Broadband Cable Association of Pennsylvania

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February 13, 2013

Comcast Corp., in a bullish bet on traditional entertainment, is buying General Electric Co.'s stake in NBCUniversal for $16.7 billion, giving the cable operator full ownership of the film and television giant much sooner than expected.

Two years ago Comcast bought an initial 51% stake in NBCU, transforming the nation's biggest cable operator into a diversified media company. Now, Comcast is doubling down, despite the uncertainty facing the industry, given the rise of digital outlets like Netflix Inc. and Amazon.com Inc. NBCUniversal's cable channels, including USA, Bravo and MSNBC, continue to generate big profits. Meanwhile the NBC broadcast network has shown signs of a turnaround in recent months after a long period in the ratings doldrums, with revenue and cash flow both improving. "We feel good about the turnaround happening," said Comcast Chief Executive Brian Roberts.

For Philadelphia-based Comcast, the NBC purchase is a wager that it can achieve benefits by owning both distribution and content, a strategy tried and abandoned by other media companies such as Time Warner Inc. Regulatory conditions imposed on the original deal limited Comcast's flexibility in responding to upstart Internet video outlets on its cable systems, highlighting one of the risks of the marriage. Still, by cementing ownership, Comcast is signaling it isn't concerned by that issue. Shares of Comcast jumped 6.8% in after-hours trading following the announcement.

Comcast is also buying NBCUniversal's floors in the landmark New York City building at 30 Rockefeller Plaza, where NBC now broadcasts and which carries the GE sign, as well as CNBC's headquarters in New Jersey, for a total of $1.4 billion. Mr. Roberts declined to comment on whether the Comcast name would replace GE on the Rockefeller Plaza tower. Comcast had the right to buy out GE's remaining stake starting in July 2014 and extending several years past that date, while GE similarly had the right to sell its stake. "Our belief is that we would have paid more later," Mr. Roberts said.

GE board members believe the deal "was a good price," and formally approved selling the rest of its NBCUniversal stake last week, said one person close to the situation. The idea of an accelerated sale of the holding "has been percolating for a while," and GE directors began discussing it "some time back,"' this person said, while declining to be more specific. GE accepted Comcast's offer because "GE has some things it would like to do" with the money, this person added. "A candy bar today is better than a candy bar tomorrow."

With $18.1 billion from the Comcast deal to add to the $77 billion it had in the bank at the end of December, GE is now flush. The company promptly said it would spend much of the money buying back shares. GE now plans to spend $18 billion this year buying back stock and paying dividends, $6 billion more than it had expected to spend, GE Chief Executive Jeff Immelt said. GE now plans to buy back $35 billion of its stock through 2015.Since taking control of NBCUniversal, Comcast has made sweeping management changes. NBCUniversal's CEO, Jeff Zucker, was replaced by an entertainment industry veteran and longtime Comcast executive, Steve Burke. A new entertainment chief, Bob Greenblatt, was installed to lead an overhaul of NBC's prime-time schedule, while a new head of NBC Sports was appointed.

Comcast has also transformed the structure of NBC News, which Mr. Roberts once called the "crown jewel" of Comcast. But NBC News has lately faced challenges, particularly at its morning show "Today," which last April lost its 16-year ratings winning streak. After that Mr. Burke appointed Pat Fili-Krushel to the newly created role of chairman of the NBCUniversal News Group. That move, which added a new layer of management between longtime NBC News President Steve Capus and Mr. Burke, precipitated Mr. Capus's resignation earlier this month. Following a budget review last summer, Comcast laid off about 500 people, or 1.5% of NBCUniversal's workforce, including cuts from "The Tonight Show" and the Universal film studio, according to a person familiar with the situation.

NBC's prime-time schedule, at least, has shown signs of a turnaround, after being mired in last place among the four major broadcast outlets for several years. For the first few months of the current season, which started in September, NBC was in first place among 18- to 49-year-olds, the demographic segment of most interest to advertisers, thanks to the popularity of Sunday Night Football and "Revolution," a new drama introduced by Mr. Greenblatt. Still, NBC's ratings have weakened in recent weeks, in the wake of the end of the football season, among other factors. Comcast has invested hundreds of millions more dollars into production and marketing at Universal Pictures than the film studio received under GE in an effort to better compete in the global marketplace. Results so far have been mixed. Of the studio's two biggest budget releases last year, "Battleship" flopped and "Snow White and the Huntsman," turned in middling results.

However, Universal had a surprise hit in last summer's Mark Wahlberg comedy "Ted" and has generated strong box office returns for its Oscar-nominated adaptation of musical "Les Miserables." In 2012, the studio's revenue grew 12% to $5.2 billion, and its operating cash flow more than tripled to $79 million.

Late Tuesday, Comcast reported fourth-quarter earnings, showing NBCU's revenue rose 12.7% in 2012 to $23.8 billion, with operating cash flow up 9% to $4.1 billion. Much of the improvement came from the broadcast division, where revenue rose 27% to $8.2 billion while operating cash flow trebled to $369 million. NBCUniversal's cable networks, which account for the lion's share of the profits, have shown some signs of weakness.

At the USA network, prime-time viewers fell 7% since September, according to Nielsen, though it remains in a strong second place behind ESPN. Overall, NBCU's cable networks division's revenue rose 3% to $8.8 billion in 2012, with operating cash flow falling 1% to $3.3 billion. The deal values NBCUniversal at $39.4 billion, only a little more than the $37.25 billion put on NBCUniversal in the original 2011 deal, according to a Comcast spokesman. Still, analysts say Comcast is paying a full price for the remaining NBCU stake. The deal implies a multiple of about 9.5 times NBCU's 2013 earnings before interest, taxes, depreciation and amortization, estimates Mike McCormack of Nomura Securities. That is about 10% more expensive than the valuation of peer media companies such as Viacom Inc. and Time Warner Inc.

The consideration for the stake in NBCU includes $12 billion of cash, $4 billion in Comcast debt, and $700 million in preferred stock, the companies said in a joint statement Tuesday. Comcast had accumulated $11 billion in cash over the past year or two, including from sale of wireless spectrum, which it will use to cover much of the cost. "We believe the terms of the transaction are attractive and have planned for this event by taking a number of financial steps to prepare our balance sheet," Mr. Roberts said in a statement. The accelerated sale comes as GE is trying to improve the operating margins and growth in its industrial businesses. The conglomerate plans to use funds from the sale to help pay the upfront tab of steps that will cut costs.

GE plowed money from the initial sale of a stake in NBCU into acquisitions in the energy sector, now one of the company's biggest businesses. But major deals aren't likely to be in the cards. The company said it would continue to look for what it calls bolt-on acquisitions roughly in the range of $1 billion and $3 billion.

In his 11 years at the top of GE, Mr. Immelt has shed a raft of businesses from plastics and chemicals to insurance and now media. Meanwhile, he has plowed investment into areas like oil and gas, as well as transportation. His aim in part has been to get out of commoditized businesses and ones that are outside of GE's core, like entertainment, and instead focus on the growing markets the company sees in resources.

Mr. Immelt has spoken nostalgically about NBC and said getting out of the business was a difficult decision. GE executives enjoyed the fun that came with the media business. GE for years has held its annual December investor meeting in NBC's Saturday Night Live studio. While the moves have left GE a simpler and more focused company, it remains exposed to sluggishness in key markets like those for power turbines. Mr. Immelt also has been building up the company's cash-both as a buffer following the ravages of the financial crisis and to have the flexibility to reward shareholders who suffered a deep dividend cut as markets plunged four years ago and have stuck with the company despite a stock price that remains well below where it traded before the crisis. "We applaud the portfolio simplification and view the exit of NBCU as part of the natural evolution of the GE portfolio as it refocuses on its core industrial businesses," Jeff Sprague, an analyst at Vertical Research Partners, wrote in a research note. Wall Street Journal; more in Philadelphia Inquirer


Cable provider Comcast Corp and News Corp's Fox Networks have struck up a distribution agreement to carry Fox's programming on televisions, computers, smartphones and tablets to Comcast's 22 million Xfinity customers.

Terms of the deal, announced on Tuesday, were not disclosed.

Xfinity is Comcast's cable service that lets customers view TV on demand and access it through devices such as smartphones and tablets.

The agreement includes live and on-demand shows from Fox's 20 broadcast stations, FX, Fox Soccer, and the Fox Business Network among others.

One of the key aspects include the ability to make Fox's programming available the next day to Xfinity customers however they choose to access it - be it on a smartphone or tablet - in a program that is known in the industry as "TV Everywhere."

Media conglomerates including CBS and Time Warner Inc have seen additional revenue as they make TV programs and movies available through cable providers' TV Everywhere initiatives as well as other streaming media offerings from Amazon and Netflix. - Reuters


Apple CEO Tim Cook on Tuesday dismissed complaints from activist shareholder David Einhorn that the company has a "Depression-era" attitude about hoarding cash, called Einhorn's lawsuit challenging a proxy that would limit the ability to create a special class of stock "a silly sideshow" and said his engineers have not lost their innovative edge.

Speaking at a Goldman Sachs technology conference, Cook reiterated Apple's stand that it is seriously looking at whether to return more cash to shareholders as its cash stockpile grew to $137 billion as of the end of the December quarter, roughly two-thirds of which is held overseas.

"Apple doesn't have a Depression-era mentality," he said. "Apple makes bold and ambitious bets on products, and we are conservative financially."

Cook called the lawsuit filed by Einhorn's hedge fund a "misunderstanding" and said if Apple were ever to issue preferred stock - which Einhorn is calling for - it would first seek shareholder approval. - San Jose Mercury News

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