Market Watch

Comcast and NBCU Merger Finalized


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Comcast and NBC Universal received regulatory clearance to merge their operations on January 18. The combined company will become one of the world's largest media conglomerates, operating in both the content creation and content delivery spaces. Comcast has worked hard to dispel worries that the combined company will operate in an anti-competitive manner with its competitors. The merger has faced pushback from consumer advocacy groups and lawmakers which resulted in significant concessions offered by Comcast to make the deal happen.

Concessions made by Comcast to the Federal Communications Commission:

  • Improved arbitration for carriage fee disputes
  • Commitments to not sabotage the development of online video
  • Guaranteed carriage for competing cable networks on its systems
  • Further development of its local broadcast business

The new company is 51 per cent owned by Comcast and 49 per cent by GE with the option for Comcast to increase its stake in the future. Assets from both companies have been contributed to the transaction. The new company will be comprised of Comcast's cable system, both companies' cable networks (including regional sports networks) and digital properties, the NBC and Telemundo Networks and their O&O stations, Universal Studios and Universal's theme parks.

In addition to these conditions, Comcast has voluntarily opted to expand the amount of news, public access and children's programming on its local stations. Regardless of the concessions made, the merger has still been challenged by the Department of Justice (DoJ) and several states which do not feel that fears of anti-competitive practices have been sufficiently allayed.

Analysis
The merger is a tremendous opportunity for the new Comcast. It can now control both sides of the coin, and use new levers as an advantage against its rivals.  It is important to note that Comcast has agreed to binding arbitration in the cases of carriage fee and retransmission fee disputes in order to secure approval for the merger. This may put Comcast at a slight disadvantage in negotiating with channel providers since none of its counterparts is subject to automatic arbitration when carriage fee or retransmission fee impasses occur.

As we noted on 5 November, 2010 in the Analyst Commentary News Corp resolves disputes with DISH and Cablevision, the FCC acknowledges that it does not have the authority to enforce arbitration decisions in carriage fee disputes. This, however is not the case with the newly-merged Comcast. As applied to other programmers FCC Chairman Genachowski punted authority to Congress, urging the reforming of existing retransmission consent system. Unfortunately for other subscription network operators, the new Republican-dominated Congress is unlikely to follow the recommendations of the Democrat FCC.

There is still light at the end of the tunnel, however. Smaller operators, those with less than 600,000 subscribers, would be able not only to seek relief with binding arbitration when disputes arise with Comcast, but if successful Comcast would be forced to pay their legal fees as well. This does not apply to the middle tier of cable operators, those with more than 600,000 subs, with whom Comcast is likely to have contentious retransmission fee and carriage fee battles in the next few years. Regardless of whether or not they are forced to pay their own legal fees, middle tier operators will likely see the cost savings of reduced carriage fees as a net positive.

Control over the vast array of media assets coupled with the means to distribute them has not been seen in the American landscape since the days of the old Time Warner.  Unlike the recent trend of divestment within the media industry, the Comcast and NBC Universal merger harkens back to the 'good old days' of media consolidation. For a deeper analysis of the deal, see our upcoming Insight Report.

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