Comcast Corp. said Thursday it has finalized a deal to buy a majority stake in NBC Universal for $13.75 billion, giving the nation's largest cable TV operator control of the Peacock network, an array of cable channels and a major movie studio.
Although the deal could mean that movies could reach cable more quickly after showing in theaters, it already is raising concerns that Comcast will wield too much power in the entertainment industry.
Indeed, if the deal clears regulatory and other hurdles, Comcast would rival the heft of The Walt Disney Co. — which Comcast CEO Brian Roberts already tried to buy.
Comcast, which already serves a quarter of all U.S. households that pay for TV, would gain control of the NBC broadcast network, the Spanish-language Telemundo and about two dozen cable channels, including USA, Bravo and Syfy. It also would have regional sports networks, Universal Pictures and theme parks.
(Msnbc.com is a joint venture of Microsoft and NBC Universal.)
The deal is a major turning point for Comcast, catapulting the Philadelphia-based company to a media conglomerate and above the pack of cable operators that remain content to run their regional cable systems.
"Does the world ever stand still?" Roberts said. Bringing NBC Universal into the Comcast family is "pro-consumer" and would allow the company to more quickly deliver "what consumers want, which is access to all different types of content on different platforms and different times."
In agreeing to buy 51 percent of NBC Universal from General Electric Co., which has controlled NBC since 1986, Comcast hopes to succeed in marrying distribution and content in a way Time Warner Inc. could not. AOL and Time Warner are undoing their ill-fated eight-year marriage Dec. 9. Time Warner has already shed its cable TV operations.
Comcast's Roberts and GE CEO Jeff Immelt have been discussing the deal for months, and the final weeks came down to GE's persuading French conglomerate Vivendi SA to first sell its minority stake.
Comcast made the deal because it is eager to diversify its holdings. It faces encroaching threats from online video and more aggressive competition from satellite and phone companies that offer subscription TV services.
But consumer advocates and even other cable operators worry about the deal, saying people could end up paying more for TV.
Once Comcast controls NBC Universal, other subscription-TV operators — DirecTV, Verizon, Time Warner Cable, to name a few — would be negotiating with a rival on how much they have to pay to carry NBC broadcast and cable channels. An NBC Universal under Comcast might be less willing to budge than one under GE. Consumer groups worry that as a result, programming fees that are already creeping up could rise even faster, with the costs passed to customers in their monthly pay-TV bills
Comcast wants the company largely for its cable channels — which are expected to provide about 80 percent of the new venture's profit. Comcast is seeking more programming to beef up its video-on-demand offerings and rely less on cable revenue as the company loses subscribers to rival providers.
NBC Universal is profitable, with operating earnings of $1.7 billion on revenue of $11.2 billion in the first three quarters of 2009, despite weakness in the fourth-place NBC broadcast network and Universal Pictures, ranked sixth in North American box office gross this year by Rentrak Corp./Hollywood.com.
Under the deal, expected to close in nine months to a year if regulators and shareholders approve, GE would buy Vivendi SA's 20 percent stake in NBC Universal for $5.8 billion. Of that, $2 billion is payable in September 2010 if the deal hasn't closed by then, and the remaining $3.8 billion would be due at closing. Universal is to be separated into a new joint venture.
Comcast would buy a 51 percent stake of the new company by paying $6.5 billion in cash and contributing $7.25 billion worth of cable channels it owns, including E!, Style and Golf Channel. Moody's analyst Neil Begley noted that Comcast is jumping in as media company values are relatively low and stands to benefit as business conditions improve.
GE would retain a 49 percent stake, with the option of unloading half its stake in 3-1/2 years and all of it after seven years. The new NBC Universal would borrow $9.1 billion that would partially go toward covering the money GE owes Vivendi.
Comcast would name three people to the board and GE two, and Comcast would manage the joint venture. Jeff Zucker would remain NBC Universal's CEO and report to Comcast Chief Operating Officer Steve Burke. NBC Universal's headquarters are expected to stay in New York.
Consumer groups fear that a Comcast-NBC combination would be so threatening that rivals would strike similar deals just to compete — a sentiment echoed by DirecTV Chairman John Malone in a recent interview with The Associated Press.
The Comcast-NBC deal is widely seen as a test of the Obama administration's resolve to fight media consolidation. Although consumer groups aren't confident regulators will find a legal means to block the transaction, lawmakers quickly promised hearings.
"When major media companies swell to control both content and distribution, we need to make sure consumers are not left with lesser content and higher rates," said Sen. Jay Rockefeller IV, chairman of the Senate committee that oversees commerce.
Shareholders haven't been happy, either, at what they see as a renewed attempt at empire building after Comcast's failed $54 billion hostile bid for Disney in 2004.
Many investors sold off the stock at the first whiff of a possible deal with GE, afraid that Comcast would make an acquisition it couldn't handle and tie up money for dividends and stock buybacks that could boost Comcast's shares. Comcast stock fell 11 percent, vaporizing about $5 billion in market value, between Sept. 30 — when word of the deal leaked — and Wednesday.
In an effort to please investors, Comcast said it would increase its annual dividend by 40 percent, to 37.8 cents per share, and confirmed it would still buy back stock.
If the deal wins approval, Comcast would still have to make it work. It's betting that it could do a better job than Time Warner, which couldn't find a way to make its cable, AOL and content businesses operate well together.
Comcast said there have been deals that have worked, such as News Corp. buying a stake in DirecTV before Liberty Media Corp. took over the satellite TV company. Comcast also said Burke, its chief operating officer, has plenty of experience in content given his former role as an ABC executive.
Comcast also would inherit NBC Universal's weaker units. Its NBC network has had trouble developing hit shows, reflected in the move to bring Jay Leno to prime time. Universal Pictures has been socked with some notable flops including "Land of the Lost." And theme park attendance is down in the recession.
"These kinds of big mergers always have a 'crapshoot' element to them," said Peter Fader, marketing professor at the University of Pennsylvania's Wharton School. "You can never predict with certain success or failure. You can always see it with 20-20 hindsight. This one will be no different."