., told the Associated Press.

Nevertheless, some investors are skittish about the deal, as demonstrated by two days of falling stock prices.

Some worry that Comcast's discussions with NBC Universal are a repeat of its failed $54 billion bid for Walt Disney Co. five years ago. 

Barclays Capital analyst Vijay Jayant told the AP he doesn't view the deal as a good use of capital, and said investors see the bid as "empire building" and without synergies such as improved efficiencies or cost savings.

Shares of Comcast's stock fell 43 cents, or 2.7 percent, closing Friday at $15.24.  The stock declined over 7 percent on Thursday.

However, others see an opportunity by Comcast to acquire valuable NBC programming at an attractive price.

Wells Fargo analyst Marci Ryvicker upgraded Comcast from "marketperform" to "outperform", citing the fact that Comcast isn't issuing stock to buy NBC Universal, and is therefore not diluting existing shares.  She also cited additional growth opportunities the deal would provide Comcast.

Comcast's move to add content to its cable TV business comes not long after Time Warner Inc. chose to separate from its cable operations, Time Warner Cable Inc.

And Comcast will inherit the ratings and advertising challenges at the NBC network.

Some analysts say there will likely be fierce regulatory scrutiny that could force a distant relationship between Comcast and NBC Universal.


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