Now the pressure’s officially on.
The long-awaited $37.5 billion merger agreement unveiled Thursday by Comcast Corp. and General Electric creates an enlarged NBC Universal whose performance will be scrutinized as a bellwether for showbiz’s ability to harness digital distribution to create new business models. Comcast chairman-CEO Brian Roberts made it crystal clear in his remarks Thursday that the new NBC U aims “to become a leader in the development and distribution of multiplatform ‘anytime, anywhere’ media that American consumers are demanding.”That means the Comcast-run NBC U is looking to prosper in areas where its media conglom rivals have struggled to develop profit-making ventures. Indeed, the tie of Comcast and its distribution muscle as the nation’s largest cable operator and NBC U with its wealth of cable and broadcast assets, bucks the recent trend of de-consolidation of media assets, as demonstrated by Time Warner’s spinoff this year of Time Warner Cable and the pending divestiture of AOL.
Under the joint-venture structure outlined Thursday, Comcast will acquire a 51% controlling interest in NBC U from GE for $6.5 billion in cash plus the contribution of most of its cable channels and digital assets to the new NBC U. GE will retain 49% of NBC U, and it will have the right to sell more of its stake back to Comcast over a seven-year period, starting 3½ years after the deal is completed.
Comcast will also have certain rights to buy out its partner at “specified times,” the company said, at a 20% markup over the market value at that time.
In the near term, NBC U will take on about $9.1 billion in debt to pay off GE. GE in turn has to pay off its former partner in NBC U, French telco Vivendi, whose decision this week to sell back its 20% interest in the Peacock cleared the path for GE to seal the joint venture with the company that had pursued NBC U on and off for several years.
Comcast, the Philadelphia-based cable pioneer that is still tightly controlled by the founding Roberts clan, has made no secret in recent years of its desire to expand its scope into Hollywood. The company vaulted from a medium-sized cable operator to No. 1, with nearly 24 million subscribers in 39 states, following its $72 billion purchase of AT&T’s cable systems in 2002. Two years later it launched an ill-fated hostile bid for Disney.
“With this transaction, I believe our company is strategically complete,” Roberts said in a conference call.
Because Comcast-NBC U is the first mega media merger of the Obama era, it is expected to take as many as nine months to a year to go through the gantlet of approvals from the Federal Communications Commission and other fed agencies.
The new NBC U will also be under pressure to keep its core assets performing at a high level because there will be very little immediate post-merger cost savings to be had through the elimination of redundancies or pink slips. There’s little overlap between Comcast’s cable assets — including E!, Style, Golf Channel, G4 and Versus — with NBC U’s biggest guns: USA Network, Syfy, Bravo, CNBC and MSNBC. Of NBC U’s roughly 30,000 employees and Comcast’s 100,000 employees, “the overlap is very small,” Comcast chief operating officer Steve Burke, who will oversee NBC U, told reporters during the conference call Thursday.
Jeff Zucker will continue as CEO of NBC U, the role he has held since 2007, and report to Burke. Zucker has spent the past few years dramatically beefing up NBC U’s cable businesses, while Burke has a deep background in broadcasting and the studio biz from his tenure at Disney and ABC in the 1980s and ’90s.
NBC U will also be governed by a five-member board of directors consisting of Roberts, Burke and Comcast chief financial officer Michael Angelakis, GE chairman Jeffrey Immelt and GE chief financial officer Keith Sherin.
Immelt was quick to stress the importance of organic growth, rather than growth by acquisition, to the success of the venture. The new NBC U will derive 82% of its cash flow from its cable channels.
“This deal today is good for GE and good for Comcast,” Immelt told Daily Variety. “How good it is depends on how well we run it over the next five to 10 years. That’s where the real value gets created — by operating the businesses.”
The handshake with Comcast brings to an end GE’s 23-year ownership of NBC and the end of the industrial conglom’s foray into the media biz. Immelt made it clear in his remarks Thursday that GE was eager to use the capital previously allocated to NBC U in other core areas for the conglom, like energy, health care and industrial manufacturing.
Immelt said despite persistent rumors in recent years that GE was looking to unload NBC, the talks with Comcast got serious about six months ago, and he only discussed the possible sale of NBC U with GE’s board of directors for the first time over the summer. The joint venture structure appealed to GE because it would allow for a slow exit and ensure that GE for a time would have a 49% chunk of a larger entity.
“The world has changed,” Immelt said. “We found this was a great way for us to play the media businesses. … I think there is real value to be created here by two good cultures (Comcast and GE) working together.”
Comcast “has had great success in cable programming but we don’t have a lot of programming channels,” Roberts told Daily Variety. “The chance to partner with NBC U’s channels and have that all be within one company — that is a great growth company.”
Roberts also repeatedly touted the potential for NBC U movies and TV shows to drive video-on-demand services, an area where Comcast has long been in the vanguard among cable operators. The company has pushed Hollywood to shorten or eliminate the lag time between the DVD release window and a title’s availability through VOD. Once Universal is under the Comcast roof, it’s a sure bet NBC U will be game for shaking up the status quo in windowing of theatrical product.
Roberts and Burke said they were impressed in a meeting last month with the new regime at Universal Pictures — chairman Adam Fogelson and co-chair Donna Langley — and they also cited the need for the biz to embrace digital delivery of pics amid the continuing decline in DVD sales.
Roberts acknowledged the recent struggles of the NBC broadcast network, but he emphasized the value that it brings in promotion for the sibling cable nets and in providing off-network programming for the channels.
Comcast bent over backward Thursday to document its commitment to broadcast distribution for NBC, after much speculation in recent weeks that the company would eventually look to sell NBC’s O&Os and convert the Peacock to cable distribution — a move that would undoubtedly raise hackles in Washington.
Along with Thursday’s merger announcement, Comcast distributed a five-page letter from exec VP David Cohen, who oversees public policy and regulatory affairs, asserting that the company “remains committed to providing free over-the-air television through its O&O stations and through local broadcast affiliates throughout the nation.”
The letter also took aim at the complaints of rivals and media watchdog groups in declaring that it would support NBC News’ local and national operations as well as public interest, education and informational programming on the understanding that broadcast TV fulfills a special “public interest” role in the media landscape.
Comcast execs also took great care to underline the deal’s attractiveness to its investors, as the company stands to gain operating control of top-tier cable networks for a relatively small cash outlay of $6.5 billion, which could rise or fall depending on NBC U’s financial performance at the time the deal closes. The assets that Comcast will contribute to the venture are valued at $7.25 billion, compared to a $30 billion valuation for NBC U’s existing assets.
In a sign of their optimism that the deal will eventually pass regulatory muster thanks to its joint-venture structure, there is no contractually mandated breakup fee due from GE to Comcast if the agreement somehow goes south.
“I guess GE didn’t want to pay us one,” Roberts quipped.
Wall Street seemed to be generally happy with the deal, sending Comcast shares up 6.5%, or 97¢, to close at $15.91 on a sluggish day for the major indexes overall. GE shares eased 7¢ to close at $16.
In preparation for what is expected to be an extended regulatory review of the Comcast-NBC U deal, Comcast execs were quick to affirm their commitment to maintaining the NBC broadcast network and its affiliate structure, to supporting NBC News activities on the national and local level and a number of other commitments designed to counteract the complaints of media rivals and watchdog groups. Comcast exec VP David Cohen issued the following five-page letter along with the announcement of the NBC U joint venture agreement.