This week, Comcast Corporation (NASDAQ:CMCSA) announced that it would buy the rest of NBC Universal from General Electric Company (NYSE:GE), as was agreed upon in 2009.The question is whether this deal is an optimum investment for Comcast at the moment. Are there any risk factors that need to be looked into? Is Comcast’s business strategy in the right place?
In December 2009, Comcast announced that it was buying control of NBC Universal from GE at a price of $30 billion. In 2011, Comcast provided nearly $14 billion in assets, including $6.5 billion in cash, for 51% ownership of the new entity. The rest of the money was to be paid within 8 years. Fast forward to the present, and Comcast is paying an approximate amount of $16.7 billion to acquire the remaining 49% of GE’s ownership in NBC Universal.
The deal includes NBC broadcast stations, cable channels like Bravo, USA and E!, the Universal movie studio, and theme parks among other assets. Needless to say, this will solidify Comcast’s position in the media and technology business. As Brian L. Roberts, Chairman and CEO of Comcast said:
“This is an exciting day for Comcast as we have agreed to accelerate the purchase of NBC Universal. The management team at GE has been a wonderful partner during the past two years and their support has been very valuable. Our decision to acquire GE’s ownership is driven by our sense of optimism for the future prospects of NBC Universal and our desire to capture future value that we hope to create for our shareholders […] 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. We believe we are in a strong and unique position to continue to grow and build value in our combined company.”
Although this is a huge move by Comcast in the media and entertainment industry, the company might be facing problems in the near future if it doesn’t focus on a few factors, as detailed below.
A few factors that bother me
Less focus on Internet broadband service: While Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) are focusing hard on their wireless broadband service, Comcast is buying channels, buildings and broadcasting stations. Is lack of wireless broadband services a detriment in Comcast’s business? Probably, it is, as per the excerpt below (from the annual report:)
“In certain of our service areas in 2012, some of our phone company competitors, including Verizon, have their own wireless facilities, which we do not have, and have expanded or may expand their cable service offerings to include bundled wireless offerings, which may adversely affect our business and results of operations.”
Now, with the advent of new-age Internet service providing technology, will Comcast have a problem holding on to its Internet users?
Take for instance, Google Inc (NASDAQ:GOOG) Fiber. Recently rolled out by Google Inc (NASDAQ:GOOG), it offers up to one-gigabit upload & download speed with full TV channel lineup with no data caps, one Nexus 7 tablet, one storage box, one network box and a 1TB Google Drive at a nominal cost of $120 per month plus taxes and fees. Compare that to the Comcast’s Extreme 105 plan that offers 105 Mbps Internet speed at $199.95 per month, or even 300-500 Kbps wireless Internet speed at a range of $40-60 per month.