Comcast-NBC Merger

Abstract

Comcast and NBC Universal merged to form a media powerhouse and behemoth. This brought together two media giants in a bid to become the leading producer and distributor of media products. It also intended to increase its investments. Various issues arose and critics prophesied doom over the merger. This was because of the potential dangers that were anticipated. These included the possibility of the erosion of employee rights. Critics argued that there would be loss of jobs as the company tries to cut costs due to the impending dept.

However, many were optimistic that the merger would form a media giant that would provide huge profits to the company and greatly benefit the public through the provision of information, entertainment, a variety of communications products and services, and affordable broadband internet (Thierer, 2009). The Comcast and NBC Universal merger saw a 6% increase in the first six months of the merger and improvements in various aspects of the business. However, critiques about its failures also exist.

Introduction

The combination between Comcast and NBC Universal occurred during the period between 2009 and 2011. This occurred when an agreement was signed between Comcast and General Electric. This merger became a topic of interest nationwide (Godsfarb, 2010). People were concerned about the net neutrality of the combination. Another issue in people’s minds was concerning the media consolidation. Comcast by itself was the largest cable operator in the U.S. Negotiations concerning the merger had been ongoing for about nine months. In December 2009, the company announced that it had agreed to the terms. It was to take over NBC Universal from its previous owner. Forty nine percent of the company was going to be under the management of General Electric. Comcast, on the other hand, would own 51% of the shares.

In this case, Comcast was to share its cable channels. These included E Entertainment, Versus and Golf Channel. In addition, it was to pay General Electric a total of $ 13.75 billion. The company was to pay some amount in cash ($ 6.5 billion). NBC Universal has several renowned channels. They include MSNBC, USA and Brave, among others. This, together with the contributions from Comcast, accounted for over 80% of the revenue of the organization.

This paper will discuss why the combination between the two was potentially risky and rewarding. Speculations about the reasons why General Electric may have wanted to divest itself from the management of NBC Universal will also be discussed. The type of business combination used to effectuate this deal will be addressed and the considerations used for the transaction will also be discussed. The paper will conclude by assessing whether the combination has been a success, looking specifically at the measures of success.

The potential risks and rewards of the combination

Various groups regarded this merger as controversial. The Union representatives, for example, were among the groups that were against it. This is because of the potential risks that could be associated with it. For example, the exercise posed a risk of losing good jobs. Another potential risk that had been anticipated was the possibility of eroding the rights of the employees. Another risk was the possibility of the merger undermining the standards of the media industry. This would consequently affect the communications industry. Cohen had anticipated a huge loss during the initiation of the merger. He estimated a possible $8 billion in debt. He suggested that this debt would lead the company to adopt measures in order to cut costs. Therefore, this would have ripple effect and cause huge damage.

Others also argued that the combination was only good for the two companies. However, it was not going to favor the needs of the public in America. It was argued that Comcast was making promises to the Americans that it could not keep. It was expected that the media industry was going to crush. Furthermore, the opportunities for independent programming would only be a dream to the Americans.

On the other hand, others were of the idea that the merger was to become a success. Following the many negative views, the chairperson of Comcast argued that there was no plan to suspend or terminate the employment contracts of its employees. The explanation for this was the fact that there was no overlap in the transaction. This is because it was primarily vertical. He, together with the President of the company agreed that the possible reward from the merger was the opportunity for increased investments. This was because the company was focused mainly on entertainment and communication. In addition, this merger had the potential of creating and increasing job opportunities for those in the field of media and technology.

Another possible benefit of the merger is in the accomplishing of Comcast’s goal of increasing the availability of the movies that were on high demand. It intended to release the movies to the public during dates close to their actual release dates. This was going to be made possible using the contents of NBC Universal. The company was also dedicated to providing programs that would favor the diverse groups. These programs included the children’s shows, news and those in the Spanish language. These would be available through the various channels including the internet, cable and over the air.

Why General Electric wanted to divest itself from NBC Universal

NBC Universal is a company in the media and entertainment industry. The company produces and markets various products including news, entertainment and information on goods and services (Dalton, 2006). It was formed when a merger between NBC and the Vivendi Universal Entertainment occurred. NBC belonged to General Electric while Vivendi Universal Entertainment belonged to Vivendi. The reason why General Electric wanted to divest itself from the management of NBC Universal may have been that it was a majority shareholder owning 80% of the company while Vivendi owned only 20%. General Electric was also interested in selling a stake in NBC Universe to Comcast. It sold 51% of the company and acquired the remaining 20% from Vivendi.

Type of business combination used to effectuate the deal and the considerations used for the transaction

The type of business combination used to effectuate the deal was a merger. This is because it was a union between two corporations – Comcast and NBC Universal. It was a form of corporate strategy and management that involved the combination of previously independent companies. This is usually done in order to help grow the business in its sector and in this case, in the entertainment industry. This is done without the creation of a subsidiary or child entity. This does not involve the use of a joint venture either.

The Comcast NBC merger was intended to increase investments and to create sustainable employment opportunities. It is a merger because it involved the combination of the two companies rather than creating a subsidiary or involving a joint venture. The merger was approved by the United States Department of justice. The United States Federal Communications Commission also approved it. It was later referred as a ‘mammoth entertainment giant’. The transaction involved the exchange of liquid cash and stocks totaling $13.75 billion.

The success of the combination and the specific measures of success

After the merger of the two companies to form Comcast-NBCUniversal, many critics had referred it as a catastrophe and suggested some of the potential dangers that could be encountered in the event that two large corporations were consolidated (Godsfarb, 2010). The company was responsible for controlling a huge portion of the national media and entertainment industry and any failures would lead to huge losses and inconveniences. Comcast-NBCUniversal had some promises to fulfill. It had promised to increase the number of children’s programming and Spanish programs, provide broadband internet that would be affordable to the individuals with low incomes, among many other things.

The merger between Comcast and NBC can be said to be a success since it led to its expansion both in the vertical and horizontal direction within the industry. The company now leads in the provision of entertainment, communications products and services, and information. It expanded vertically in that the merger enabled the producer of videos (NBC) to meet with the distributor (Comcast) of the videos (Baker, 2011). This way, business became much easier. It expanded horizontally in that the extra channels and broadcasting stations included variety within the network.

Six months after the merger, things were going well. The media behemoth had recorded an increase of 6% during the second quarter. The company also made some great investments in NBCUniversal. This included the purchase of the remaining half of Universal Orlando. It was also able to provide additional network television shows and cables. The company also recorded an improvement in its business services and the triple-play subscriptions grew substantially.

Another success may be seen in the way it announced the addition of Spanish-language programming. This has seen the increase in the number of total subscribers to the Hispanic networks. This number has been estimated at 14 million. They include Galavision, Univision and Telemundo, among others.

However, some complaints about the failures of the company to meet some of the conditions in the concession exist. Firstly, Comcast had agreed to allow its competitors in the industry to continuously access the programming of NBCUniversal. The company, however, was accused by Bloomberg of violation this condition. It accused it for not placing its news channel next to its competitor in the cable system. The company was also accused for not maintaining its net neutrality (Kang, 2010). This was when it set up tollbooths in order to charge fees for streaming its content.

Conclusion

The merger between Comcast and NBC created a media powerhouse. Negotiations concerning the merger were ongoing for nine months after which Comcast agreed. The merger brought together resources from both sides and it included the cable channels such as E Entertainment and Versus, and the valued channels from NBC Universal. The company has so far been successful in many ways. One of the successes is that it has managed to add the Spanish-language programming that saw an increase in the number of subscribers. Despite some of the criticisms from critics, the company has experienced success through the improvement of its business services.

References

Baker, J. (2011). The FCC provides a roadmap for vertical merger analysis. Web.

Dalton, C. (2006). The business of entertainment: An interview with John Eck, president, media house, NBC Universal. Business Horizons, 49(1), 9-15.

Godsfarb, C. (2010). The proposed Comcast-NBC Universal Combination: How it might affect the video market. Congressional Research Service, 29-30.

Kang, C. (2010). Court rules for Comcast over FCC in net neutrality case. The Washington Post, p. A 01.

Thierer, A. (2009). A brief history of Media Merger hysteria: From AOL-Time Warner to Comcast-NBC. Progress on Point, 16(1), 5-8.