NEW YORK (AdAge.com) -- They aren't there yet. A proposed deal that would join together General Electric's NBC Universal with Comcast Corp.'s entertainment assets faces a long haul to the finish line. But even with an outcome uncertain, it's clear that the pact would make Comcast even more of a force with which marketers would have to reckon.
Any deal involving NBC Universal is predicated on the notion that Vivendi will exercise its exit rights in relation to its 20% stake in the venture, which it can do each year between approximately Nov. 15 and Dec. 10, according to Bernstein Research. That said, a Vivendi decision to get out of the company would leave General Electric trying to determine whether to sell the stake, hold an IPO for it, or bring in a partner, according to people familiar with the situation. And even if it does decide to go the partnership route, who's to say it isn't holding discussions with parties other than Comcast?
So it seems as if Comcast and GE are sniffing each other intently, rather than getting the signing documents ready. Even so, talks between the two parties appear to be centering on the idea of a joint-venture property that would include Comcast's entertainment assets -- which include the E! Entertainment network, the Versus sports cable channel, regional sports networks and the male-oriented G4 outlet -- and all of NBC Universal's properties, including its Universal movie studio, NBC broadcast network, theme-park properties and burgeoning suite of cable assets. Comcast would likely contribute between $4 billion and $6 billion, according to a person familiar with the matter, with GE contributing approximately $12 billion raised through debt.
Comcast would have majority control, taking a 51% stake in the venture, compared to GE's 49%, according to a person familiar with the situation. The move would make Comcast, already the nation's largest cable-services provider, the overseer of a large portion of news, entertainment and information, and the backer of everything from "30 Rock" to CNBC to Chelsea Handler to Conan O'Brien to broadcasts of NHL games.
An NBC Universal spokeswoman was not able to be reached for immediate comment. A Comcast spokeswoman said Comcast executives were not available for comment.
Ready and willing
Comcast's interest is obvious, particularly after the once-sleepy concern made a bid in 2004 for Walt Disney Co. Gaining control over NBC would give Comcast scads of content to ship over its cable and broadband lines, and it would add a raft of cable networks that have two streams of revenue -- subscription fees and advertising.
In looking at big media companies, "the best businesses that all of us have in the entertainment business are the cable content channels, and those channels, with that dual revenue stream, are really good businesses," said Stephen Burke, chief operating officer of Comcast, at a recent investor conference. "And I think we wouldn't be doing our job if we didn't try to figure out a way to get bigger in those businesses."
Advertisers might be interested in services Comcast could bring to the table, including the capabilities of a cable set-top box. Marketers have long hungered for the second-by-second viewership data these devices record, as well as the interactive and addressable advertising they help enable. Comcast could also help spur more on-demand use of programming -- a viewing opportunity more advertisers would like to crack.
More important, perhaps, gaining those channels would also give Comcast protection in an era when consumers have more power to avoid commercials, potentially crimping the flow of ad revenue. TV networks are looking to raise the fees they get from cable systems for their programming a way to make up for ratings erosion and lower ad rates.
What's more, some Wall Streeters believe the broadcast networks could one day seek to take a piece of the fees cable providers charge subscribers for usage of digital video recorders -- particularly because the most heavily recorded programs are those that originate from the big broadcast networks. Bernstein Research analyst Michael Nathanson estimates U.S. consumers will pay around $3.3 billion in 2009 on DVR subscription fees to their video providers. Assuming a 50-50 split, he recently estimated, "one could surmise there is a potential $1.65 billion in fees that could be claimed as 'content payments.'"
No debt here
The joint venture would allow Comcast to take on content and hedge against such payments for what would seem to be a reasonable price. The company has spent considerable time deleveraging its balance sheet in the last several years and has little interest in building debt anew. In his remarks, Mr. Burke downplayed the notion that Comcast would seek "a big $50 billion acquisition," favoring instead "opportunities that are complimentary with our core business."
GE's interest in such an agreement comes after a year of lackluster performance by the NBC broadcast network. While NBC has embarked on a spate of cable acquisitions in recent years -- recently picking up Oxygen as well as a joint-venture with The Weather Channel -- the best-known piece of the operation, NBC, has proven less able to jockey with CBS, Fox and ABC in the prime-time programming wars, where shows fetch the highest advertising prices. Placing NBCU in a joint venture would allow GE to keep its beak dipped in a media cash flow while letting an outside party have the day-to-day worry of managing the glitzy operation.
Taking on NBCU would certainly pose other challenges. It's one thing to program G4 or E!; it's quite another to program USA and even NBC (and how facile would Comcast be at managing NBC News, MSNBC and CNBC, which can generate as much news as they break?). And the NBC broadcast network brings with it a unique set of hurdles, including the fact that it has lagged in the ratings for several years and has recently begun the deconstruction of its prime-time lineup with a cheaper-to-produce talk show featuring Jay Leno.
Comcast "would have a controlling stake in good-performing cable networks and could also utilize NBCU's content library," wrote Wells Fargo analyst Marci Ryvicker in a Friday-morning research note. "Clearly there is less of a need for the broadcast network/O&Os or theme parks, which could be further spun or eventually sold."
The road to the altar will be long and uncertain, and any marriage that results would be just the start, not the finish, of what is sure to be a long-running story.
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