< Big Enough to Fail


Friday, November 13, 2009

BOB GARFIELD: A 30-billion-dollar acquisition of NBC Universal by cable giant Comcast edged closer to a deal this week and, if consummated, it would be a blockbuster, the world’s largest cable company buying not only a major film studio but also NBC, with its portfolio of cable channels, as well. But a big deal isn't necessarily a good deal. Craig Moffett, an analyst for Bernstein Research, has serious doubts about the benefits to Comcast shareholders, although he sees at least one chunk of NBC Universal that Comcast isn't crazy to covet.

CRAIG MOFFETT: Being in the cable channels business is a good business, and Brian Roberts of Comcast has always enviously eyed the programmers and the good cable channels; he'd love to own some of them. And on its face, that’s not a terrible idea.

BOB GARFIELD: But there’s a lot of other stuff that would go with this acquisition. I mean, let's look at, just for example, Universal Pictures. A lot of companies have [LAUGHS] been enticed by that siren and, like Odysseus, steered right into the rocks. Is Universal the rocks?

CRAIG MOFFETT: [LAUGHS] Yeah, well there’s a long and unhappy history of companies trying to enter the movie business, and the movie studio business has always been a business that is longer on sex appeal than it is on profitability. Lots of people want to play at the game but nobody ever makes much money at it.

BOB GARFIELD: And Seagram and Vivendi destroyed themselves.

CRAIG MOFFETT: To -- to name two high-profile ones. Comcast’s interest in the movie business seems to be around when they make movies available to different distribution platforms. Cable has always wanted to get movies earlier but, more importantly, they think it’s also better business for the studios. The studios make more money when you rent a movie from Comcast or Time Warner Cable than they do when you rent a movie from Netflix. This deal would hope to remedy that for the cable operators by helping to steer movies in the direction of cable video-on-demand and hoping that other studios would follow.

BOB GARFIELD: Okay, let's give Comcast’s CEO Brian Roberts the benefit of the doubt and say that that represents a synergy, although those synergies never really seem to materialize in the real world. What about NBC, which is, depending on how you look at it, either in a major slump or a spiraling vortex of ruin?


BOB GARFIELD: Will Comcast be able to swallow that property?

CRAIG MOFFETT: What Comcast can bring to NBC, specifically, to try to make NBC better, isn't clear. I don't think Comcast would begin to pretend that they're better at running a broadcast network than NBC itself is, so I'm not sure on what basis you'd say Comcast is going to make it better, other than from where it is right now things can only look up.

BOB GARFIELD: Tell me again why Comcast wants to buy all this content.

CRAIG MOFFETT: The flip answer would be -- you got me. But I do think that Comcast in some ways is in the catbird seat here, with its physical distribution network. You know, I sometimes flippantly say to investors when they ask what’s better, content or distribution, that, look, if you want me to destroy the value of a piece of content, give me 30 seconds at a PC and I'll make a digital copy and post it on the Web. If you want me to destroy the value of a distribution network, give me 100 billion dollars and 30 years and I'll build another one.

BOB GARFIELD: Okay, so much for analyzing the financials. Tell me about the regulatory obstacles.

CRAIG MOFFETT: There are going to be two tests. There’s going to be a anti-trust test in front of the Department of Justice and then there’s going to be a public interest test at the Federal Communications Commission. It’s really the public interest test that is the interesting one because public interest is, by definition, a very subjective issue and it leaves lots of room for the FCC and for politicians to weigh in. So you’re going to see issues like net neutrality, like a la carte, that is, buying only one cable channel at a time, like the fact that cable rates keep rising so much -- all get thrown onto the table. Cable-bashing is a nonpartisan sport, and you’re going to have, in a interim election year, a circus in Washington as people try to get on the bandwagon of bashing this deal.

BOB GARFIELD: Which gets to my final question, and that is, are you having any kind of sense of déjà vu to the synergies promised by the infamous Time Warner/AOL deal back a decade ago?

CRAIG MOFFETT: That’s just the most famous of them. You can pull out a laundry list of vertical deals in the media industry, and you would be hard-pressed to find any of them that have actually delivered the goods when it comes to real value from vertical synergies.

BOB GARFIELD: Well, Craig, thank you so much. I appreciate your time.

CRAIG MOFFETT: Not at all, glad to help.

BOB GARFIELD: Craig Moffett is a media analyst at Bernstein Research.