Comcast Mulls Stake in Ailing NBC

Comcast (Nasdaq: CMCSK) might spend billions for a stake in NBC Universal, a deal that would transform the nation's largest cable TV provider into one of the most prominent owners of TV shows, movies and other programming as well.

General Electric (NYSE: GE), which owns 80 percent of NBC Universal, has been in talks with Comcast to unload part of the entertainment unit, people familiar with the negotiations told The Associated Press on Thursday. They spoke on condition of anonymity because the negotiations are still preliminary.

Originally these people said Comcast was negotiating a 20 percent to 50 percent stake in NBC Universal. However, they later said a scenario under discussion calls for NBC Universal to be spun off into a separate company.

Comcast would own 51 percent and GE would hold the rest. Comcast would pay US$4 billion to $6 billion in cash for its controlling stake in the company, which would have about $10 to $12 billion in debt.

Comcast also would contribute its own cable networks, worth about $6 billion, to the spun-off company.

Mixed Bag

A final decision is expected in the coming weeks, but investors already showed displeasure, knocking Comcast shares down 7 percent. A Standard and Poor's analyst cut his rating on Comcast to "strong sell" from "hold."

Comcast has 24 million subscribers in 39 states and Washington, D.C., roughly a quarter of the nation's cable TV customers, and has said that reaching significantly more people isn't currently a priority. Still, it hasn't made a secret of its desire to own more programming. Comcast already owns such cable TV networks as E! and Style and sports channels, and it tried a $54 billion hostile bid for Walt Disney Co. (NYSE: DIS) in 2004.

If it pounced on NBC Universal, Comcast would have a stake in a broad range of entertainment assets that posted $17 billion in revenue in 2008 and earned $3.13 billion in operating profit. However, the unit has suffered during the recession, with a sharp decline in advertising.

The NBC network also is in fourth place in the ratings, which spurred its decision to move Jay Leno into prime time. Meanwhile, Universal Pictures has seen mixed box office results, and attendance at Universal theme parks is down.

NBC Universal also owns the Telemundo network and such cable channels as Bravo, USA Network and CNBC, which Comcast pays to show to its subscribers.

Less Recession Pain

One key element in a deal is whether French conglomerate Vivendi decides to sell its 20 percent stake in NBC Universal. It has an annual window from Nov. 15 to Dec. 10 to unload the holdings, and its CEO has called the stake "non-core." If Vivendi does sell, GE is expected to buy the stake. It could then contribute those shares to the NBC Universal spinoff.

General Electric got NBC as part of its $6.4 billion acquisition of RCA in 1985. In 2003, NBC Universal was created when GE merged its NBC assets with Vivendi's Universal Pictures movie and TV studios, theme parks and cable channels including USA Network.

Now, GE could use an infusion of money. It has spent much of the past year focused on the struggles of its giant GE Capital finance unit, which has posted big losses, forcing GE to inject cash into the unit and raise money from outside sources.

The recession hasn't been as tough on Comcast, in part because people have opted to stay in to watch TV instead of going out. Comcast's balance sheet showed $4 billion in cash and cash equivalents as of June 30, and the company whittled its debt in the past 18 months to $29 billion.

Comcast could take advantage of the fact that media company valuations have sunk as advertisers have pulled back in the recession, DVD sales have dropped off, and consumer spending at theme parks has been hurt. J.P. Morgan analyst Stephen Tusa last month valued NBC Universal at about $30 billion, down from $43 billion in 2003. Other estimates have it closer to $20 billion.

Regulatory Issues

Sanford Bernstein analyst Craig Moffett said investors wouldn't look kindly at Comcast buying a major programmer instead of concentrating on "an aggressive return of cash to shareholders." A bid for NBC Universal "is most decidedly not what Comcast investors had in mind," Moffett wrote in a research report.

Shares of Philadelphia-based Comcast fell $1.21, 7.2 percent, to close at $15.67. GE, based in Fairfield, Conn., fell 45 cents, or 2.7 percent, to $15.97.

A combination could run into antitrust issues and a regulatory review by the Federal Communications Commission.

Paul Gallant, a telecom policy analyst with Concept Capital, said Comcast might have to agree to concessions, such as ensuring that NBC Universal content is shared fairly with cable TV and Internet competitors such as DirecTV (Nasdaq: DTV), Verizon and AT&T (NYSE: T).

Regulators would also examine whether Comcast could wield too much power over local advertisers in markets where it would have both a strong cable presence and an NBC station.

There could also be increased scrutiny over Comcast decisions on which cable channels to carry and for what price -- since it might favor networks it would own, such as CNBC and MSNBC, over rival channels Fox News or CNN.

Another result of a deal might be seen in cable video-on-demand services.

When movies are released on DVD, studios often impose a delay before allowing cable companies to offer the films for video on demand, in which subscribers order programming through their TV set-top boxes. If Comcast had a stake in both ends of the business, it could get movies on demand out faster.

The relationship could also complicate the development of sites that run TV shows and movies online for free, supported by ads. Comcast owns one such site, Fancast, but it has fewer viewers than Hulu -- which is part owned by NBC Universal.

© 2009 Associated Press. All rights reserved.
© 2009 ECT News Network. All rights reserved.