Comcast, NBC Deal Still Faces Obstacles

By SAM SCHECHNER, SHIRA OVIDE and JEFFREY MCCRACKEN A deal to merge General Electric Co.'s NBC Universal into a new joint venture with Comcast Corp.'s cable networks might solve pressing needs for both companies. But a number of financial and legal issues still hang over the talks, which are still at an early stage. While both sides hope to complete a deal, people familiar with the matter give the transaction "50-50" odds of coming together. In the deal under discussion, Comcast would contribute cash and its cable networks to NBC Universal for a 51% stake in the expanded company. NBC Universal would borrow money that would be turned over to GE, along with the cash contribution, according to the person familiar with the matter. GE would use that cash to buy out a 20% stake in NBC Universal held by Vivendi SA and then pocket the remainder, the person said. In the end, GE would have a 49% stake. The chief issue for all parties remains valuation. Comcast, for instance, is eager to contribute as little cash as possible, meaning it is seeking a high valuation for its cable networks. The potential deal also includes options for GE to ease out of its investment in NBC Universal in stages, according to people familiar with the matter. Comcast would not pursue a deal for NBC Universal if there weren't an option to eventually own the entire company, one of the people said. On Friday, Time Warner Inc. Chief Executive Jeff Bewkes said that his company wasn't interested in an NBC Universal deal. Reiterating recent comments about the media industry's poor track record with big mergers and acquisitions, Mr. Bewkes said that "some deals work, but in the media most of them have not." Such concerns haven't scared Comcast, which has been talking for years about potential deals for NBC Universal, according to a person close to Comcast. This time, according to the person, Comcast saw an opportunity to eventually own all of NBC Universal without spending much money upfront or adding to Comcast's debt load. The potential tie-up would give Comcast control over more than 45 million customers spread across TV, the Web and telephone businesses as well as access to a raft of popular cable networks and Web hangouts such as Fancast. The breadth of that combination would be reviewed by the Federal Communications Commission, which would most likely look at competitors' access to Comcast-owned networks and competitors' ability to get their channels on Comcast's cable systems. Antitrust regulators may also look at concerns about how the deal might affect local advertising rates, particularly in markets like Philadelphia and Washington, D.C., where Comcast is a local cable operator and NBC owns its local affiliate. NBC owns 26 local NBC and Telemundo stations. Comcast executives are pursuing NBC Universal in large part because of the rising value of cable-TV channels such as NBC Universal's USA and Comcast's Versus. Cable networks have been resilient businesses even during the recession due to a monthly stream of fees that cable companies pay for the rights to air the channels. It's unclear, however, whether the cable-network gravy train will persist in the Internet era. The growing popularity of online video viewing raises questions about how the companies that produce entertainment content will be paid for it in the future. Comcast executives hope a tie-up with NBC Universal would allow Comcast to move faster toward offering movies on DVD, video-on-demand and online simultaneously, according to a person close to the company. Comcast could also move to blunt the effect of digital-video recorders that let viewers skip ads, the person says. That person suggested the company might simply make all of NBC's TV shows available on demand with full advertising but without the fast-forward function enabled during commercial breaks. —Amy Schatz and Nat Worden contributed to this article. Write to Sam Schechner at sam.schechner@wsj.com, Shira Ovide at shira.ovide@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com