Comcast’s NBCUniversal Deal: As One Media Era Ends, Another Begins

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A pedestrian walks in front of NBC Studios on 50th Street in New York City, Dec. 1, 2009.

Comcast’s $16.7 billion deal to purchase the remaining half of NBCUniversal from General Electric solidifies the cable and broadband giant’s role as a media titan and represents a triumph for CEO Brian Roberts, whose father founded Comcast in 1963 by buying a 1,200-subscriber cable TV company in Tupelo, Miss. for $500,000. Since then, Comcast has steadily grown through acquisitions and savvy business deals. It is now the largest cable company in the United States, and one of the largest providers of broadband Internet and home phone service.

GE’s sale of its remaining NBCUniversal stake marks a symbolic milestone in the history of American broadcast media, and the arrival of a new, digital era in which cable-giant Comcast has emerged as a dominant force in entertainment and communications.

By assuming full ownership of NBC Universal — which includes NBC’s famed “Peacock Network,” NBC News, MSNBC, CNBC, Universal Pictures, the Universal theme parks and resorts, and several popular cable channels, including Bravo — Comcast takes full control of a crown jewel of American news and entertainment, whose history mirrors the emergence of modern broadcast media in the 20th Century.

For Comcast, the deal represents a clear commitment to cable and broadcast television, even as the Internet revolution has given consumers more entertainment choices than ever before. Despite past fears that the Internet would eviscerate TV advertising, much as it has done to print media, television — especially cable TV — remains a highly profitable and growing business.

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“Our decision to acquire GE’s ownership is driven by our sense of optimism for the future prospects of NBCUniversal and our desire to capture future value that we hope to create for our shareholders,” Roberts said in a statement. Comcast shares jumped 3% Wednesday in response to the deal, touching a multi-year high; the company’s stock price has increased 46% over the past year and 68% over the past two years.

For GE, divesting its remaining NBCUniversal stake is part of CEO Jeffrey Immelt’s plan to focus on the company’s industrial businesses. GE, whose roots date back to Thomas Edison, manufactures a wide array of products including lightbulbs, locomotives, and jet engines. Nevertheless, the sale must be bittersweet for GE, whose history with NBC goes back to 1926, when the company’s RCA unit created the National Broadcasting Company, the first of its kind in the United States, ushering in the modern radio and television age. GE was forced to sell NBC in 1930 over federal antitrust concerns, but re-purchased the company in 1986.

The deal is also the latest evidence of intensifying mergers and acquisitions activity in the media and technology space, which has seen a wave of consolidation in recent years. Last week, U.S. cable giant Liberty Global announced a $16 billion deal to buy British cable giant Virgin Media, in a move that will create one of the largest broadband companies in the world, and set up Liberty mogul John Malone in a clash of the media moguls against longtime rival Rupert Murdoch and his News Corp. conglomerate.

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Also last week, computer giant Dell announced plans to go private in a $24.4 billion deal. And on Wednesday, Fortune reported that Time Warner (parent company of TIME) is in talks with Des Moines-based publisher Meredith about selling its Time Inc. division, although it will reportedly hang on to TIME, Fortune, and Sports Illustrated.

In 2011, Comcast closed a deal with GE to purchase a 51% controlling stake in NBCUniversal for $13.8 billion in cash and assets. By only buying half of the company at that time, Comcast protected itself somewhat from deteriorating performance at NBC, which was struggling to emerge from the Great Recession amid a dismal media climate.

Although there was a structure in place to purchase the remaining stake gradually by 2018, Comcast executives concluded that it made more sense to complete the deal in one shot right now, especially given improving performance at NBC — which topped its rivals in last fall’s ratings for the first time in nearly a decade — and better-than-expected revenue from last year’s Summer Olympics, which was broadcast exclusively on NBC networks. Also, by completing the deal now, Comcast executives — as well as financial analysts and media observers — believe that the company received a very favorable price for NBCUniversal.

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“Comcast got it at a steal, a phenomenal price,” Matthew Harrigan, an analyst at Wunderlich Securities, told Bloomberg. “NBCU is worth north of $40 billion if you turned around the movie studio and got the broadcast network to work.” Comcast will fund the deal with $11.4 billion in cash, $4 billion of senior unsecured notes to be issued to GE, and $2 billion in debt. The cable giant will also spend $1.4 billion to purchase the iconic GE Building at 30 Rockefeller Plaza — home of several NBC broadcasts, including Saturday Night Live — and CNBC’s headquarters in Englewood Cliffs, New Jersey.

Because ownership of the GE Building includes naming rights, it’s theoretically possible that Philadelphia-based Comcast could replace the famous glowing red GE logo with a Comcast logo. Needless to say, such a move would be intensely symbolic, because it would alter an iconic feature of the New York City skyline, and visually reinforce Comcast’s increasingly influential presence in midtown Manhattan, the center of the media world. But Roberts told CNBC that a decision on the GE Building logo is “not something we’re focused on talking about today.”

Comcast’s 2011 purchase of a controlling stake in NBCUniversal was opposed by some media reform advocates who were concerned that combining a major content creation company with a vast content distribution network would give Comcast too much power, and allow it to withhold NBC content from its competitors. But after a lengthy government review process, in which Comcast made a series of concessions as part of a consent decree – including a hands-off approach toward the news division and a pledge to make NBC content available to rival broadcast systems — federal regulators approved the deal.

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Comcast does not expect that any further regulatory approvals are needed, according to a source close to the company, because federal regulators evaluated the original transaction with the expectation that Comcast could eventually buy all of NBCUniversal, which it is now doing. “The only way that the government would look further at this is if Comcast violated its consent decree,” Richard Brosnick, an antitrust expert with law firm Butzel Long, told Reuters.

Nevertheless, the deal continues to rankle some critics. In her new book Captive Audience: The Telecom Industry and Monopoly in the New Guilded Age, Susan Crawford, a tech policy expert and professor at Cardozo Law School, argues that the merger created a huge conflict of interest. “Even as the Internet was becoming the world’s general-purpose network, the merger would put Comcast in a prime position to be the unchallenged provider of everything — all data, all information, all entertainment — flowing over the wires in its market areas,” Crawford writes.

This week, Comcast said that fourth-quarter net income rose 18% to $1.52 billion, on revenue of $15.9 billion. For the full year, the company reported sales of $62.5 billion, a 12% increase over 2011. Although Comcast lost 336,000 cable video subscribers in 2012, it still has 22 million cable video customers nationwide. And the company’s broadband Internet user base is exploding. Last year, Comcast added 1.2 million high-speed Internet customers, as users flee DSL service in favor of faster cable broadband, and 613,000 voice customers. In total, Comcast now has over 50 million combined video, high-speed Internet, and voice customers in the United States.