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Comcast-NBCU: More Than a Pipe Dream?

The Cable Pipeline
The Cable Pipeline
The Cable Pipeline
1/26/2010

3:05 PM -- Comcast Corp. (Nasdaq: CMCSA, CMCSK) is set to go before regulators to convince a skeptical crowd how its proposed union with NBC Universal will benefit competition and the continued adoption of broadband access. (See Comcast to Take Control of NBC Universal and Senate Group to Vet Comcast-NBCU Deal.)

News of the deal ignited a firestorm of controversy from public interest groups, competitors, and ISPs alike, all concerned about the potential abuses such a merger could unleash on video distributors and broadband stakeholders, possibly impairing their ability to access content and compete. (See Comcast-NBCU Union Under Fire and ACA Balks at Comcast-NBCU.)

Ultimately though, a deal such as this has long been the dream of Comcast leadership and extends back to lessons learned from previous merger attempts to bond programming with the pipeline (e.g., its failed attempt to get Walt Disney Co. (NYSE: DIS)) and thereby create market dominance, along with a competitive edge for the long haul.

And it's this simple scenario that's driving Comcast and NBCU together. But upcoming regulatory scrutiny will decide how the merger will stand up under the glare of legislators. Here are some of the key points motivating this deal:

The pipeline
Comcast has always, since its inception, believed in the pipeline and its ability to carry interesting, informative, and socially beneficial programming on a broad scale within a national market. The pipeline is the core business, or the building blocks, on which all other Comcast businesses are constructed. That strategy has not changed, and it fits well with the advent of high-cost content that has driven smaller MSOs to the merger or takeover table.

The programming
To fill such a pipeline with relevant content and create a basis for steady revenues, Comcast realizes the need to be more than just an expensive pipe through which to deliver programming. It also needs a strong formula to deliver vertically integrated, demand-driven content that will outstrip the competition, and enable it to secure bundled revenue streams even as broadband video continues to proliferate -- hence, the NBC-Universal merger that gives the right recipe of owned, versus purchased, programming rights.

Regulatory finesse
The cable giant has not under-thought the implications of the regulatory hurdles it would face with its merger. For years, the company has relied on strategic thinking within a five-to-ten-year framework to predict where the pipeline industry is heading, and then acted to formulate a plan of action.

So, it's not a mere coincidence that NBCU came into Comcast's M&A sights at this time, since it came after the company weighed all the implications, including the regulatory ones, and then struck at the right time and at the right price.

NBCU fills this need as an underperforming part of General Electric and Vivendi , considered not a good operational fit from the get-go.

Comcast has since moved to reassure regulators of its intentions to run NBCU as a separate company, making it more transparent and independent, and to involve Hulu LLC and its free Internet content concept. [Ed. note: Well, for now. There are indications that Hulu may expand beyond its free, ad-supported model.]

Comcast's motives are simple: Acquire more vertically integrated programming to fill pipelines serving 24 million customers with unique and relevant content, and use linear, on-demand, and broadband methods to deliver it. It’s a win for Comcast, its customers, and the cable industry.

— Leonard Grace, a cable industry vet, is a telecom strategist and blogger. He can be reached at [email protected]. Special to Cable Digital News

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