Comcast-NBC Merger

After nearly nine months of negotiations, Comcast, the nation’s largest cable operator, announced an agreement to acquire NBC Universal from General Electric. The biggest media merger since AOL acquired Time Warner has attracted everyone’s attention. In part because of consumer’s curiosity regarding the future of their favorite television shows, but more because of the effect it will have on the future of broadcast television.

The long-awaited agreement would give Comcast control of one the country's most storied

broadcast networks, a major movie studio and a handful of popular cable channels such as USA Network and Bravo. The deal would also make Comcast, already the largest cable operator and third-largest phone company in the U.S., a kingpin in the media business and one of the most influential forces in both cable distribution and content production. Possibly transitioning the world of broadcast television into, what most experts call, its inevitable web-based future.

Details released regarding the merger describe a complex transfer of control from General Electric to Comcast. Both companies will become part of a new joint venture that combines the Peacock Network, Universal Studios and Comcast’s own stable of cable channels. The agreement will give Comcast a controlling 51 percent stake in NBCU, while GE would reduce it’s current 80 percent ownership to a much more manageable 49 percent. Comcast is contributing $6.5 billion in cash and its cable channel properties, including E!, Versus, regional sports networks and others, valued at $7.25 billion. The deal appraises NBC Universal at $30 billion, bringing the grand total of the venture to a whopping $43.25 billion. Comcast would control the venture's day-to-day operations and have the right to buy the rest of NBC Universal from GE within seven years.

The proposed merger would significantly reshape the media landscape by giving the nation's largest cable and broadband Internet provider control over 82% of cable programming channels that make up one out of every five TV viewing hours. The proposed merger faces significant hurdles, including a close review from federal regulators that some analysts say could last up to 18 months. Both the Federal Trade Commission and the Justice Department will review whether the deal is anti-competitive, and the Federal Communications Commission will examine how the deal affects consumers. Regulators will be concerned whether Comcast could limit access to its video content by other cable providers, or whether they could limit access to its content to emerging video providers that use wired or wireless networks. In foreseeing a long regulatory fight, Comcast has taken steps to try resolve any issues that might come up in the review. Comcast published a letter on December 3rd that outlined commitments to enrich and extend programming for children and minority groups as well as proposed policies to protect the independence of NBC’s news department. When asked about the NBC broadcast network and its affiliate structure, Brian Roberts, the chief executive of Comcast, said, “We’re committed to free, over-the-air broadcast television continuing.” In a joint statement announcing the agreement, Mr. Roberts said the deal was “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.”

Perhaps the most appealing asset that Comcast would acquire is NBC’s partial ownership of Hulu.com, in addition to News Corporation and Disney. On Hulu and other sites like it, TV episodes are available any time, usually for a full month after they premiere; the images are crystal clear, and the commercial breaks are short. According to comScore, Hulu is now drawing more than 40 million visitors a month, presenting a major contradiction to broadcast television’s traditional business model. Even though Hulu does not release revenue figures, executives privately concede the site is not yet profitable. The race to “get our content out to viewers where, when and how they want it” was well intentioned, said Barry M. Meyer, chief executive of Warner Brothers Entertainment, but it is “undermining the basic business model — by making our content less valuable to the people who actually are paying for it.” Comcast has responded to this by reportedly creating an authentication system that would allow subscribers all access to programming available online and will lock out those who do not pay for cable. This comes after reports that Hulu will enact a subscription policy at some point next year.

Many experts think that soon after the merger, assuming it’s passed, Comcast will liquidate NBCU and sell off the remaining assets that prove to be invaluable or unwanted. Such a move could take several years and would have to wait at least until the end of the current prime time season and NBC TV’s contracts with program producers, advertisers and others.

The Prospective Future of Broadcast Television

It is popular opinion that the FTC, FCC and Justice Department would be foolish not to approve the deal; the merger would have Comcast and NBC taking the world of broadcast television into the next generation. In addition to providing a bright spot in a very dim atmosphere around Wall Street, Comcast has found a way to revamp a declining market in a down economy. Comcast would become the kingpin in the media market by owning television stations, a movie studio, networks and theme parks. In acquiring NBCU’s assets, Comcast will revolutionize the media world. Marking the first time that there would be no separation between cable content and cable distribution on a large scale. Control of NBC Universal will potentially make Comcast the most influential party in determining the future of digital-content distribution. However, that very same potential will draw the attention of regulators who may be concerned that Comcast will wield too much power. And isn’t it ironic that the soon-to-be media monopoly will control operations of NBC, which happens to be conveniently headquarted at Rockefeller Center in New York, named after John D. Rockefeller, owner of Standard Oil, taken down in 1911 by the Sherman Antitrust Act.

After absorbing the first major broadcast network in American history, Comcast looks to make a transition to web-based, on-demand distribution and at the same profit from their cash cow, digital cable distribution. As viewers increasingly make little distinction between watching shows on TV or online, companies are working fast on an inevitable streamlining of the model. The unification with NBC allows Comcast to rein in content and build models that will validate the paid cable subscription model of cable, as opposed to the free-streaming, solely ad-supported online models of on-demand viewing like Hulu. The true challenge that lies ahead for Comcast is how to maximize revenue across all screens, but the first step is controlling distribution of premium content.

If the merger is any indication of what is to come, the future of broadcast television seems to be a balance of web-based and cable-programming distribution. The desire of consumers to have the programming when they want and how they want will eventually lead the industry to being solely web-based. In the meantime, more and more content will be provided on-demand online rather than over the conventional airwaves. The Comcast-NBC merger is just the beginning of a media revolution that will change the complexity of the broadcast television world forever. Now all they have to do is unravel the tangled cable and see where it leads.

THE FUTURE OF BROADCAST TELEVISON:

THE COMCAST-NBC MERGER

Mathew Smith

The prospective merger would create monopolistic opportunities for the to-be media giant.

Courtesy of StopTheCap.com

RETURN TO PROFILE