Skip to main content

Comcast-NBCU: For Comcast, Deal Is All About Cable

Comcast senior management told Wall Street analysts today
that their deal for NBC Universal is about taking a bigger share of the
recession proof growth story that is cable content. Cable channels will account
for 82% of the cash flow of the new NBC Universal entity, the executives said.

Comcast announced today it has a deal to acquire a
controlling interest in General Electric's NBC Universal which it will pair
with its own cable channel assets which include E!Entertainment. NBC Universal
houses scores of cable channel brands from top performing USA Network, Bravo
and Sci-Fi to news services CNBC, MSNBC among others.

Brian Roberts, CEO at the Philadelphia-based cable operator
predicted that cable revenue would continue to grow significantly. Affiliate
fees have been growing at 12% per year, advertising sales have been growing at
7% per year due to increasing ratings. Roberts pointed out that NBC Universal
has five channels each with over $200 million in operating cash flow.

In a slide, Comcast showed analysts just how well NBC
Universals cable channels have been managed for margins. The compound annual
growth rate of those cable channels is 16% over the past five years, while
Comcast's cable channels have grown 10% over the same period. Comcast's Chief Operating
Officer Steve Burke said: "In the last five years affiliate fees have grown
12%.  I'm not sure they'll continue to go
up, hopefully they'll go up single digits not double, but I think they're going
to go up. But even if affiliate revenue goes up in the mid-single digits then
it's still a solid leg of the stool."

Comcast is also a distributor of programming and pays other
companies to carry their cable channels. He said Comcast's bet is that
affiliate revenue and advertising revenue will both continue to rise. "It's
hard to think of a better business in media with better fundamentals," said
Burke. The executives reiterated that NBC network would be used to cross-promote
those cable channels more extensively.

Asked whether the deal might lead to the sale or purchase of
assets, Burke responded that the two companies certainly had the ability to
launch new channels, and new video on demand packages. He also pointed out that
other opportunities to grow business would flow from addressable advertising
which is the ability to deliver different ad messages to consumers based on
their location or interests.

In the TV online sphere, Burke said Hulu would likely
continue to represent broadcast network shows while cable shows would be available
via Comcast, and other identification programs. "Those strategies are smart and
appropriate. We see a lot of content going to Hulu and being available for free
and cable content being on TV Everywhere. Hulu and TV Everywhere are
complementary," said Burke.

The executives refused to be drawn on whether the new entity
would create big competition for ESPN, saying simply there's room for two. They
also had little to say on future Olympic bids, except to say that was GE's
call. North American TV rights to the 2014 and 2016 games are not yet assigned.