Digital Media

It's official. Comcast, the nation's largest cable company, announced Thursday that it is buying a controlling stake in the TV network and movie studio NBC Universal.

The total value of the blockbuster media industry deal, which had been rumored since September, is estimated at around $37 billion. The new joint venture will merge Comcast's cable channels, which are worth about $7.25 billion, with NBC Universal assets that have been valued at around $30 billion, the companies said Thursday.

Comcast also plans to contribute about $6.5 billion in cash. The cable heavyweight will own 51 percent of the venture, and General Electric will own 49 percent. Jeffrey Zucker, who has been president and CEO of NBC Universal, will lead the joint venture.

GE, which owned 80 percent of NBC Universal before the deal, is getting about $8 billion in net cash for its contribution. The joint venture is taking on about $9.1 billion in debt, which reduces the amount of cash that Comcast has to put up for the deal. And it also provides the cash to pay GE.

The deal will make Comcast a major media player with several very profitable cable channels, including USA, CNBC, MSNBC, and Bravo. It will also have control over NBC's broadcast networks and TV stations, its film studio, and its amusement parks.

The New York Times reports that Comcast and GE had been working on the deal since March. Rumors of a pending joint venture surfaced in the press in September. But the final deal was delayed as GE negotiated a buyout with French media company Vivendi, which owned 20 percent of NBC Universal. Earlier this week, GE and Vivendi reached an agreement whereby Vivendi will get $5.8 billion for its 20 percent share. If the deal does not close by September, GE is still responsible for paying Vivendi about $2 billion, or about 38 percent of the agreed price.

Brian Roberts, chief executive of Comcast, said in a statement that NBC Universal is a perfect fit for Comcast, and it "will allow us to become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding."

Roberts tried and failed to buy another major media company, Disney, in 2004.

Will cable-bashing undo the deal?
The deal is likely to be scrutinized by government regulators, namely the U.S. Department of Justice and the Federal Communications Commission.

Craig Moffett, an equities analyst with Bernstein Research, said in a research note in late October, when rumors of the deal were heating up, that regulators may find plenty of reasons to reject the acquisition.

The biggest problem for the deal could be the fact that GE and Comcast will try to close it during a midterm election year. Politicians taking sides on Net neutrality issues and the national broadband plan may find it easy to bash Comcast. And a marriage between the nation's largest cable and Internet service provider and one of the nation's three broadcast TV stations may ignite old fights over media ownership, a la carte billing, retransmission consent, and cable prices.

"Cable-bashing in an election year is a no-lose bipartisan proposition," Moffett writes in his note. "The headline risk is quite material. Approval of a deal, should one be reached, cannot be assured."

Comcast argues that the deal will be good for consumers by getting some movies on cable TV and on-demand services more quickly, since Comcast will control NBC Universal's movie catalog. Comcast may also be able to put content more quickly on cell phones.

Still, some consumer advocates, such as Free Press, oppose the deal. They say Comcast would have too much power in the entertainment industry.

One issue of concern is that Comcast could use NBC's programming to undermine rival TV services from phone companies, such as AT&T or Verizon Communications, or from cable operator Dish Network. Comcast could charge these competitors more for cable channels, while giving its own cable TV business a better deal. Comcast officials say this is unlikely. And the company has already proven that it offers fair pricing with its existing cable channels, such as E! Entertainment, G4, and the Golf Channel.

The deal may also have an effect on online video services, such as Hulu, which is owned by NBC, News Corp., and Walt Disney Company. That said, Comcast has been experimenting with its own online video service for some premium channels for Comcast customers. The company also already has a Web-based video aggregator called Fancast, which streams full TV shows and movies for all Web users.

Woo wee, did Hulu's fortunes flip-flop fast.

Jason Kilar, Hulu CEO

(Credit: Greg Sandoval/CNET Networks)

The Web's deepest stockpile of full-length TV shows and feature films is seeing some very public infighting over its future. The disagreements are over how Hulu should generate revenue and even how to sell ads, according to a report in Mediaweek.

Things were going so well. Since Hulu's October 2007 launch, the Web video site founded by NBC Universal and News Corp., has grown its audience, generated big ad revenue, and been bathed in positive press.

Hulu has mounted the only serious challenge to YouTube. The site also enables its TV network backers to offer viewers an alternative to pirate sites. But the indications are Hollywood is dismayed over Hulu's earnings. On the issue of Web revenue, the studios seem to be saying: "Is that all there is?"

The first signs that Hulu may not be the cash cow that everyone involved had hoped for came earlier this year. Instead of ballyhooing the selling out of ad inventory like it had done a year earlier, Hulu's managers hushed up.

Then, NBC Universal CEO Jeff Zucker and News Corp. Chairman Rupert Murdoch said publicly that Hulu may charge for some content. In an interview with Dow Jones last week, News Corp. COO Chase Carey said it's important that Hulu have "a real subscription aspect," but added some content will always be free.

Want to bet that the content you'll have to buy will be the latest and most popular TV shows and films?

Hulu's management is wrestling with these issues at a time when the public increasingly develops an appetite for high-quality Web video.

The number of U.S. households with broadband access that watched full-length movies and TV shows online doubled in the past year, according to research firm, Parks Associates. According to the firm, 45 million households regularly watch either TV shows or films via the Internet.

Jayant Dasari, a research analyst at Parks, said people like the control that sites like Hulu give them. If they miss a favorite TV show, they can get caught up on Hulu.

"If they're on the road or don't have access to a (Digital Video Recorder) they are more than willing to consider the option of broadband video," Dasari said. "This is a trend that can no longer be ignored."

(Credit: Greg Sandoval/CNET Networks )

Dasari said Web video's growth is being stifled by the lack of content available at Hulu and other sites. For example, there are only a handful of feature films available at Hulu. Crackle.com, Sony Pictures' Web service, only posts a fraction of its vast library of films on the Internet, but there's not another studio even offering that.

So what? What does it mean if the studios hobble Hulu? Consumers have watched TV for over half a century. They can still go back there. Right?

Big Champagne CEO Eric Garland, whose company tracks traffic on peer-to-peer sites--where most illegal file sharing occurs--told me recently that consumers are heading online for video entertainment and he doesn't expect them to return to their traditional viewing habits ever again. Garland's data shows that Hulu is the first legal Web service to snatch market share away from the pirate sites.

He also said that the lords of video, with their rejection of Internet businesses, are behaving much the same way the music industry did when confronted by the digital age. If network and film studio executives are dissatisfied with the returns they see from Hulu and similar sites, they should consider the possibility that this is all the new media landscape will yield, Garland said.

One major obstacle seems to have been settled in Comcast's quest to buy NBC Universal from General Electric--how much to pay for it.

Both companies have reportedly agreed on a price of $30 billion for GE's movie and TV unit, according to sources cited Monday by Reuters and The Wall Street Journal (subscription required for full story).

The agreement on the worth of NBC Universal (NBCU) is a major step toward paving the way to create a new, privately held company that would combine NBC's TV stations and Universal Studios with Comcast's TV and cable stations. NBCU's Web properties include iVillage and the online video site Hulu, in which it is a co-owner along with News Corp. and Walt Disney Co.

Under the terms of the proposed deal, Comcast would own a majority 51 percent slice of the new entity, with GE owning the remaining 49 percent.

Further, the two companies have discussed an option whereby GE would sell off all or most of its ownership of the new company to Comcast over the next seven years, according to sources cited previously. Recent reports say that GE and Comcast have now decided how to price the new entity after the deal goes into effect so that GE faces no problems selling off its remaining stake.

The valuation of NBC Universal was seen as a major challenge in advancing the deal, according to sources. Comcast naturally was intent on maximizing the value of its own networks and minimizing the value of NBCU to limit the amount of up-front cash it would need to invest in the new firm. Latest reports say that Comcast would inject anywhere from $4 billion to $6 billion into the new entity.

However, both companies have reportedly agreed to base Comcast's final cash payment on NBCU's financial performance before any finalized deal closes. If its performance tanks, Comcast could end up paying less.

Other challenges remain, too. French media giant Vivendi owns 20 percent of NBCU. Vivendi has reportedly told GE that it wants to sell its stake but has yet to voice approval on any deal of its own. A valuation of the company's 20 percent ownership is currently being discussed, said the source cited by Reuters.

Of course, even if Vivendi agrees to a deal and all looks good, regulatory approval would be required, especially since Comcast would own a huge chunk of national and local media outlets. The Journal said that people close to the talks believe regulatory approval could take at least eight to 12 months.

Comcast's bid for a majority stake in NBC Universal was first revealed in early October.

Requests for confirmation to GE and Comcast were not immediately returned.

Cable giant Comcast is reportedly in talks to gain a controlling stake in General Electric's NBC Universal, in a deal that would help shape Comcast's online-content strategy and help NBC Universal keep pace amid the shifting market.

According to a Wall Street Journal report, Comcast is hoping to form a privately held joint venture that would include NBC's media content. Comcast would control the venture with a 51 percent stake, and GE would own 49 percent of the new company.

Combined, the new jointly owned media company would own more than two dozen TV networks, including NBC, along with several cable stations, such as USA Network. Comcast already operates some of its own cable networks, such as E!, the Style Network, and G4. The new joint venture would also own NBC Universal studios, plus 10 local NBC TV affiliates in cities such as New York and San Diego.

This isn't the first time Comcast has gone looking for a big media company. Five years ago, the company tried to acquire Walt Disney for about $66 billion. In the years since that failed attempt, the media and video distribution landscape has changed dramatically.

Television networks are struggling to keep advertising revenues up, and movie studios are under pressure to prevent digital piracy from eating into their profits. Meanwhile, Comcast, which is facing more competition from phone companies and satellite providers in its TV business, is also trying to figure out how best to use the Internet to deliver video content.

Individual TV channels have been putting their own TV content online for consumers to access for some time. This initially troubled cable operators such as Comcast; they saw the free delivery of video content for which they pay a hefty price as a threat to their business.

NBC and News Corp., the owner of Fox, have made a splash with online service Hulu, which offers TV shows and some movies on demand. Other media conglomerates, including CNET News publisher CBS, have made similar moves.

Comcast, too, is starting to embrace online video, teaming up with media conglomerate Time Warner earlier this year to test a new service offered by Comcast called On Demand Online. The service allows Comcast cable customers to access some of Time Warner's most popular TV shows from its TNT and TBS networks at no additional charge. Its plan is to provide TV networks and movie studios a secure way to distribute their movies and TV shows to a wider audience via the Internet.

The Wall Street Journal said that talks between Comcast and GE could still fall apart. Comcast is looking to pay as little as it can up-front. And there is an issue about what to do with Vivendi, which has a 20 percent stake in NBC Universal.

Rupert Murdoch said in July he wanted to reshape MySpace into an entertainment hub, and sources say the site now plans to launch a new video service sometime in the next several months with the help of sister site Hulu, CNET News has learned.

The big question is whether MySpace's service will offer downloads or a subscription service.

Rupert Murdoch, News Corp. chairman

(Credit: Dan Farber/CNET Networks)

Murdoch, the chairman of media conglomerate News Corp., intends to overhaul MySpace Video by bringing in a larger number of feature films, TV shows, and music videos. The social network's new video area will be given a major face lift, more exposure, and be re-branded so as to make it more attractive to advertisers, according to two sources with knowledge of the plans.

A MySpace spokeswoman declined to comment.

Murdoch's News Corp. owns MySpace and a large chunk of Hulu, which also boasts NBC Universal and Disney as its other stakeholders.

MySpace already streams some of Hulu's TV shows and a tiny number of full-length movies to users. But MySpace Video, as it is now, can't come close to competing with the Web's top video services, such as YouTube, Netflix's Watch Now, or Crackle.

A visit to MySpace Video on Monday evening revealed a section that provided few clues that feature films or prime-time TV shows were even offered there. Besides being buried, the content is displayed on a jumbled Web page. The links to the few long-form films and shows are mixed in with the much more plentiful short clips and trailers. To be frank, the site is a mess.

"MySpace's intention is to do a much better job of monetizing the video area," said one source.

What isn't clear is whether MySpace Video will offer downloads and subscriptions. Last week, Murdoch and and Jeff Zuker, CEO of NBC Universal, said ad-supported Hulu is considering whether to offer pay-per view and a subscription service.

Whether a new MySpace video service would also offer these isn't clear.

But it seems logical to set up a Hulu storefront at MySpace, which would enable the site's users to purchase a movie download or rent a flick without having to hop over to Hulu.

CARLSBAD, Calif.--NBC Universal's chief executive said the changing economics of television means that networks have to change the way programming is done.

There's room for hits and there's room for inexpensive programming, Jeff Zucker said Thursday, speaking at the D: All Things D conference.

"What's gone is the middle," Zucker said. "You cannot sustain just average programming."

NBC Universal CEO Jeff Zucker

(Credit: Ina Fried/CNET)

That also means shows have less time to mature, he said. Zucker noted that "Seinfeld" would probably not make it in today's environment, noting it did just so-so in an initial four-episode summer run.

"That doesn't happen anymore," he said. "It would be gone."

Zucker said that doesn't mean the era of hit shows is over. "There can still be hits in network television," Zucker said. "They don't last as long."

Asked about the fact his network is in third place, Zucker said that's obviously not where he wants to be. "We haven't done a good enough job of creating programs that people want to watch," Zucker said.

Broadcast is more challenging than cable, he said, because it only has advertising as a revenue stream. Another change, Zucker said, is that broadcast networks used to show episodes multiple times. Now the reruns are on Hulu and other places.

"We're at our core a cable company," Zucker said. Sixty percent of its cash comes from cable, he said. "The cable model is just a better model."

As for the economy, he said, "There is some light at the end of the tunnel."

Asked about Hulu, Zucker said it is ahead of plan and should be cash-flow positive soon. "The first 18 months was getting it up and not getting laughed at," Zucker said. "The goal over the next 18 months would be increased monetization." Hulu is a Web video service from NBC Universal and Fox Entertainment Group.

Zucker was also asked about his well-publicized spat with iTunes.

"We've always loved Steve," he said, referring to Apple CEO Steve Jobs. "It wasn't personal." But Zucker said NBC didn't agree that a library copy of the "Rockford Files" should sell at same rate as a new episode of "Battlestar Galactica." "The pricing wasn't fair."

"About a year later, Steve decided he was open to tiered pricing," Zucker said. He noted that 15 percent of NBC content sells at $2.99, the price consumers pay for HD content on iTunes.

Zucker said that iTunes, Hulu, and other digital businesses are small individually for NBC. "You do have to have 10 businesses like this that make up for the one you've lost."

He has said that the industry is replacing analog dollars with digital pennies. "I was just trying to be honest. I don't regret it at all because it was the truth."

"What I have said is we are now up to digital dimes. I think that's progress...We still have a 90-cent gap. Hopefully I can come back and in a year or two we will be at digital quarters. The more people understand where we are, the better," he said.

Zucker was asked whether he would put his shows on Facebook. "We'll put our shows anywhere, frankly. We want to be paid for it. That's what will allow us to keep producing shows like "The Office" and "30 Rock." If we can't get paid for them, we can't afford that cost structure."

As for teaming up with rivals on Hulu, Zucker said he wasn't worried about antitrust issues. "Half the day we spend bashing each others' heads in. Half the day we spend in business together."

Zucker said it is important for the industry to embrace technology so as not to end up where the music industry did. "I don't think you can put the genie back in the bottle." He said that if the company tried to air its content only on its network, people would find more ways to pirate the shows.

"You can't stop progress," he said.

Asked about Hulu's efforts to keep its service off TV sets, Zucker said: "Right now we are committed to Hulu being an online experience. That's where our vision is today. That will continue."

Note: CNET News is published by CBS Interactive, a unit of CBS.

Sure, for a year now, YouTube has trailed Hulu in the number of TV shows and films it offers, but in recent months all the momentum appeared to be with Google's video site.

That was until Thursday, when Hulu announced a partnership with Disney that at least one industry analyst believes has smashed YouTube's chances of becoming an online hub for top TV shows and feature films.

Disney will provide Hulu with full-length ad-supported episodes from ABC, SoapNet, and ABC Family. Some of the shows include "Lost," "Grey's Anatomy," "Ugly Betty," and "Scrubs." Some Disney films will also appear on Hulu, the ad-supported streaming video site formed by News Corp. and NBC Universal. Hulu has now locked up content from three of the largest six film studios.

As for the other three, Sony Pictures has deals to provide a small amount of long-form, ad-supported content with both Hulu and YouTube. Warner Bros. has largely kept long-form content off the Web, and Paramount, which provides Hulu with some TV shows and a smattering of films, is unlikely to join Google-owned YouTube anytime soon. Paramount's parent company, Viacom, has a $1 billion copyright suit pending against YouTube.

What this all means is there just aren't that many other places for YouTube to acquire high-end content.

"(The Disney-Hulu deal) is not good news for YouTube," said James McQuivey, an analyst at Forrester Research. "Any hope of creating a professional-content business has probably disappeared."

A YouTube spokesman issued this positive-spin statement: "More content coming online in more places is a win for consumers and provides further validation of the growth of the online video market."

Cable sector should jump on Hulu
Besides Hulu, the big winners in the Disney partnership--which also involves Disney taking an unspecified equity stake in the video site--could be Comcast, Time Warner, and the cable industry.

Some of the major cable operators have griped in recent months that some of their subscribers are dropping cable in favor of watching TV shows and films online. Now, according to reports, the cable guys are seeking ways to compete on the Web.

Up until now the cable companies have had to negotiate with individual studios. Hulu potentially provides a way, according to McQuivey, to obtain a wide swath of TV shows and films with a single handshake. He also sees the opportunity for offering premium Hulu services, which might make sense at a time when Hulu continues to offer fewer and fewer episodes from popular shows.

Man of the hour: After signing blockbuster deal with Disney, will Hulu CEO Jason Kilar partner with cable industry?

(Credit: Greg Sandoval/CNET Networks)

"Comcast can tell NBC and News Corp., 'We want to put your Hulu system in front of our subscribers'," McQuivey said. "'But we want to give our customers more. If Hulu is posting four episodes of a show online we want our subscribers to have 12 episodes.' I'm 90 percent certain sure these conversations are already happening."

"In order to get Hulu," McQuivey continued, "you have to be high-speed broadband customer and maybe also spending top dollar on TV services."

What would Hulu receive in return? McQuivey said maybe the cable companies would share subscriber revenue with the site. He added that Hulu is probably making decent revenue on ads, but advertising is tougher online. Hulu, he said, "might look at cable to help accelerate some of their revenue potential."

Tougher to sell ads online? McQuivey might be guilty of a gross understatement. Anybody who spends any time on Hulu has noticed the growing number of paid service announcements. Last year at this time, site managers trumpeted that they had sold out of ad inventory. Hulu hasn't made any such announcements lately.

While advertising is down for nearly everyone in media, there is a growing skepticism in Hollywood that the ad-supported online model can generate the kind of revenue the studios see from broadcast, cable or DVD sales. One industry source told me that "to generate a worthwhile profit from an online broadcast, you have to throw in lots of ads, and that will only prompt viewers to log off."

As for McQuivey's idea that Comcast could negotiate to obtain more shows, the studio source said that there's a reason why Hulu is carrying fewer episodes from shows than it once did. There's concern in Hollywood that offering too many episodes may cut into DVD sales. The source said the studios see big revenue from the sale of DVD versions of TV shows. Asked whether the studios have seen a sales drop-off yet, the executive said, "No."

Of all the major studios, only Sony Pictures appears willing to offer consumers access to a wide variety of full-length feature films on an ad-supported basis. This week, the studio announced that more than 100 movies, including "Spiderman 2," "La Femme Nikita," and "Candyman," were available at Crackle.com, the studio's online video site.

McQuivey said that after doing an analysis on the problem, he's also doubtful ad sales can generate meaningful profits. Ads alone won't make the Internet a "replacement model," he said. "You're going to have to look at some kind of subscription model."

Maybe he's on to something. "With respect to how (YouTube) will get monetized, our first priority is on the advertising side," Eric Schmidt, Google's CEO, said after Google reported first-quarter profits earlier this month. "We do expect over time to see micropayments and other forms of subscription models."

Disney's ABC Enterprises announced Thursday that it has entered into online-video joint venture Hulu, currently a partnership between NBC Universal, News Corp., and investor Providence Equity Partners.

This means that TV shows from Disney-owned channels like ABC, SoapNet, and ABC Family will be coming to Hulu. Among them are "Lost," "Grey's Anatomy," "Ugly Betty," and "Scrubs." There will also be Disney movies available on the ad-supported streaming video site, but a press release did not name any of them. Content will be available "soon," the press release explained.

Reports started to surface about a month ago that Disney was in talks to join Hulu.

Robert Iger, president and CEO of the Walt Disney Company, will take a seat on Hulu's board of directors, along with Anne Sweeney, co-chair of Disney Media Networks and president of the Disney/ABC Television Group, and Kevin Mayer, executive vice president of corporate strategy, business development, and technology at Disney.

ABC already streams a significant amount of television content on ABC.com, and Disney-owned television and video content was some of the first to make an appearance in the iTunes Store's video download section.

Apple CEO Steve Jobs is Disney's single biggest shareholder, having sold animation studio Pixar to the company in 2006.

This post was expanded at 8:15 a.m. PT.

When it comes to offering full-length content on the Web, YouTube isn't ready to yield to Hulu.

On Thursday, the San Bruno, Calif.-based video site of Google announced that it had reached agreement with notable entertainment companies, including Sony Pictures, Lions Gate Entertainment, and CBS (publisher of CNET News) to offer visitors full-length TV shows and feature films.

What this means is that YouTube wants to become a one-stop shop for everything video.

The strategy seems obvious. YouTube already has more than 100 million people visiting every month to watch a mixture of short clips created by amateurs and longer clips by semiprofessionals.

There's nothing to keep the site from offering a full range of video entertainment. Want to see videos of dogs riding skateboards or a rerun of "Charlie's Angels?" Want to see Brooke Shields in the island adventure movie "Blue Lagoon?" YouTube has it all for you. While some critics are slamming YouTube for acquiring content that is mostly several years old, it should be pointed out that syndication has kept many shows popular over the decades; people like watching reruns.

The YouTube rival that should be most worried is Hulu. YouTube's full-length content is still mediocre compared to Hulu's, though Hulu's movie selection is at best thin. What matters most, however, is that YouTube now has a foothold in Hollywood, giving it a chance to significantly grow its library of full-length shows and films.

A YouTube executive said on a conference call Thursday that these content deals are only a "first step." God help Hulu, if YouTube is able to impress the studios with the amount of ads it sells and the revenue it generates.

Until now, Hulu has run away with full-length content on the Internet. The site, owned by NBC Universal and Rupert Murdoch's News Corp., has offered far more first-run TV shows, such as "30 Rock," "House," "24," "The Simpsons," and even shows from Sony Pictures, such as "Rescue Me."

Hulu's video is clean and clear. For my money, the site is more like watching television than anything else on the Web. But YouTube has begun to cut away at some of Hulu's advantages.

Besides obtaining some full-length content, a YouTube representative said the Web's largest video site will soon "have one of the biggest high-definition libraries on the planet." And not to be overlooked is the fact that YouTube already possesses what advertisers prize most: a massive audience.

The question YouTube must answer is whether the company is giving away too much as it woos Hollywood. In the deal with Sony Pictures, the studio retains a lot of control over its content while receiving access to YouTube's more than 100 million viewers.

The Sony studio will serve all the ads, use its own video player, and get credit for all the traffic, according to industry sources familiar with the deal.

In a deal with Universal Music Group, the largest of the four top music labels, YouTube agreed to help create and operate Vevo, a standalone site that would feature the record company's professionally made music videos but be owned by Universal. This is the first time YouTube has agreed to create a satellite site.

None of the companies involved are disclosing how the ad revenue from these offerings will be divvied up, but it's obvious that YouTube is bending over backward to satisfy important media companies.

Internet video services have yet to generate the kind of revenue to make big studios and TV networks forget about their cable, premium, or broadcast partners, which pay them big bucks for content. Still, more and more TV viewers are waving good-bye to their cable companies and turning to the Web for online entertainment.

One can only guess that YouTube's play now is to prove that it can help make studios money, get Hollywood hooked on Web revenue, and then negotiate better terms down the road.