Comcast Memo Seeks Regulatory Approval of NBC Universal Deal

Comcast took an unusual step to head off regulatory concerns about its proposed co-ownership of NBC Universal by issuing a memo reiterating its "public interest" media commitments in tandem with the deal's official announcement.
The memo, authored by Comcast executive vice president David Cohen, states the company's commitment to NBCU's broadcast properties which include the NBC TV Network, owned TV stations and affiliated stations. Its commitment to provide over-the-air free television, for now, is not surprising given continuing federal regulation of the business.

However, the adverse financial implications of the deteriorating broadcast TV business to NBCU's otherwise strong cable programming position will ultimately determine Comcast's direction on such matters.

"As we negotiate and renew agreements with our broadcast affiliates, we will continue our cooperative dialogue without affiliates toward a business model to sustain free over-the-air service that can be workable in the evolving economic and technological environment," the memo states.

As 51 percent controlling owner of the new NBCU, Comcast and its new partner, General Electric , will gingerly deal with these matters as they seek regulatory approval of the deal amid anti-competitive concerns raised by watchdog groups such as Free Press.

One of the strong suits Comcast can play is its commitment to localism and its track record in this area as the country's largest cable operator. There are many ways Comcast can put NBC News and NBC TV station's local resources to work in cable, online and on mobile platforms in ways that are clearly different from the traditional broadcast business model.

"Through the use of Comcast's OnDemand and On Demand Online platforms, time slots on cable channels and use of certain windows on the owned and operated (TV station) schedules, we believe we can expand the availability of all types of local and public interest programming," the memo stated.

The future of the broadcast assets of NBCU was clearly on the minds of CNBC anchors this morning that were given first crack at a live extended interview with GE Chairman and CEO Jeff Immelt and Comcast Chairman and CEO Brian Roberts. NBCU owns CNBC and other cable networks include MSNBC and USA.
GE is reducing its ownership of NBCU from 80 percent to 49 percent, with the intention of gradually exiting within seven years. GE will receive much needed cash in the transaction, which will result in the new NBCU carrying about $9 billion in debt. Comcast will contribute its $7 billion in cable networks and $6 billion in cash to the new NBCU, while separately owning its cable systems.

The executives cautiously answered repeated questions about their intentions for the NBC TV Network, NBC-owned TV stations and the NBC-affiliated system that involves hundreds of stations. The advertising dependent broadcasting industry is challenged not only by a crippled economy but by consumers' growing digital alternatives to accessing content over Internet-connected devices.

While Comcast and GE must maintain the status quo for now, the executives acknowledged transforming changes afoot in broadcasting while emphasizing their core focus on cable programming, which will generate 82 percent of the new NBCU's cash flow. "Cable programming channels are the best part of the media business," Roberts said on CNBC Thursday morning.

"We are planning to keep the affiliate structure. It has been robust and successful for many years. The business has changed and is always going to change. NBC is not a huge part of the financial exposure to us today...I think there is more upside than downside," Roberts said.

"Every business has some cyclicality and some change with technology. There are a lot of conversations about retransmission consent right now and other very tough issues. Hopefully we can play a constructive role in broadcast television, which is an important part of the fabric of America," Roberts said. Roberts made the case for limited financial risk and maximum strategic rewards in the deal on his Comcast blog. Comcast attempted to further assuage shareholder concerns by issuing a dividend this morning.

Comcast COO Steve Burke, a former executive at Walt Disney, will be the well-regarded point man for finding what Roberts called "winnable solutions" for NBC's broadcast properties that will likely have industry-wide implications. In other mega media transactions, prospective new owners have initially said they have no plans to divest assets but ultimately do so in order to protect and advance their company's financial interests and shareholder value.

Eventual sale of the NBC-owned TV stations to a major NBC-affiliated group owner such as Hearst or the eventual transition of the NBC TV Network to cable would have to be delicately executed because of the seismic impact that would have on the entire broadcast TV industry.

Such changes could take years to carry out, but may be initiated during regulatory review of the proposed Comcast-GE partnership of NBCU. Ultimately Comcast is most interested in controlling access to and ownership of news, sports and entertainment programming for cable, mobile and all digital outlets.