Fuzzy picture for Comcast-NBC deal

An NBC Universal Inc. deal could catapult Comcast Corp. past the Walt Disney Co. as the nation's largest media company, with $51 billion a year in revenue and more than $100 billion in assets.

A spectacular gambit, which could be completed this week.

But is Comcast betting the farm to own a slumping NBC broadcast-TV network, a movie studio, and a dozen highly profitable cable-TV stations that include Oprah Winfrey's Oxygen channel?

Could Comcast's plunge into Hollywood entertainment lead to big problems at the steady cable-TV giant and nationwide employer of 100,000 workers?

The strategy of Comcast and chief executive Brian L. Roberts seems to position the Philadelphia company for the eventual end of the modern fast-growth cable era. The cable-TV growth rate has slowed dramatically because of satellite and telephone companies entering the pay-TV business. High-speed wireless companies could pluck cable-TV customers from Comcast's subscriber base.

Comcast seems to believe that, ultimately, content will matter more than its manner of delivery. It has wooed NBC Universal with singular determination, offering a $30 billion proposal. It's both a stab at new growth and a hedge against a decline in cable TV, many believe.

Nonetheless, the proposed deal has some observers murmuring of other too-big-to-succeed ventures, such as the merger of Time Warner and America Online.

Telecom analyst Craig Moffett doesn't believe an NBC Universal deal would threaten Comcast if it soured. "It's a big commitment, but it's not a bet-the-farm kind of deal," Moffett, of Sanford C. Bernstein & Co. L.L.C., said yesterday. "They've carefully structured the deal in such a way as to limit risk."

Still, Moffett released an investment report in late October with the title "Comcast: Snatching Defeat From the Jaws of Victory?" He lowered his price target for Comcast to $18 a share from $20 because of a potential deal. Comcast shares rose 30 cents yesterday to close at $14.96.

Christopher King, an equity analyst with Stifel Nicolaus & Co. Inc. in New York, believes it's a good strategic move for Comcast, although "there is a chance that a deal won't create shareholder value."

The idea that a deal would financially threaten Comcast "is a leap too far," he said. "Thirty billion dollars is a lot of money, but in our view it's not unreasonable."

Comcast has to grab at NBC Universal while it can, King believes, because Hollywood entertainment companies "don't come up for sale very often and there's only a short list of companies like this. I don't think that Rupert Murdoch will be selling News Corp. anytime soon."

Comcast says the combination of its cable-TV and Internet-distribution businesses and NBC's entertainment will produce new revenue streams in cable channels, sports, and video-on-demand. Comcast has about 24 million cable-TV customers and 15 million Internet-broadband subscribers.

Comcast has revenue of $36 billion a year, most of it from cable-TV subscriptions, and NBC Universal has revenue of $15 billion from entertainment, according to Stifel Nicolaus research. The combined company would have $51 billion in revenue. Some critics of the financials of the deal say NBC Universal could distract Comcast. Moreover, some who study public policy fear Comcast will become too powerful in setting consumer prices for entertainment and controlling entertainment distribution into American homes. Stiff regulatory challenges are likely.

Comcast and General Electric Co. could announce a deal this week. CNBC host David Faber said yesterday that an announcement was expected tomorrow morning, but a high-placed source close to Comcast said details had not been finalized.

General Electric currently owns 80 percent of NBC Universal, and French conglomerate Vivendi SA has the other 20 percent. GE is expected to purchase the Vivendi stake for $5.8 billion, according to terms reached in the last week and announced Monday night.

The Comcast-GE deal has been one of the worst-kept secrets in Hollywood. It values NBC Universal at $30 billion, which added to Comcast's current $42 billion in stockholder equity and $30 billion in debt would bring the whole Comcast-NBCU entertainment conglomerate to $102 billion in assets.

It's a complex - some say elegant - deal.

Comcast is expected to pay $4 billion to $7 billion in cash to GE and to contribute Comcast programming assets to a new NBC Universal joint venture.

Comcast would own 51 percent of the new NBC Universal venture. The Philadelphia company would buy out GE's 49 percent stake with cash flow from NBC Universal over the next seven years.

A new book, The Curse of the Mogul: What's Wrong With the World's Leading Media Companies, chides media titans for corporate power plays. The deals many times are driven by egos or false hopes for growth, the book says.

Ava Seave is a coauthor of the book and adjunct professor at the business school of Columbia University. She's not a fan of Comcast's potential deal for NBC Universal.

Said Seave: "It doesn't seem like the media guys got the memo that conglomerates don't work."

Company Annual Revenue

Comcast/NBC Universal (proposed) $51 billion

Walt Disney Co. $37.8 billion

News Corp. $30.4 billion

Time Warner Inc. $29.8 billion*

Viacom $14.6 billion

*Time Warner cable operations are now a separate company and not included in the Time Warner figure.

SOURCE: Most recent 10K filings.

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