WASHINGTON — Comcast Corp. struck a deal Thursday with
General Electric Corp. to buy a majority 51 percent stake in NBC Universal, a
move likely to further shake up an entertainment industry already roiled by the
rise of the Internet and a severe economic downturn.
The long-awaited agreement would give Comcast control of one
the country’s most storied broadcast networks, a major movie studio and a
handful of popular cable channels such as USA Network and Bravo. NBC
Universal’s assets are valued at $30 billion.
The deal would also make Comcast, already the biggest cable
operator and third-largest phone company in the United States, a kingpin in the
media business with huge footprints in both distribution and content. Comcast
would oversee assets with revenue of $51 billion in 2008, greater than that of
Time Warner Inc., Walt Disney Co. or News Corp.
“It is one of the most significant events in the
history of our company,” Comcast Chief Executive Brian Roberts said during
a conference call. The deal is a logical extension of Comcast’s cable business
and makes the company “strategically complete,” he added.
Shares of Comcast jumped nearly 7 percent to $15.15, while
GE’s stock added 0.6 percent. U.S.-listed shares of Vivendi slipped 0.5
percent.
The move is not without major risks. Broadcast networks and
movie studios have suffered financially during the deepest U.S. recession in
nearly 30 years. New Internet technologies, meanwhile, are radically reshaping
how video is distributed and could undercut long-standing and profitable
practices in the entertainment business.
Given the sheer size of the deal, U.S. regulators and
lawmakers are expected to take a close look, and some consumer activist groups
are already crying foul. The process of getting federal approval could take up
to a year, Comcast executives have said, and some antitrust experts suggested
it could take even longer.
To reduce its risk, Comcast sought to minimize how much cash
it put in upfront, a key sticking point that helped drag out negotiations for
months. The cash it’s saved for now will instead go to shareholders in the form
of a 40 percent increase in Comcast’s annual dividend, to 37.8 cents a share.
The company also plans to complete a $3.6 billion share-buyback program over
the next 36 months.
In the first stage of the deal, Comcast is to pay GE $6.5
billion in cash and contribute $7.25 billion in programming it already owns,
including regional sports channels and cable networks such as the Golf Channel
and E! Comcast would have the right to buy the rest of NBC Universal at
“specified times,” while GE could force Comcast to take full control
after no more than seven years.
GE plans to use most of the initial proceeds, $5.8 billion,
to acquire the 20 percent minority stake that France’s Vivendi SA owns in NBC
Universal. NBC will also borrow $9.1 billion from lenders and distribute that
to GE.
Control of NBC Universal potentially gives Comcast more
influence in determining the future of digital-content distribution. It offers
a vast array of video-on-demand programming on its cable systems, and recently
launched a trial of the “TV Everywhere” concept, which sells premium
online video content to cable subscribers.
That very same potential, however, will draw the attention
of regulators, who may be concerned that Comcast will wield too much power.
Comcast made a failed bid for Walt Disney Co. in 2004, a move that angered many
shareholders.
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Yet the benefits of controlling both a powerful means of
distribution and important programming assets have remained compelling, as long
as such an opportunity made sense economically. Roberts said Comcast got a very
good deal because it’s buying NBC Universal at a time when most U.S. assets are
depressed.
“We think we are buying near or at the bottom of an
economic cycle,” he said.
GE, for its part, wanted to reduce its stake in NBC
Universal, a desire exacerbated by the recession and last fall’s financial
panic. The combination of events reduced NBC’s Universal’s profits and put
great strain on the finances of the parent company, whose GE Capital arm seemed
briefly threatened by failure.
“We are reducing our ownership stake from 80 percent to
49 percent of a more valuable entity. By doing so, GE gets a good value for NBC
Universal,” GE Chief Executive Jeff Immelt said in a statement.
Despite NBC Universal’s recent struggles, Comcast said it
plans to retain Jeff Zucker, the unit’s president and CEO. He will run the new
entertainment venture.
Under Zucker’s leadership, NBC Universal has built a
modestly successful cable-network division. Led by USA and Bravo, cable profits
have grown consistently, up 11 percent in the third quarter.
Yet the much larger NBC broadcast network has been a
relatively weak performer over the last five seasons. The network was a ratings
powerhouse from the mid-1980s until the sitcom “Friends” left the
airwaves in 2004.
What’s more, the company’s Universal Pictures movie studio
suffered a disastrous 2009, marred by box-office flops “Land of the
Lost,” “Funny People” and “Bruno.” Revenue dropped 20
percent in the third quarter, a trend exacerbated by an industrywide decline in
DVD sales.
Sales at Universal Studios theme parks have also sagged due
to the depressed economy.
Via McClatchy-Tribune News Service.
