NBC-Universal-Comcast Merger: What We Do and Don’t Know
By Ian Paul
A long-rumored merger has finally become a reality. Comcast and General Electric announced Thursday morning they would enter into a partnership venture that would merge NBC Universal with Comcast’s cable networks, regional sports networks and other properties. Comcast would own 51 percent of the new venture, GE would own 49 percent, and the new entity would be managed by Comcast.
“The combination of assets creates a leading media and entertainment company with the proven capability to provide some of the world’s most popular entertainment, news and sports content, movies and film libraries to consumers anytime, anywhere,” the two companies said in a joint statement.
According to the valuation of the deal by the two companies, the new Comcast-NBC Universal entity would create a media company worth just over $37 billion. While a significant amount of money, the deal is a far cry from the $350 billion valuation of the AOL Time Warner deal nine years ago. No doubt many parallels will be drawn between Thursday morning’s deal and the now-failed AOL Time Warner merger, which is still considered the largest corporate merger in history. But these two deals are not the same, and are operating in vastly different environments especially where online media is concerned. I would argue that Thursday’s deal has the potential to reshape the American entertainment landscape in a way that AOL Time Warner never could.
Here are a few questions about this deal that have got me scratching my head this morning.
What properties are included in the deal?
From the press release: the NBC Television Network; specialty channels including USA, Bravo, CNBC, MSNBC, Syfy, E!, Style, Versus and the Golf Channel; Universal Pictures and Universal Studios Home Entertainment; local broadcast TV stations in ten top U.S. markets including New York, Los Angeles, Chicago and Philadelphia; the national Telemundo Network and 16 Telemundo owned-and-operated stations in locations such as Los Angeles, New York, Miami, Houston, Chicago and Dallas/Ft.Worth; NBC Universal Domestic and International Distribution and a 3,000-title library of television episodes; NBC News including Nightly News with Brian Williams, the Today show and Meet the Press; rights to sports programming including the Olympics (through 2012), NBC Sunday Night Football, NHL/Stanley Cup, PGA Tour, US Open, Ryder Cup, Wimbledon and the Kentucky Derby, Versus, Golf Channel and Comcast’s 10 regional sports networks; digital properties including CNBC.com, Daily Candy, iVillage and Fandango; ownership of theme parks in Florida (50% interest), California (100% interest) and a financial interest in a theme park in Japan; minority interest in A&E, Biography, The History Channel, The Weather Channel, Lifetime and Hulu.com.
What does this mean for Comcast Cable?
According to the joint statement, the new venture would not include Comcast’s cable business. Comcast has created a new entity called Comcast Entertainment Group that will “house Comcast’s interest in the joint venture and will stand alongside Comcast Cable.”
Are there any nightmare scenarios for competing cable providers?
One concern may be that other cable providers are now buying the rights to carry NBC content from a competitor, which could mean higher prices that would inevitably get passed on to you. However, it should be noted that Comcast serves 23.8 million cable customers, but there are over 65 million cable-enabled households in the U.S., according to 2006 numbers from metrics firm SNL Kagan. So the new content company’s interests may diverge from Comcast Cable’s needs.
However, the Associated Press is reporting that NBC shows that now cost money to access through Comcast’s fledgling online on-demand service called TV Everywhere, will be free to Comcast customers for the first three years following the closing of Thursday’s business deal. Comcast was also clear that it would not allow its business interests to influence NBC News, according to the AP.
What about net neutrality?
Comcast has adopted a wait-and-see position to FCC Chairman Julius Genachowski’s intent to develop net neutrality regulations. But it’s notable that Comcast has been disciplined by the FCC for anti-neutrality practices in the past. The stakes for net neutrality are even higher now that Comcast has an interest in content production and a high-speed Internet provider business serving 15.7 million customers.
Without net neutrality regulations, will Comcast Internet customers be able to access NBC.com content faster than CBS.com or Disney-owned ESPN.com? This may also be a case where the interests of ‘Comcast the content creator’ diverge from ‘Comcast the Internet provider.’ But it’s something worth keeping an eye on.
What about Comcast’s TV Everywhere?
According to the AP, Comcast intends to give its on-demand customers free access to NBC content that now costs money, but will Universal movies come to Comcast Internet or cable customers sooner than non-Comcast customers? Again, it’s hard to say, because each Comcast business unit would have diverging interests. Clearly Comcast Cable would benefit from having these premium movies available to its consumers first, but such a limited audience wouldn’t necessarily be in the interest of NBC Universal.
What does this mean for advertising?
I think it’s a pretty safe bet that Comcast will leverage its properties to become an advertising juggernaut. With all those content companies, and dwindling advertising revenues across many traditional channels, this deal could radically change the value of advertising on Comcast’s wide-ranging properties.
What about Hulu?
Comcast has its own on-demand Internet video streaming service called TV Everywhere that is a competing service to Hulu, but for the moment NBC content will remain on Hulu as it always has, according to PaidContent.
According to Ken Ferree, Senior Fellow at The Progress & Freedom Foundation there aren’t any antitrust considerations. In a statement released shortly after the Comcast-GE deal was announced, Ferree said, “The deal raises no general antitrust or diversity issue. Comcast is primarily a distribution company, not a content company like NBCU.” Ferree’s statement then diverges from the subject at hand, and argues for restraining the FCC’s influence on business dealings between media companies.
But it’s notable that one company will have content distribution and content creation units, which could lead to the appearance of antitrust or monopolistic behavior if the company is not careful. This may be part of the reason Comcast says it will be keeping its properties in the joint venture under the CEG tent, which is separate from Comcast Cable. Will that separation between content and distribution satisfy the inevitable antitrust investigation?
Maybe, but remember that during his confirmation hearing FCC Chairman Julius Genachowski said, “Excessive consolidation is something I think that still needs to be paid attention to.” Of course, any concerns about having a content company and a distribution company under the same tent didn’t stop a similar merger in 2000 between AOL and Time Warner. However, Comcast has double the number of cable subscribers that Time Warner did in 2000.
What about privacy concerns?
A company with business units that include high-speed Internet service, cable TV service, digital telephone service, premium online content destinations, a news organization, a movie studio, theme parks, a major television network, and a variety of local television stations will almost certainly come under scrutiny from privacy advocates. In fact, it may make criticisms against Google look like a parlor game.
If this venture is successful, could Comcast one day be big enough to buy Google?