Comcast lands NBC in deal that reshapes media

NEW YORK

Comcast Corp struck a deal to buy a majority stake in NBC Universal from General Electric Co, creating a media superpower that would control not just how television shows and movies are made, but how they are delivered to the home.

The deal had been discussed for months and brought to light deep divisions over the future of the media business, with some lauding Comcast Chief Executive Officer Brian Roberts as a visionary and others calling it the most foolhardy acquisition since AOL bought Time Warner in 2001.

In a world where the Internet has disrupted traditional media, Comcast wants NBC Universal so it can deliver programming to audiences however they may want it -- whether through TV sets, personal computers or mobile devices. Not only is Comcast the largest U.S. cable distributor, it also is the leading Internet service provider to homes.

Critics of the deal, including some of Comcast's own shareholders, suggest there is too little overlap between the businesses to draw out meaningful savings, and that competition regulators are bound to burden it with restrictions.

Moreover, big media deals rarely work, they say, pointing to Time Warner Inc's breakup as an example. Once the world's biggest media company, Time Warner has spun off Time Warner Cable Inc and will soon do the same with AOL.

"There's no question that you really have a great little test tube here because you have one large company that said this is absolutely not the thing to do," said veteran media dealmaker Barry Diller, CEO of IAC/InterActive Corp.

"And you have another company that said it's exactly the thing to do," he told the Reuters Global Media Summit. "So it's going to be an interesting comparison over time."

Comcast's shares have fallen 11 percent since reports of the deal first surfaced in September, though they were up slightly in premarket trading on Thursday, after it officially unveiled the transaction. It also raised its dividend 40 percent -- a move analysts said was aimed at appeasing shareholders.

"We're still very unsure about the value created from this deal," said Collins Stewart analyst Thomas Eagan.

"They definitely heard concerns on Wall Street over the past couple of weeks about the deal inhibiting their ability to buy back shares or increase their dividends," he said.

The deal calls for Comcast to contribute $6.5 billion in cash, its own cable TV networks and other assets in return for a 51 percent stake in NBC Universal, which owns TV networks, a movie studio, theme parks and local TV stations. GE will keep a 49 percent stake.

The companies said in a statement on Thursday that NBC Universal's businesses have been valued at $30 billion. The Comcast businesses that will be part of the deal -- including E!, Versus, the Golf Channel and 10 regional sports networks -- are valued at $7.25 billion.

Hollywood and Hulu

GE cleared the way for the deal by securing France's Vivendi SA's agreement to sell the company its 20 percent stake in NBC Universal for $5.8 billion.

For GE, the deal allows it to concentrate on its industrial business, and could be the first step in a full break with NBC Universal, ending a relationship that stretches back to the dawn of television.

GE can redeem half its interest in the venture after 3 1/2 years, and the remainder after seven years, subject to certain conditions.

As part of the deal, NBCU will borrow about $9.1 billion from third-party lenders and distribute the cash to GE.

The joint venture will be headed by current NBC Universal Chief Executive Jeff Zucker, who helped build the company's valuable cable business, but has also presided over a prolonged slump at its flagship broadcast network.

Indeed, NBC regularly finishes in last place in the prime-time ratings race, having never recovered from the loss of hits including "Seinfeld" and "Friends." Against that backdrop, Zucker has tried desperately to cut programming costs, abandoning costly dramas weeknights at 10 p.m., in favor of broadcasting Jay Leno's poorly rated, though inexpensive, comedy-talk show.

But Comcast's interest in NBC Universal has far less to do with NBC than with cable networks like MSNBC and USA, and its digital business.

The digital jewel is video site Hulu.com, owned by NBC, News Corp and Walt Disney Co. Having a stake in that will help Comcast sidestep a big concern for cable companies -- namely, that users may start cutting subscriptions if they can see their favorite shows online for free. This way, Comcast has more control over the videos that users watch on the Web.

Comcast's move on NBC Universal could also allow it to offer blockbuster films on movie-on-demand channels ahead of a DVD release. The idea is that the cable operator, since it will own NBC Universal's movies, will be able to narrow the traditional "window" between a movie's theatrical run and its release for home entertainment, thereby boosting revenue.

It is not the first time Comcast has made a play to add movies and TV shows to its business. In 2004, Comcast's Roberts launched a hostile and audacious $54 billion bid to buy Walt Disney -- but in that case, he ultimately failed.

UBS and Morgan Stanley advised Comcast on the NBC Universal deal, JPMorgan advised GE and Vivendi was advised by Barclays.

-Reuters