Comcast Play for NBC Universal Is a Bet on Future of Advertising

Union Would Allow Experiments in DVR, Addressable Campaigns

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NEW YORK ( -- Comcast Corp. is looking to take a 51% stake in NBC Universal, surely a sign of the durability of cable networks, since NBCU owns a bunch of top-tier ones. But there's more going on here: It's also a calculated move to seize the reins in shaping future TV-viewer behavior and a bid to assume the lead in figuring out how to advertise to the new-media consumer.

Comcast and NBC Universal

What a merged Comcast-NBC Universal would look like.
"There are real potential synergies that could arise from an NBCU deal, including ... better windows for video-on-demand and faster development of addressable advertising," wrote Bernstein analyst Craig Moffett in a recent research note. Indeed, a merger of a big content player and a broad media distributor could create "a tipping point," said Tracey Scheppach, senior VP-video innovation director for Publicis Groupe's Starcom USA. "If a big content player like NBC breaks loose with a new business model and advertisers embrace it, others would have to move quickly."

A deal could be struck sometime in the next two weeks, according to people familiar with the situation, and a lot of attention is bound to focus on the myriad cable outlets Comcast will add to its relatively thin content arsenal. USA, Bravo, SyFy, MSNBC, CNBC, Oxygen and the like are nothing to sneeze at -- media properties that bring subscription revenue as well as ad dollars are viewed as more stable when the nation figures out whether or not its coming out of a recession.

A combined company would cement Comcast's place as the nation's biggest media company, and it would become the fourth-largest owner of cable networks (behind Walt Disney Co., Time Warner and Viacom.). Consider the sizable audiences a combined Comcast/NBCU could offer marketers, including the potential to target female consumers through NBC's Bravo and iVillage as well as Comcast's E!, Style and, for example. Comcast's sports properties, such as Golf Channel and Versus, could be paired with NBC's "Sunday Night Football" to similarly reach a male target.

New opportunities
A merger with NBCU gives Comcast access to a whole new slate of marketer relationships. NBC Universal derived 52% of its revenue from advertising ($6.8 billion) in 2008, according to Advertising Age DataCenter analysis. Comcast only relied on advertising for 7% ($2.1 billion) of its revenue that same year. A combined company would likely garner 21% of its revenue from advertising, but if Comcast is aggressive about pursuing new models for advertising, it could increase that percentage.

A mid-October forecast from Dallas-based market-researcher Parks Associates predicted U.S revenue from so-called "advanced TV advertising," which can include anything from ads within video-on-demand, to commercials inserted into digital-video recorder interactions, to ads that viewers respond to using their remote control, should reach $130 million by the end of 2010. By 2014, Parks said, U.S revenue from such methods will exceed $4 billion, accounting for nearly 12% of total cable, satellite and telecommunications-provider TV-ad revenue.

Entities ranging from Cablevision Systems to Time Warner Cable to the cable industry's own "Project Canoe" are working on developing commercials for these formats. Cablevision, for instance, recently unveiled a new ad format that lets viewers order up coupons and other perks without being taken away from the show they originally tuned in to see. But media observers think it's going to take a massive combination of distribution players and content providers to really move such ideas forward. After all, TV networks and similar companies get most of their ad revenue from commercials that appear alongside their shows, not ads that get sent out by the people who help those shows get to individual TV screens.

Experiments with what is known as "addressable" advertising, or ads that are sent to households in a more targeted fashion using cable set-top boxes, have been underway for the last several years. In Huntsville, Alabama, Comcast worked with Publicis's Starcom MediaVest Group, sending ads from marketers such as General Motors, Discover Card, Hallmark, Kraft Foods, Mars, Miller Brewing Company and Procter & Gamble to viewers who matched up with pre-defined demographic segments.

The companies found that homes receiving addressable advertising tuned away from the commercials 38% less than homes that received non-addressable advertising. The theory among TV executives and ad buyers is that marketers would consent to paying a premium for such advertising, and that media outlets could sell the same 30-second piece of ad inventory to multiple clients, since they would have the ability to send different ads to different cable subscribers in a single instance.

Steps Comcast can take
Should the merger pass muster with regulators and other parties, a process that could take months, Comcast stands to control approximately 20% of U.S viewing hours, according to Bernstein Research. While the deal has its naysayers on Wall Street and in the media business, there's a lot the Philadelphia concern -- led by the Roberts family -- can do. Comcast can use the glitzy Hollywood tinsel that is so much a part of TV programming to bolster the less sexy stuff -- TV-watching behavior, the ways in which consumers are given access to video content and much more. Comcast could marshal a massive slab of audience that can be prodded, poked and cajoled into doing all sorts of things to keep up with the content that tickles their fancy.

Trying to generate new advertising dollars is just one of the challenges Comcast will face should it take control of NBC Universal. The company's NBC broadcast network has continued to turn in lackluster ratings performance in comparison to its peers, and local stations around the nation have been destabilized by digital technology and the economic downturn, with its effects on local auto advertising. NBC and its stations are likely to remain as part of the company, according to people familiar with the situation. NBC Universal's current management, including NBCU president-CEO Jeff Zucker, is likely to remain at the company under Comcast's aegis, according to those people, with Comcast Chief Operating Officer Stephen B. Burke maintaining corporate oversight of the entity.

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