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Comcast-NBC Universal: Same old media merger, or something different?

In my previous life before the economic crisis really exploded in fall of 2008, I covered the media and entertainment industries for several years. It was a terrifically interesting time that saw the beginning and end of the AOL-Time Warner merger, the Vivendi-Universal merger and one attempted merger that never happened: Comcast's 2004 unsolicited bid to buy Disney.

Disney rebuffed Comcast's premium offer -- actually, then-chief executive Michael Eisner rebuffed Comcast's offer without consulting his board, at first -- and Comcast gave up after some months.

This was before the widespread rollout of high-speed Internet. Comcast had a lot of pipes -- cable -- and wanted content. Disney, with its animation studios and movie studios but more importantly, ESPN, looked like a good fit to Comcast chief executive Brian Roberts.

But it was not to be, and that era of Big Media ended with a failed merger.

Flash-forward to 2009. The economy is stumbling out of its worst recession since the Great Depression. Prices of assets are low. Industrial giant General Electric has become, for all practical purposes, a bank: Prior to the crisis, GE Capital provided GE with the bulk of its profits. But it got hammered in the crisis just like everyone else. It could use some capital.

Now comes Brian Roberts, again, into this picture. His Comcast is the nation's largest cable system, with 25 percent of America's video customers. But as wireless Internet continues to roll out -- and will only escalate -- Roberts realizes that, in a few years, he'll have a lot of what they call in the industry "dumb pipes": cable laid in the ground at great expense that may carry less and less traffic, as more of it moves to wireless. He could use some content.

He turns his eyes now toward NBC Universal, the media arm of GE. GE has long owned NBC and bought the majority of Universal assets off Vivendi when that merger crumbled. But the crown jewels of NBC Universal are neither NBC nor Universal -- they are the company's cable networks, which include USA Network, Bravo, the Weather Channel, SyFy and so on. Those cable channels, as NBC Universal Jeff Zucker recently said, provide 75 percent of his company's profits.

What these cable channels have that NBC and other over-the-air television networks do not is two revenue streams: Cable channels get money from the advertising that appears on them plus the subscription fees you pay in your monthly bill. That's why they're so valuable, and that's what companies like Comcast covet.

News comes today that GE has agreed to buy the remaining 20 percent of NBC Universal that Vivendi still owns. This clears the way for GE to sell NBC Universal to Comcast. Or, according to reports, sell 51 percent to Comcast and retain 49 percent in a joint venture that would provide GE with cash and Comcast with content.

Of course, Comcast will face a "gauntlet" of regulatory hurdles to complete the merger, Bloomberg writes.

In the old days, this sort of media deal was called "vertical integration." Meaning, if you make content -- like movies and TV shows -- you buy a distribution outlet, like a cable system. It's been tried and it's failed numerous times. Time Warner spun off its Time Warner Cable earlier this year after several years of ownership, realizing that the synergy never came and Time Warner Cable would do better on its own.

AOL was such a burden on AOL Time Warner that it got its name removed from the company name and then, this month, is finally getting spun off.

Time will tell whether NewsCorp's purchase of MySpace is a boon or bust.

Reporting on the Comcast-NBC Universal deal says an announcement could come as early as Thursday of this week. Doubtless, Roberts and GE chief executive Jeff Immelt will praise the deal as a natural fit, tout its cost-saving synergies and perhaps even proclaim it the first true media company of the 21st century.

Which is pretty much exactly what AOL's Steve Case and Time Warner's Jerry Levin said when they announced their deal in 2000.

Or Roberts and Immelt may say this is a marriage of convenience, that GE needs to get back to its core business of building locomotives and jet engines and wants to get its financial house in order, and that Comcast sees the coming technological change and understands the future is in content, rather than distribution.

-- Frank Ahrens
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By Frank Ahrens  |  December 1, 2009; 1:08 PM ET
Categories:  The Ticker  | Tags: AOL, Comcast, MySpace, NBC Universal, NewsCorp, SyFy, Time Warner, USA Network, Universal  
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