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GE Gets $345M in Preferential Ad Rates in NBC-Comcast Deal

Comcast (CMCSA)'s $6.5 billion takeover of NBC Universal comes with a $345 million advertising sweetener, according to the small print in the merger agreement. The agreement is yet another reminder that the broadcast TV advertising business is not quite the free and open marketplace that they'd like you to think it is.

According to a Dec. 3 SEC filing, although Comcast is paying $6.5 billion to General Electric (GE) in order to buy NBC, GE is guaranteeing to spend $345 million over the next five years on ads with NBC.

That agreement contains an interesting clause that the FTC might want to examine for antitrust purposes: GE will get preferential rates for that ad money, meaning that the company will get more airtime for its cash than certain other companies advertising on NBC.

The clause is sure to anger competitors to GE, who may not get GE's ad rates on the new network. And it will anger competitors to NBC,* who may not want to offer the same low prices that GE, NBC and Comcast have agreed to over the next five years.

The deal was contained in the "Master Agreement" between GE and Comcast filed on Dec. 3. On page 107 of the 131 pact it states:

During the five (5) calendar years commencing at the beginning of the first calendar year following Closing, GE shall, directly or indirectly through one or more of its Subsidiaries, purchase advertising from Newco or one or more of its Subsidiaries such that, in each such year, GE will purchase no less than $59 million of gross advertising, in the aggregate, from Newco and its Subsidiaries, and GE will purchase an additional $50 million of gross advertising in connection with the 2012 Olympic Games.
So far, so good. GE probably spends that kind of money on ads anyway, and framing it within the merger agreement makes the deal cheaper for Comcast. Win-win-win, as Michael Scott says. But then comes this qualifier:
Purchases of advertising by GE and its Subsidiaries pursuant to this Section 6.24 shall be effected on arms- length terms; provided that GE and its Subsidiaries shall be entitled to preferential client treatment, including access to marketing execution and placements, comparable to the top tier or highest spender category of advertising or past practice, whichever is more favorable to GE.
In layman's terms, that appears to ensure that GE always gets the best rate that NBC offers.

GE remains a 49 percent owner of NBC after the deal. You didn't think it was going to compete for advertising airtime on the open market, post-merger, did you?

Hat tip to Adweek. * Disclosure: is owned by CBS, which would be one of those competitors.

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