V I D E O • A G E AP R I L 2 0 1 0 50 (Continued from Cover) Comcasting NBC Opens Floodgate the cost of cable. Additionally, there’s the possibility that Comcast will convert NBC into a pay-TV or cable channel like its other properties, rather than leave it as a free, over-the-air channel. Such a scenario would be a detriment to those who cannot afford cable, depriving them of local news as well as entertainment programming. However, Comcast’s Roberts made statements denying that his company has any intention of changing the channel’s distribution format. Comcast’s only motives, he said, are to restore and invest in NBC. As for the Internet, the fate of web distribution platform Hulu.com is also uncertain. NBC holds a 32 percent stake in Hulu, which streams the network’s content for free. Meanwhile, Comcast owns as similar site called Fancast. Concerns for Hulu are two-fold: that it will disappear altogether, or that combined with Fancast it will create too large an entity that will crush competition. Roberts and Zucker dismissed the latter worry, assuring the Committee that Fancast garners less than one percent of the online viewing audience. Though Comcast and NBC face a minefield of obstacles and potential pitfalls, the merger is not without its upside. NBC has been saddled with a parent company whose core business is not entertainment since GE’s acquisition in1986. It could certainly be better served by an owner in the business of media. NBC has lately faced growing problems, including increased distribution costs of network of TV affiliates that are not necessarily needed. It depends mostly on advertising revenues and cannot get full retransmission fees as long as it needs to position its dot channels on cable. Additionally, in recent years GE has been reluctant to open its purse strings for quality programming. Many think that it was this overly frugal programming scheme that led to the creation of the cheaply produced Jay Leno Show on nightly primetime. ES billion would be due at closing. Comcast would name three people to the board of the new company and GE two. Comcast would manage the joint venture. Zucker would remain CEO of NBCU and report to Comcast COO Steve Burke. All this, of course, is pending Washington’s approval. In order to obtain the green light from the government, Roberts and Zucker were eager to explain how the deal will advance some of Congress’ key policy goals on “diversity, localism, innovation and competition.” However, critics, many of them government officials, have nevertheless derided it as anticompetitive and monopolistic. The fear among naysayers is that the acquisition will be yet another step towards the major media companies being owned by just a few individuals. Roberts and Zucker countered such arguments by emphasizing that the transaction will be a “vertical combination of NBCU’s content with Comcast’s multiple distribution platforms.” In today’s media landscape, the two argue, the new NBCU will still “face competition from a growing roster of content providers,” and competition from distributors will be as fierce as ever. Nevertheless, there’s widespread concern that the corporate juggernaut could put smaller media companies, Internet entrepreneurs and independent producers out of business. The deal also raises a number of concerns from the consumer’s perspective. Early February marked the beginning of Senate and House hearings on the merger, and Roberts and Zucker were met with widespread censure. At the Senate Judiciary Committee hearing, Wisconsin Democrat Herb Kohls demanded to know “how the creation of this media conglomerate will serve the interests of the American people, not just the interests of [the involved] companies.” The House Commerce Committee’s subcommittee on the Internet had a similar tone, with Mark Cooper of the Consumer Federation of America giving a statement predicting that the merger would “radically alter the structure of the video marketplace and result in higher prices and fewer choices for consumers.” Representative Edward Markey, a Democrat fromMassachusetts and a senior member of the subcommittee commented, “The issue before us boils down to the seven C’s: Will this Combination of Communications Colossi Curtail Competition and Cost Consumers?” Kohl’s, Cooper and Markey, as well as a number of other officials echoed the worries of many consumers that the deal will give Comcast leverage to raise Executives from both sides were tightlipped on the subject of the deal, declining to comment until proceedings with the FCC drew to a close. A rep from Comcast stated only that “[we’re] going through the regulatory process” and attending “more meetings in the next two weeks.” However, Brian L. Roberts, chairman and CEO of Comcast Corp. as well as the son of the company’s founder, and Jeff Zucker, president and CEO of NBCU issued a statement last February to the House Committee on Energy and Commerce Subcomittee of Communications, Technology and Internet highlighting some of the deal’s key points. For starters, the Peacock Net will keep the name “NBCU” despite the fact that Comcast will own 51 percent of the company (GE will retain 49 percent). According to the statement, the deal “will combine in a new joint venture the broadcast, cable programming, movie studio, theme park and online content business of NBCU with the cable programming and certain online content businesses of Comcast.” The statement asserts that “the new NBCU will benefit consumers,” elaborating that its acquisition by Comcast will encourage much needed investment, which will in term fund innovation. Reportedly, for its 51 percent Comcast is expected to pay NBC some $3.7 billion in cash, merge its $7.25 billion worth of cable channels into a spun-off NBCU and carry $9.1 billion of debt to the new company. GE has the option of unloading half its stakes in 42 months and all of it in seven years. In addition, the new NBCU company would borrow the $9.1 billion that would partially go toward covering the money GE owes Vivendi. French company Vivendi owns the 20 percent of NBCU that GE committed to acquire for $5.8 billion in order to go through with the Comcast sale. Of that, $2 billion is payable this coming September if the deal hasn’t closed by then, and the remaining $3.8 cancelled. Soon after, Conan O’Brien (who used to host his own show at 12:30) was ousted as the host of the 11:30 PM Tonight Show, which was then handed back over to Leno. But the biggest development of all took place behind the scenes. While the late night war raged, Philadelphia-based cable channels operator Comcast Corp. was busy buying out NBC Universal from GE and becoming the network’s majority interest. The deal that valued NBCU at $30 billion, was announced on December 3, 2009, but at press time, hearings with the FCC were still underway to determine its legal and regulatory ramifications. VideoAge took a look at the acquisition to determine the pros and cons for both parties, and the implications for the industry at large as well as consumers. Comcast is the U.S.’s largest cable operator, with revenues of $36 billion in 2009. Additionally, it runs 10 specialty channels (like E!). The NBCU merger is not the first time the cable giant has gone after a combination studio/network. In 2004 it failed on a $54 billion hostile bid for Disney. Such mergers could be in the company’s DNA, considering its name is an amalgamation of the words communication and broadcast. But Comcast has more serious reasons for wanting NBCU, apart from the loss of cable subscribers that amounted to233,000 in 2009 alone (out of 24 million). Comcast faces threats from online video, competition from satellite, phone companies and even theater owners who don’t want to see the cable window get too close to film releases. As a distribution (or “dumb pipes”) service, it also competes with Wi-Fi operators as well as telcos. Margins on content are reduced by the per-sub fee it pays to channels, the retransmission fee requested by TV stations and by content owners who demand a bigger cut. For its part, NBC is the General Electric-owned entertainment group that includes Universal Studios. NBCU is part of a media group with 2009 revenues of $15.44 billion. The group includes TV network (NBC), a film and TV studio (Universal), eight specialty channels run under NBC (including Bravo and USA) and five specialty channels under Universal. Also run under NBCU are CNBC and, in partnership with Microsoft (18 percent stake), MSNBC. NBC’s Jeff Zucker Brian Roberts of Comcast
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