In a momentous shift in the balance of power of the entertainment industry, cable television giant Comcast Corp. on Thursday made it official by announcing that it was buying control of NBC Universal from General Electric Co.
The proposed $30-billion transaction is the culmination of the longtime ambition by Comcast's chief executive, Brian Roberts, to transform his family-controlled Philadelphia company from a passel of distribution pipes into a leading producer of movies and TV shows and owner of prominent cable channels.
The deal underscores how the high profit-margin business of cable TV -- not a broadcast network or a Hollywood movie studio -- has become the financial backbone of media conglomerates.
"Cable channels are the best part of the media business today; they are really the crown jewels of any entertainment company," Comcast Chief Operating Officer Steve Burke told analysts in a conference call.
Unlike over-the-air broadcast networks, cable channels have two streams of revenue: subscriber fees and advertising. Roberts said that 82% of the operating income of the new entity would come from cable channels. Five of NBC Universal's cable networks -- USA, Syfy, Bravo, CNBC and MSNBC -- generate $200 million a year or more each in operating income.
"We are creating a new company with an absolutely first-class set of cable channels," Roberts said. "This is the logical evolution of our programming strategy."
If federal regulators approve, a new joint venture would be created by pooling businesses from both companies. Comcast would provide nearly $14 billion in assets, including $6.5 billion in cash, for 51% ownership of the new entity. Comcast said its cable channels -- including E, Versus, the Golf Channel and nine regional sports networks -- were worth $7.25 billion. Comcast's subscription cable TV systems would not be part of the new entity.
As part of the deal, GE would reduce its ownership in NBC Universal to 49% in exchange for $9.1 billion, which the new entity would assume as debt.
The Comcast deal marks the end of an era for NBC, which has been one of the brightest bulbs within GE for nearly a quarter-century. Under GE, NBC became a profit- and hit-making machine, inventing the slogan "must-see TV" and fielding such memorable programs as "Cheers," "Seinfeld," "Friends," "Frasier" and "Law & Order."
Thanks to GE's deep pockets, NBC was able to secure high-profile contracts to broadcast the Olympics and National Football League games and to acquire Universal Studios and the Universal Pictures film studio five years ago.
But GE is retrenching, and the peacock has fallen on hard times. The broadcast network will lose more than $500 million this year, and Universal Pictures has released a string of box-office bombs.
The cash GE receives from the deal would bolster its balance sheet after its financial businesses were rocked by the market meltdown and recession. Increasing its stockpile of cash, GE Chief Executive Jeff Immelt said, would further allow GE to invest in international and fast-growing businesses, including energy and technology.
"I still like the media business," Immelt said in an interview. "But through this partnership we are creating a better NBC Universal."
Comcast would have the option to buy out GE's minority interest within eight years. GE valued NBC Universal at $30 billion, a sharp decline from the $42-billion appraisal five years ago when GE combined its entertainment assets with those of France's Vivendi to create NBC Universal. Vivendi's decision this week to sell its 20% stake allowed GE to finalize a deal with Comcast.
The new Comcast-controlled NBC Universal would be one of the largest entertainment companies in the world, with assets spanning the NBC broadcast network; more than a dozen cable channels, including USA, Bravo, E and Style; nine regional sports channels; the Universal Pictures film studio; Universal Studios theme parks; Spanish-language Telemundo; more than two dozen TV stations; and a 30% stake in the online video website Hulu.
Comcast's Burke would oversee the new venture, which would rival Walt Disney Co., News Corp. and Viacom in size and power. NBC Universal's current chief executive, Jeff Zucker, would stay on to manage the company's day-to-day operations.
One question is whether Comcast would be willing to make the big investments in programming, where there are more misses than hits. On Thursday, Comcast executives said they would spend more, including for the NBC network, which has languished in fourth place for several seasons. In September NBC moved Jay Leno into prime time, in large part to save money on programming costs.
"One of the things that we are most committed to, both GE and Comcast, is trying to return [NBC] to the No. 1 position," Roberts told reporters in a conference call. "There is a desire to invest and grow and compete well."
The new NBC Universal would have an advantage over its content-owning rivals: a cable TV pipeline reaching nearly a quarter of U.S. homes. That not only would give it an edge when it launches new cable networks but also would provide a huge base of customers for pay-per-view programming, including movies from the Universal movie studio.
Comcast also is the nation's largest provider of Internet broadband service and third-largest telephone company -- valuable conduits for new media.
"This is the future of television," said Paul Levinson, a communications professor at Fordham University in New York. "The traditional broadcast networks served people well during the 20th century, but not any longer. People like getting shows whenever they want, and on whatever device they might have: a television, their computer or mobile phone."
Comcast, as owner of more programming, would be "ideally suited to do all of these things," Levinson said. "How much longer could NBC go it alone as more people want to watch their shows through the Internet or on their iPhones?"
Comcast's move to acquire control of NBC Universal runs counter to the current trend of media giants shrinking. Many investors have concluded that the hoped-for "synergies" between content producers and distributors rarely deliver on their promise.
This year, for example, Time Warner Inc. unloaded its cable TV division and next week it plans to spin off its AOL unit. Roberts said Comcast's takeover of NBC Universal should not be viewed in the same light.
"Obviously AOL was a big part of their history, but it's not really relevant to what we are doing here today," Roberts said. "We are now taking stewardship of these wonderful businesses and believe we can take them even further."