COMCAST STRIKES DEAL

By Meg James and Joe Flint

Los Angeles Times

December 4, 2009
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In a momentous shift in the balance of power of the entertainment industry, cable television giant Comcast Corp. announced this morning that it was acquiring control of NBC Universal from General Electric Co.

The proposed $30-billion transaction is the fruition of a longtime ambition by Comcast's 50-year-old chief executive, Brian Roberts, to recast his family-controlled Philadelphia company into a leading producer of movies and television shows and a purveyor of prominent cable and broadcast networks, including the venerable NBC.

Under terms of the deal, Comcast will contribute its entertainment channels, including E and Versus; nine regional sports networks; and about $6.5 billion in cash in exchange for 51% of the new venture, which will continue to be called NBC Universal for the immediate future.

The deal underscores how cable television -- not a broadcast network or a Hollywood movie studio -- has become the new profit center for media conglomerates.

GE, which has owned the NBC network for 23 years, will reduce its ownership in the company to 49%. The deal sets up GE for a gradual exit from the entertainment business, granting Comcast the right to buy out GE's interest within eight years. GE placed a value of $30 billion on its NBC Universal businesses.

Comcast said the entertainment assets that it was contributing to the joint venture were worth $7.25 billion.

Giving up control of NBC Universal represents a significant retrenchment by GE, which has long prided itself on strong management. But the industrial giant no longer appeared to have the wherewithal to navigate the rapidly changing media landscape or the will to make the financial investment needed to revive the slumping peacock network and troubled movie studio.

If the deal wins regulatory approval, the new Comcast-controlled NBC Universal will be one of the largest entertainment companies in the world, with assets spanning the NBC broadcast network; more than a dozen cable channels, including USA Network, Syfy, Bravo, E and Style; nine regional sports channels; the Universal Pictures film studio; Universal Studios theme parks; Spanish-language network Telemundo; more than two dozen TV stations; and a stake in the popular online video website Hulu.

"This deal is a perfect fit for Comcast and will allow us to become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding," Roberts said in a statement. "In particular, NBCU's fast-growing, highly profitable cable networks are a great complement to our industry-leading distribution business."

The deal will be one of the first big mergers to face regulatory scrutiny from the Obama administration and is expected to undergo a lengthy review, lasting perhaps a year or longer, before the two companies are allowed to combine. Already advocacy groups and rival media companies are lining up to protest the grip on programming that the new company would have on television and the Internet.

Comcast's move to acquire control of NBC Universal runs counter to the current trend of media giants shrinking. Many investors have concluded that the hoped-for "synergies" between content producers and distributors rarely deliver on their promise.

Earlier this year, for example, Time Warner Inc. unloaded its cable TV division and next week it plans to spin off its AOL unit. Four years ago Viacom Inc. split from CBS Corp after determining that it was nearly impossible to get the two companies' far-flung business units to mesh.

Comcast's deal with GE, negotiated over the last eight months, became possible when French conglomerate Vivendi agreed this week to sell its 20% stake in NBC Universal for $5.8 billion.

Steve Burke, Comcast's chief operating officer, will oversee the new venture, an entertainment colossus that would rival Walt Disney Co., News Corp. and Viacom in size and power. NBC Universal's current chief executive, Jeff Zucker, will stay on to manage the company's day-to-day operations.

As for the legendary Universal Pictures, Comcast would become the Hollywood studio's sixth owner in less than 20 years. Another change in ownership comes at an awkward time for Universal, which has suffered from a string of losses at the box office and turmoil within its management team. The studio's two top film executives were forced out in early October after costly misfires including "The Land Before Time" and "Funny People."

Comcast's two primary challenges will be integrating two huge companies with dramatically different cultures and fixing the NBC broadcast network, which has suffered from years of mismanagement and cost-cutting.

In what appears to be a major miscalculation, Zucker moved comedian Jay Leno's program into prime time, which has produced paltry ratings for the show and chased viewers away from the late local news programs of affiliated NBC TV stations. The shift also severely damaged NBC's late-night comedy shows, which until this season were some of the brightest stars in the NBC firmament.

A Comcast-controlled NBC Universal will have an advantage over its content-owning rivals: a cable TV pipeline reaching nearly a quarter of American homes with TVs. That not only will give it an edge when it launches new cable networks but also will provide a huge base of customers to which it can sell pay-per-view programming, including movies from the Universal movie studio and sports programming from NBC.

Comcast also will have an important role in determining how entertainment is distributed over the Internet and whether consumers will have to pay more to watch TV shows and movies on their computers and other devices.

More startling to some, Comcast will now own one out of every seven TV channels, provoking concerns about media concentration.

"No entity should have control over such a large audience," Andrew Schwartzman, president of Media Access Project, a media watchdog and public interest law firm, said in a statement. "It's the most important merger since Lucy met Desi."

In addition to the Federal Communications Commission, the deal also must be reviewed by the Department of Justice or the Federal Trade Commission. Congress also will weigh in, with the Senate Judiciary Committee's antitrust subcommittee expected to hold hearings on the proposed merger, perhaps as soon as this month.

In a letter to regulators and policymakers this morning, Comcast made several commitments aimed at easing concerns about the size of the new entity. Among the most crucial, Comcast said NBC would remain an over-the-air broadcast network. The company also would obey existing rules and not withhold its content from rival distributors, such as satellite broadcaster DirecTV or Verizon's Fios television service.

Some corners of the media industry are expected to lobby for concessions, although many experts expect the merger to ultimately win federal approval because there are no rules against combining content producers with distributors.

Finally, the formation of the new company would mark the end of an era for GE's management of a major media company.

GE, which acquired NBC in 1986, turned it into a profit- and hit-making machine, inventing the slogan "must-see TV" and fielding such memorable programs as " Cheers," "Seinfeld," "Friends," "Frasier" and "Law & Order."

NBC also was an early proponent of the future of cable television, building news channels CNBC and MSNBC. Through GE's deep pockets, NBC was able to secure its high-profile and expensive contracts to broadcast the Olympics and National Football League games and to acquire Vivendi's Universal assets five years ago.

"NBC Universal has been a great business for GE over the past two decades," GE Chief Executive Jeffrey Immelt said in the statement. "I am confident Brian Roberts and his team at Comcast will be great partners."

Not everyone was sure that this was the ending that GE had hoped for.

"Unfortunately for GE, it looks like they'll have bought high and sold low on their NBCU assets," Sanford Bernstein & Co. media analyst Craig Moffett wrote in a report several weeks ago analyzing the deal.

meg.james@latimes.com

joe.flint@latimes.com