A Closer Look at Comcast’s NBC Universal Acquisition

1. Summary

Comcast’s pending acquisition of NBC Universal, approved by the companies’ boards of directors on Dec. 2, 2009, represents the culmination of an impressive bit of dealing: a three-way bank shot involving General Electric, Vivendi and a new joint venture. It also had a lot of moving parts, faced complex valuation metrics and tight balance-sheet tolerances, and yet it all came together remarkably fast for a $30 billion merger. According to the New York Times, talks between Comcast and GE only began in July, at a secret meeting at Allen & Co.’s annual mogul-thon in Sun Valley, Idaho.

That said, there’s a long way to go yet before the deal closes. Regulators from the Federal Communications Commission, the Federal Trade Commission and the Department of Justice will be chewing over the merger for months, pushing back the final closing probably until sometime in the second half of 2010 — and perhaps later. Competitors and public interest groups concerned about media consolidation are already putting stakes in the ground for what is likely to be a combative regulatory review and the deal could also face scrutiny on Capitol Hill, where the House and Senate Commerce Committees have indicated they may call hearings on the merger. The final shape of the new joint venture that will hold NBC Universal could also change should regulators compel Comcast to shed some assets as a condition of approving the deal.

Figure 1: The Combined Pieces of Comcast/NBCU

Source: Comcast

Comcast, in fact, is already anticipating that regulators will place conditions on the deal and released a five-page memo concurrent with the deal announcement, itemizing the concessions it is preemptively offering the feds. Among the highlights:

• Preserving and enriching the output of local news and public affairs programming on NBC-owned stations;
• Enhanced children’s programming across both cable and broadcast platforms;
• A promise to keep 75 percent of Comcast’s VOD content free to subscribers for three years;
• Extension of the FCC’s program-access rules to retransmission consent for NBC and Telemundo (essentially a promise to make NBC and Telemundo content available to other multichannel video program distributors under customary terms and conditions).
• A promise to add six new unaffiliated networks to Comcast’s cable systems once its digital transition is complete;
• A promise to maintain NBC News’ independence from its owners “non-media” interests;
• Honoring all of NBC Universal’s collective bargaining agreements.

Most of the preemptive concessions, or at least the big ones, it’s worth noting, concern NBC’s broadcast assets. To some extent, that’s simply smart politics on Comcast’s part: regulators are almost certain to demand most of them anyway, and they don’t really cost Comcast very much: A promise to make NBC’s broadcast programming available to competing cable MSOs may sound like a big deal, but it’s entirely consistent with Comcast/NBC’s own interests. Any ad-supported broadcaster is going to want to maximize distribution, so it would make little sense to deny NBC content to the 70 percent of MVPD subscribers Comcast doesn’t serve.

But the fact that Comcast was quick to offer concessions on the broadcast side serves to underscore the degree to which the deal is not really about NBC’s broadcast assets in any case. This is a deal about NBC Universal’s cable networks, which include CNBC, MSNBC, Syfy, USA, Oxygen and Bravo, among others, and to a lesser extent, Universal Studios.

Here’s how we think the companies and those industries will be affected by the deal, assuming the merger goes through more or less in its current form.