And so it goes: cable giant Comcast is gobbling up NBC Universal in another sign of the economic — and new media — times:
General Electric Co’s (GE.N) sale of a majority stake in its NBC Universal media arm to Comcast Corp (CMCSA.O) marks a big step forward in what could be a time of significant restructuring at the largest U.S. conglomerate.
The long-expected sale of the media business, which accounted for about 10 percent of GE revenue, focuses the world’s biggest maker of jet engines and electricity-generating turbines more tightly on its core business of selling heavy equipment and financing the purchase of it.
The Fairfield, Connecticut-based company will receive about $8 billion in cash when the deal closes and gets the option to cash in the rest of its 49 percent stake in NBC Universal over seven years.
“We have the opportunity to redeploy $8 billion in cash back into a high-returning global infrastructure business,” GE Chief Executive Jeff Immelt said on a conference call. “We believe there are going to be multiple investment opportunities with attractive returns.”
Comcast and GE are forming a joint venture to be owned 51% by Comcast and 49% by GE, and managed by Comcast; the new company will include NBCU and Comcast’s cable and regional sports networks, plus some digital properties and other assets.
Under terms of the deal, GE will have the right to sell half of its stake in the venture after 3.5 years, and the rest after year 7. Comcast also has the right to buy GE’s stake at specified times.
What does it mean? For one thing, Reuters notes, GE has finally essentially thrown in the towel on NBC (Jay Leno didn’t prove to be a comedian on a white horse). Reuters notes:
From its birth in 1926, NBC was the first big U.S. radio broadcast network. Since then, it proved itself to be a radio and TV pioneer that somersaulted over rivals with firsts in technology, ratings and entertainment…..
….GE was there at the beginning. It owned 30 percent of the National Broadcasting Company when the Radio Corporation of America launched the network. GE sold its stake in 1932, and 54 years later bought it back along with RCA.
NBC, with its peacock logo developed in 1956 and made permanent in 1979, has coasted at times on its successes and sacrificed advantages.
After dominating the airwaves in the 1980s and 1990s with mega-hits like “Cheers,” “Friends” and “Frasier,” for example, NBC’s ratings plummeted in this decade.
As audiences shrank, and GE found itself under pressure from shareholders, NBC changed how it approached the business.
It has concentrated on profit margins and lower costs, particularly for pilot episodes and development. This year it handed its 10 p.m. hour to “The Jay Leno Show,” a comedy-variety program that costs millions less to produce than the award-winning dramas that have long been NBC’s pride.
Leno been unable to deliver: his show has been generally panned by critics, who feel it is a warmed over version of his old Tonight Show but, worse, the Peacock network has seen its ratings erode steadily in that time slot, ad revenues for that time slot go down in price, and its local newscasts in some markets taking ratings nosedives.
How things may change under Comcast is unclear, but one thing is certain: It would not be GE’s problem for much longer. Under the deal, the cable operator would control 51 percent of NBC, setting up a way for GE to gradually depart over seven years.
In short, it almost resembles the recently announced Obama administration Afghanistan policy but in this case there will be a surge of new capital and a “way forward” for GE to extricate itself from the network.
Meanwhile, there are questions in Washington about this deal.
And the critics are sharpening their verbal swords. Forbes explains what it means this way:
Since rumors of a potential deal were first reported several weeks ago, analysts blasted Comcast for overreaching and the company’s shareholders punished the stock. Their argument: grandiose efforts at marrying content with distribution in recent years prove bigger isn’t better.
Unlike broadcast networks, NBC Universal’s profitable cable outfits feed from two revenue streams–both advertising and subscriber fees. Top-rated USA Network, for instance, will round out the year with operating revenues of $1.4 billion and cash flow of $633 million. Syfy will post $585.2 million and $239.5 million in revenue and cash flow, respectively, reports research firm SNL Kagan.
At the same time, NBC’s ownership stake in advertiser-supported Web video outfit Hulu.com gives Comcast a greater say in the future of their business. In their current form, free streaming services like Hulu and YouTube undermine the value of pay TV subscriptions, which account for nearly 60% of Comcast’s revenues.
And, Forbes explains there are more benefits:
NBC’s assets also give Comcast more control over when content is released on Video On Demand, a service with great potential but little support to date. (Since the studios generate more revenue selling DVDs, most have been unwilling to offer films on VOD before they’ve had ample time to sit on store shelves.) And the acquisition would act as a hedge of sorts against rising programming costs, which UBS projects will climb nearly 10% for Comcast this year.
Pairing Comcast’s cable properties (Versus plus The Golf Channel and a host of regional sports networks) with NBC’s rights (Sunday night NFL games though 2013 plus the 2010 and 2012 Olympic Games, the US Open Golf Championship and the Kentucky Derby) could also produce a viable competitor for Walt Disney’s lucrative sports juggernaut, ESPN. In addition to a second revenue stream from subscription fees, the integration gives Comcast an even larger cut of the televised sports market, which TNS Media Intelligence estimates advertisers lavished $10.6 billion on last year….
…[Owning] a majority stake in NBC Universal gives Comcast control over popular film and television content at a time when cable operators are facing increased competition from telecom and AT&T and satellite operators as well as the Internet.
Read the entire article in full by going to the link above.
More weblog comment is HERE.
Joe Gandelman is a former fulltime journalist who freelanced in India, Spain, Bangladesh and Cypress writing for publications such as the Christian Science Monitor and Newsweek. He also did radio reports from Madrid for NPR’s All Things Considered. He has worked on two U.S. newspapers and quit the news biz in 1990 to go into entertainment. He also has written for The Week and several online publications, did a column for Cagle Cartoons Syndicate and has appeared on CNN.