Analysts: What A Comcast/NBC Deal Could Mean

Bucking current media industry trends, big cable operator Comcast wants to become a more vertical media company -- by buying NBC Universal's high-profile programming/content -- to avoid being just a "dumb" pipe, according to one prominent media analyst.

On Thursday, reports said that Comcast and General Electric were in talks about a joint venture of NBC Universal and Comcast media assets, in which Comcast would own 51% of the company and GE would own 49%.

Richard Greenfield, co-head of Pali Research for media and cable systems equities, says that Comcast "wants to have a seat at both ends of the negotiating table." He says this is especially true considering the threat of anyone with a HD video camera creating content and distributing it globally on the Internet for free.

The result of the big media deal would significantly change many existing businesses between the two companies -- especially new digital efforts. For example, while Comcast has pushed its video on-demand service for years, Greenfield says VOD is no match for and other content that is more easily delivered through Net protocols.



The downside: Greenfield believes Comcast will take content off Hulu and put it on, part of its "TV Everywhere" effort. In essence, the free site would be transformed into a pay-site for non-Comcast video consumers.

The upside: big-time benefits will exist for Comcast's own media channel assets: networks such as E!, Versus, G4, Golf Channel, Style, etc. NBC's big marketing machine, as well its cable networks (USA Network, Bravo, Syfy, Oxygen), will only improve the financial performance of Comcast's cable networks.

Greenfield beliefs the deal is just the beginning. He predicts that General Electric will continue to sell off more of NBC Universal, and Comcast will be the buyer. This won't be good news for Comcast shareholders.

"One has to imagine a substantial portion of Comcast free cash flow over the next several years will go towards acquiring more of the new joint venture," he writes. "[It's] a move that investors should be frightened about, regardless of the initial "math" surrounding the transaction."

NBC Universal employees might not be all that happy, either. "We have a hard time believing any of the NBCU employees will be excited to be owned by a cable company," says Greenfield. "In addition, we do not believe Comcast brings content/programming management expertise that will improve NBCU's performance."

Among other analysts weighing in on the potential deal, one suggested that the joint venture hire former News Corp. COO Peter Chernin as CEO once a deal is done. Chernin successfully oversaw the major sectors of NBCU -- a broadcast network, film studio and cable channels -- before leaving News Corp. this summer, making him the "right guy to guide the messy turnaround at NBC and integration" into Comcast, Soleil Securities' Laura Martin wrote in a report.

That potential move might salve a jittery investment community that is skeptical of the deal. "Wall Street loves Chernin," Martin said. "Just announcing that Chernin would helm these assets would add 10% to their assumed value before he walked in for his first day of work."

Martin is bullish on the deal for Comcast, saying that a robust move into content would give it assets that could faster grow its core cable, broadband and phone distribution operations. The NBC network and local stations are a weak point at NBCU, but Comcast would be buying them at their lowest value in 15 years, she said.

Also positive on a deal is Wells Fargo's Marci Ryvicker. Like Martin, she wrote it would give Comcast a foothold in a "higher margin business." With cable networks being the crème de la crème at NBCU, she suggested the joint venture might spin off or sell NBC and its stations, as well as Universal theme parks.

Many other companies have gone in the other direction -- becoming smaller, more agile entities. Time Warner spun off its Time Warner Cable unit recently; Viacom and CBS separated a few years back.

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