COMPANY TOWN : Closing in on a dream : Comcast keeps its eyes on a prize that will complete its quest to become a major global communications player: NBC Universal


For more than a decade, Brian Roberts, the scion running the country’s largest cable television system, has envisioned transforming his company into more than just a collection of -- as Wall Street calls cable -- “dumb pipes.”

So Roberts’ Comcast Corp. has been steadily bulking up. First it became the conduit of television, then an Internet service provider and a telephone company. Along the way it has been building regional sports networks, launching entertainment websites and snapping up such cable channels as E, Style, G-4 and the Golf Channel.

But despite Roberts’ muscle and ambition, Comcast lacks the big prizes in media: a Hollywood movie studio and broadcast network. Gaining control of NBC Universal would change that.


“Comcast wants to become a major global communications player on the same scale as a Disney, Viacom, Time Warner or Fox,” said Marc Nathanson, a cable television pioneer who founded Falcon Cable TV. “Brian Roberts and his management team see this move as one of survival.”

Thrusting Comcast into the upper echelons of the entertainment firmament would cast the Philadelphia-based cable operator beyond its traditional role of distributing programs made by others, a lucrative business but one that appears to have peaked. Comcast would become one of the world’s largest owners of programming, from blockbusters such as “The Bourne Identity” franchise to prime-time hits such as “The Office.”

At the same time it would not only assure Comcast a powerful voice in determining how and when consumers watch movies and TV shows, but also provide a hedge against one of its fastest-rising costs: the content that flows through those “pipes.”

Holding up the deal, at least for now, is a decision by French telecommunications firm Vivendi on whether to sell its 20% stake in NBC Universal to General Electric Co., which already owns 80% of NBC Universal. Comcast will not move forward with the deal until Vivendi agrees to exit, according to people familiar with the negotiations who asked not to be identified because the talks were confidential.

(Within eight years, Comcast could use cash flow from the operation to buy out General Electric Co. and own 100% of NBC Universal, these people said.)

The merger, of course, would have to pass muster with the Obama administration, a regulatory review that could take more than a year. Industry insiders, however, believe it would ultimately win approval.

“I think the mood between [the economic] stimulus and other signs the administration has made is that they want to have a constructive environment,” Roberts told analysts this month on an earnings call, explaining his optimism.

Owning NBC Universal is about more than fortifying the Robertses’ family empire, which began 46 years ago in Tupelo, Miss., when Roberts’ father, Ralph, who had made a living selling belts and suspenders, bought a company that installed wires to homes so that customers, for $5 a month, could get clearer TV signals. Comcast would eventually grow into a $34-billion-a-year business, with 24 million subscribers, reaching nearly 1 out of every 4 TV homes in the country.

But competition, once not a major worry, has grown fierce. Satellite television providers, including DirecTV, and telephone companies AT&T; and Verizon now offer similar TV channel packages -- often at lower prices. Comcast, like many cable operators, has been losing hundreds of thousands of subscribers each year to competitors.

At the same time, program suppliers, including NBC Universal and Walt Disney, have been charging cable companies higher fees to carry their channels. Broadcast networks, including Fox and CBS, have said that they intend to charge cable operators for their over-the-air channels that they once retransmitted free of charge.

“Comcast’s fear is that it will become more difficult to pass those price hikes on to viewers because of the increased competition,” said Jason Bazinet, a media analyst with CitiGroup Global.

“If you are Brian Roberts, buying a content company is a hedge against these rising programming costs,” Bazinet said. Comcast then would help set prices. “For Comcast,” he noted, “you would be collecting as many checks as you are cutting them.”

Sports could be another slam-dunk. Comcast already owns nine regional sports networks and cable channel Versus, which runs bull riding and ice hockey. But through an association with NBC -- which has rights to top-tier sports such as professional football, college football, golf and the Olympics -- Comcast could be positioning itself as a potent rival to Disney’s ESPN, Bazinet said.

Analysts widely believe Comcast’s core business -- providing bundles of TV channels to consumers -- will become more vulnerable as people increasingly select the TV shows and movies they want to watch on computers through Internet connections.

“The world of cable delivery is about to change,” said James McQuivey, an analyst with Forrester Research. “Cable companies for years have made their living by selling consumers hundreds of television channels bundled together. But the future is going to be very different, and cable companies instead will be selling an ‘entertainment experience.’ ”

That, naturally enough, involves the Internet. But cable companies and program suppliers have been wrangling over what TV shows and movies would be available for free on Internet sites.

Roberts has resisted flooding the Internet with free TV shows, reminding NBC Universal and others that the cable industry essentially subsidizes Hollywood by paying billions of dollars annually for programming.

“The people who have been in control are the ones who own the content,” McQuivey said. “Buying NBC Universal would give Comcast about one-fourth of the content that is being produced. They would then have the freedom and the power to start experimenting with how best to deliver that entertainment.”

For example, Comcast has been disappointed by its video-on-demand movie service that it provides to customers. Because the studios make more money selling DVDs, they have been unwilling to offer their recent releases for video-on-demand services until the discs have been on store shelves for several months. If Comcast owned NBC’s Universal Pictures, it could help set the timing on when movies are available to cable subscribers.

Roberts appears willing to embrace the changes, particularly as broadband Internet has become a higher-margin business than simply bundling expensive TV channels.

“I’ve been saying for a long time that I think video over the Internet is more friend than foe,” Roberts said during this month’s earnings call, pointing out that Comcast has invested heavily to increase the “speeds and capabilities” of Internet connections to allow people to watch huge video files.

This isn’t Comcast’s first run at buying an entertainment company.

Five years ago, Roberts made a bold $54-billion bid for Disney, which was then considered poorly managed and whose ABC television network had been languishing. But Comcast investors rebelled, driving down the value of the stock, and Disney’s board deemed Comcast’s offer too low.

Roberts withdrew his bid, but he remained interested in making, as Wall Street would put it, “a big content play.” Now it is NBC Universal that some analysts say is poorly managed. Its NBC network has fallen off a ratings cliff, and the Universal movie studio has released a string of costly duds.

“There are some similarities to the Disney situation in 2004 as parts of NBC Universal are not firing on all cylinders and the advertising market is still weak,” said Vijay Jayant, cable analyst for Barclay’s Capital. “This is an opportune time for them to raise their hand up and say, ‘We’re interested.’ ”