Universal appeal: Comcast's latest acquisition makes it a major media player

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The Independent Online

When Brian Roberts, the unflashy numbers guy who heads Comcast, made his audacious $5.8bn hostile takeover bid for the mighty Disney in 2004, he was sent away with the stock market equivalent of a flea in his ear. Disney's executives laughed off the offer from the upstart cable TV and internet provider, and Comcast's own shares were trashed. But that was hardly the end of Mr Roberts' ambitions. Far from it.

Five years on, he bestrides the US media landscape as the unlikely mogul who, with a $30bn deal to take control of NBC Universal, has turned Comcast into Disney's biggest rival.

"There are many, many paths to content," Mr Roberts said after his rejection by Disney, and so he has proved. After tying up its long-awaiting deal with NBC Universal's current owner, General Electric, yesterday, Comcast has acquired the NBC broadcasting network, maker of 30 Rock and The Office, the cable news channels CNBC and MSNBC, broadcasting rights to the Olympics, and the historic Universal Studios film-maker, amongst other assets.

Until now, while Comcast has boasted of piping TV into 24 million homes and providing internet to 16 million, its content business has been limited to a ragbag of small cable channels, including the E! Entertainment Network and The Golf Channel.

The combination with NBC Universal, though, plunges Comcast into a debate raging in the media industry: whether there is any point combining content – the production of TV shows and films – with distribution – the TV and internet pipes linked into American homes. At a time when Time Warner has spun-off its cable business to focus on content and unwound the disastrous merger with AOL that marked the peak of the dot.com bubble, Mr Roberts was condemned in some quarters yesterday as an empire builder.

"This deal is a perfect fit for Comcast," he countered, "and will allow us to become a leader in the development and distribution of multiplatform 'anytime, anywhere' media that American consumers are demanding."

The chief executive is banking on finding new ways to tie content and distribution together, as the industry experiments with video-on-demand and putting TV shows on the internet.

But he is doing so with the cushion of relatively stable cashflows from the NBC Universal stable of cable channels, which don't rely on selling ads in the commercial breaks; they get fees from cable distributors – the likes of Comcast.

Even analysts who agree that Comcast is buying a fine business found fault with the price. "We had believed that Comcast would be far more conservative in valuing potential acquisitions," said Michael Hodel of Morningstar. "The $30bn value placed on NBCU is around 10 times operating income, excluding depreciation and amortization, a large premium to 8.0-8.5 multiples placed on similar media companies like Walt Disney and Viacom. We believe these peer companies are trading near fair value and don't offer a large enough margin of safety currently to warrant purchase."

Comcast is, and always has been, an acquisition machine. Mr Roberts' father, Ralph, founded it with two partners in 1963 when they purchased a cable TV firm in Mississippi that had just 1,200 subscribers. The elder Mr Roberts helped consummate the latest deal in talks with GE boss Jeff Immelt at the Sun Valley media conference in the summer.

For now, Comcast is buying just 51 per cent of NBC Universal, putting up $6.5bn in cash and injecting its own cable channels into the joint venture. Cashflows from the business will be recycled over the next seven years to buy out the remainder of GE's stake.

Mr Immelt says there are better opportunities away from the media industry, and will bulk up GE's businesses in infrastructure. Analysts said the cash could also come in handy if GE's financial arm needs more capital as it struggles to recover from over-extending itself before the credit crisis.

It could take over a year to get regulatory approval for the acquisition, even though there are no formal rules barring Comcast from taking over such a large content business. Campaigners against concentrated media ownership weighed in with criticisms yesterday, and Herb Kohl, who chairs an anti-trust sub-committee in the Senate, said he would demand assurances that other content producers would get equal access to Comcast's TV and internet platforms.

"It's critical that we preserve robust competition and promote innovative and emerging program delivery," Senator Kohl said. "This deal will create waves throughout the media and entertainment marketplace and we don't know where the ripples will end."

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