They'll probably foolishly repeat it.

Kathy: I honestly have to go back and take a look at the AOL/Time Warner thing. It certainly made sense to the consulting community when done, although there was some question about how much was paid for it at the time. Content/Container is a natural synergy. You have the distribution channel, or the access point, so find as many things as possible to shove into that pipe as possible, given the variable cost of doing so happens to be, what? Pennies?

Then again, the economics around all of these media keeps cratering with few able to figure out how to maintain an entry barrier to capture "value" of the content.

Comcast? So hard to put my trust in Comcast...there are stories there and they're not pretty. Great post Geoff and well deserved EP.

Time Warner/AOL seemed to me to always be dumb -- but hindsight is too easy, so I have to heavily qualify that. No one knew it would prove so spectacularly awful. I suppose Time/Warner know that strategically, selling stuff on paper or CD's was going to lose to selling bits directly.

Are you sure the businesses were 'hemorrhaging cash'? The reported earnings were pathetically weak, but cash?

Comcast is facing major pain with ATT Uverse, so it isn't like they are rock solid longer term. People are going to pay for internet and not as much for content.

This is a deal done out of weakness.

Weakness and fear from both buyer and seller.

I'm betting on the seller.

Mary: Timing is everything.

Nick: All you have to do is look at the Net Income for a conglomerate and then look at what the operating loss from the ailing subsidiary means as a % of net income. Net drives stock price through the PE ratio. So, if you have a chronic laggard that ties up capital (as in $30B in this case) and also hammers your stock price by not contributing, then you have to put lipstick on that pig and take it to market.

Now, the question becomes internal to Comcast how they are going to play this. People do not pay for content. They just assume they will have those channels. Similarly ad spots lose cache as more and more tivo the shows to flip through the ads and what not. This drives the move to cheap reality shows. Cut content cost.

So ... will NBC become a cost center? Will there be all sorts of time and political effort spent internal to Comcast once they swallow this thing in figuring out convoluted cross charge mechanisms to allocate profit between the content and container arms? Will Comcast try leveraging NBC by going proprietary and dropping competitors from carrying NBC. Will major networks become somewhat like HBO? Will they have to have that flagship show like, say Entourage, or Sopranos, or Mad Men to compel people to pick up a few extra bucks a month to pay for NBC?

What of the news division?

It's a fascinating time. Much more fun to watch than to be in the middle of an operating structure free fall trying to figure out how to get the foothold and turn a profit at it.

they (Comcast) will probably do better at it - but boy, will we pay for it!

Nick: As to your last comment, I happen to agree. How do you value content, when the willingness to pay for said content continues cratering? Intellectual property valuations, goodwill, etc, etc, are terribly fungible. GE walks before that settles, which is likely the smart move, as there does not seem to be a huge surge to pay more for current products, nor has there been a sophisticated marketing plan to unbundle and begin narrower price segmentation strategies of the existing offerings. (Think software-as-a-service pricing and now try to lay that over your TV channels ....)

I'll be interested to see where this goes. Back when I was working for a statewide NH non-profit, Comcast approached us about funding some of our work. that's virtually unheard of in the non-profit world but Comcast new we had some assets that would help them as they moved to pass legislation that would open up new territories for them...we worked with kids and familes, the main consumers, and had good connections to the Governor's office. You could see their "take over the country" plans taking shape even back in the late 90's. What I liked about them was they didn't really hide their motives, the choice was ours to take it or leave it. They were actually a great partner.

I was trying to make a distinction between an operating loss and cash burn. To get to cash, you have to back out all accruals. But, since your point is really GAAP losses, then sure -- we agree.

interesting

I think that Comcast will do well by this, if they focus on integrating content that they create.
Tales of the City Philly Style. I will repost this piece I wrote as to what I would do with it.

I sense a repeat. What happens to Leno? ~R~

NBC is so in the doghouse right now. The proponent of media de-consolidation in me wants this deal stopped, but I'm really wondering if it really matters. Comcast could stop me watching NBC, CNBC AND MSNBC through Directv and I'm not sure I'd notice. I'd miss Conan O'Brien a little I guess. More than the AOL Time Warner deal, this thing reminds me of the Sears/KMart merger somehow.

damn wooly, you wicked smaht.

great post - had not heard this. seriously - have we not (as a country) learned that bigger doesn't always mean better - in fact it hardly ever does.

good on you w/ that ep. A+

I heard the AOL/TW merger described this morning as the biggest boondoggle that never ended in bankruptcy.

Hopefully, if this is approved, it will mean things will look up for NBC. They've been so corrosively conservative, they offer few shows with wit, insight or pathos - something network t.v. needs to survive. Reality t.v., also, has dumbed down the offerings while costing far less to produce.

OTOH, what about the inherent conflict of interest? I dunno. Deregulation's worked So well So far....

"Having NBC content will give them a competitive price advantage, assuming, of course, that NBC content remains in demand."

A big assumption indeed.

Also, any competitive price advantages will be scrutinized by the anti-trust division of the Justice Department (assuming that it still exists)

Great post!

As a former AOL "customer", I can tell you that company's main failing was that it didn't know the meaning of the word customer. A similar kind of attitude may eventually doom even Microsoft -- and it certainly contributed to the downfall of GM back in the days of "planned obsolescence".

As for NBC, this once staid arbiter of public taste is now engaged in a race to the bottom with other tasteless purveyors of lowest common denominator trash -- read Fox -- on every aspect of programming, even infecting the news. The fact NBC uses the left-hand tactic of MSNBC to take on Fux to see whose "news" programs can be less informative and more opinionated does not assuage the network's guilt.

As for GE, the rapacious behavior of the wildly-lionized Jack Welch is exactly what is wrong with what capitalism. It's one thing to subscribe to the notion that a corporation should have no conscience, it's quite another to say that those who run them should not have one either.

As for Comcast, that companies reputation is far from exemplary, so one suspects the acquisition of NBC will be beneficial to it's bottom line, but not to its customers and certainly not to society as a whole. A sensible solution to this problem would be to insist carriers cannot also be providers, so that customers aren't forced to pay for content they don't want.

The idea that bigger is better has been soundly and tragically disproved over the last three decades. If capitalism and competition truly existed, programming on cable and satellite would be ala carte. But alas, that won't happen because America has become not a democratic republic, but a corporate oligarchy.

Geoff I think GE acquired RCA which owned NBC. The rationale was kill off a competitor in consumer electronics NBC was a survivor while RCA was not. The RCA/NBC model was about NBC producing content so Sarnoff could sell radios and later TVs. This model was so successful that CBS tried to copy it in the late 40s early 50s and wasn't successful at it.

I think it is 50/50 that Comcast will make it successful. I think they've had some success with their own programming. New England Cable News is an ok programming venture. They will probably do a better job than GE has done.

I wouldn't bet the farm on it. The networks are Dinosaurs. Rated.

Oh one more thing. Can we please stop talking about Jack Welch? He has as much relevance to GE as Iacocca has for Chrysler. Welch has been gone for a while.

Geoff, I was there before you got to the punchline. Especially because I was actually there. I worked for both Comcast and AOL. The parallels are inescapable. You've inspired me to offer my own commentary on the real and virtual issues AOL/Time Warner faced. Stay tuned.

This is truly a superb piece. You knows you bidnez on this one! As to whether Comcast made the right choice, flip a coin. If they get Universal, you never know when they'll issue a big blockbuster of a movie. I sure would like NBC to survive, as it's my favorite network, not that that means anything much.

Nobody watches TV anymore.

MaMoore: How long ago was that? The game for negotiations with communities has shifted considerably in the past 15 years or so. Used to be cable access channels, now it's wiring remote areas, head end placements, yadda yadda.

Nick: Ok. I could very well have been mixing terms. I am looking at the way in which the losses hit the stock price. All that capital doing nothing but tanking stock prices makes institutional investors very impatient at times.

TomToon: I will take your word for it. I do not watch Leno. Seemed like a risk, but, again, it points to cheap programming content versus hour long drama series with large salaries, etc. Those are quickly becoming a thing of the past.

Don: I read it, but still had trouble following parts.

Chuck: Not sure. Leno has more money than god. He can afford the risk.

Bob: Unlikely they can withhold access. I am thinking more the cost advantage of not paying for it. Again, it's a further devaluation of content if that is the way the pricing metric goes. It has not done wonders for the newspaper industry, however.

Imom: I love you baby, don't ever change.

Roger: Yeah there's that, but there are still price advantages to a captive audience. This will likely play out as a segmentation strategy to try to provide hooks. Bundling price competition is pretty intense as it is now.

Connie: When I think NBC I think 30 Rock and Brian Williams. That's it.

Tom: Let it out. Just let it out. :)

OE: I have to take a bit of exception to discounting Welch at least in this situation. Their acquisition and divestiture strategy over the years was very, very consistent. If the acquisition's market share was not in the top 3, they were not doing it. As channels proliferate and the share slips as more and more entrants arise, jettisoning this thing makes complete sense in that context. That's a context drilled into GE for many, many years. The GE Information Systems Company (GEISCO) had that mantra as it was dissassembled in the late 1980s.

Sally: I will be REALLY interested in your commentary. I do not recall much other than I **THINK** most observers thought it a smart concept, but one that was grossly over priced at the start. It is a standard business ploy. You have customer access channels, be it sales forces, bricks and mortar, clicks and mortar, or whatever the hell else, so the more product you can shove through the existing access channels the better. Hence once having wired the home (A/K/A the consumer) you need stuff to throw their way.

Seems simple enough, but it sure as hell did not turn out that way.

Old New: Thanks. The concept of monkeys and typewriters comes to mind, but I have spent a little time in my day pondering this one ...

I've read that Comcast is leass interested in the NBC network than its cable channels, USA, CNBC , MSNBC and SyFy, which are rsponsible for 65% of NBCU's profits. And unlike broadcast, cable channels earn throough both advertising and subscription fees.

Geoff, one of the things I learned in getting an MBA was that management teams are fantastically stupid. Like, short-bus, "I'm not retarded, I'm special!" passing-out-trophies-for-putting-on-your-socks stupid. Not only do they keep making the same mistakes, they get promoted for making the same mistakes. So Comcast/NBC vs. Time-Warner-AOL? Six of one, 666 of the other.

It'll be one of those wait and see.

Sit back and enjoy the ride.

Straight into a wall.

:)

Congrats on the EP!

Jeff: Interesting, as it begs the question as to whether or not they will seek to unbundle further the NBC brands and cast off the network or morph into more of a cable-like brand. Similarly, what of Universal? A critical success factor for pay channels has been that ability to develop anchor programs such as Sopranos, Weeds, Mad Men, etc, etc. Seems the free channels revert to reality shows that are low cost and the brands seek to promote a flagship product to get people to buy the brand, as it were.

Floyd: It reminds me of the management consultant joke about being flown into the Bush for a hunting retreat and then, when watching the pilot try to leave after dropping them off, they watch as the pilot cannot clear trees and crashes. One looks at the other incredulous and says, "That's incredible. That's exactly what happened the last time we tried to do this." Mergers are oftentimes much more about cultural meldings than about financial operating metrics, yet all these cats look at is what they can pull into an excel macro.

Then again, everyone expected IBM/Lotus to be about as successful as IBM/Rolm and that one flew based on Gerstner simply letting "Lotus be Lotus" rather than consume it inside the buttoned down minds of Armonk. The cookie salesman, as he was called internally, knew what he was doing.

I spent the worst two weeks of my life at NBCU, watching mid-level NBC executives and their minions gleefully destroy a crucial Universal project and department, to the immediate and ongoing detriment of several cashflow-producing business units elsewhere in the studio. They called it "process improvement." GE didn't understand media, NBC doesn't understand Universal and everybody wants to build their own little empire within the dick-swinging young-turk bullshit society that runs rampant inside overlarge corporate conglomerates. The place is a zoo and the monkeys are in charge. Comcast is just the newest Head Monkey. It'll be interesting to see how the poo flies now.

Nope, they'll foolishly repeat it.

This is a big win for GE. They get cash they can use to shore up GE Capital. And they get rid of something that never really fit in with the rest of the company. Think about it. The rest of their divisions fit together well.

NBC Universal never really fit in, but when they were doing well with shows like the Cosby Show, ER, and Friends, GE was willing to use them as a cash cow. Now that they're in last place in the ratings, they don't want them anymore.

So it's a win for GE, and I'm not sure what Comcast will do. It does seem to make sense to have a content provider and someone who helps provide access to that content linked up. But that's what people said about AOL Time Warner back in the day, and that didn't work out at all.

Mary: Yes, it really was three distinct cultural entities in terms of GE with manufacturing, NBC as a conventional media outlet, and Universal more as a creative. I get that ...

Tony: I agree that GE getting cash to shore up core operating units is the winner. Likewise, I suspect the operating pressures hammering newsprint is going to seep over into television sooner rather than later.

Anything that stops the crap that NBC thinks is content would help. Dang. With the exception of the laws and orders, however.

Great post, interesting comments. I think I'm with Mary Anndroid re: the dick-swinging young-turk culture inside so many corporate conglomerates, especially media companies. NBC is a mess, and GE was a bad fit, so it's hard to see Comcast making it worse. But I bet Comcast has its dick-swingers, too, managers who are fully capable of screwing things up for customers (at the very least).

When I heard the merger news, it did give me the creeps. These kinds of container/content mergers (your phrase, G) always worry me. I remember feeling freaked when the AOL/Time Warner thing came down. It felt like a media octopus was on the horizon.

In some ways, it's heartening that that merger was such a flop. Some thinking does have to go into producing content that works online--you can't just keep shoving the same old stuff into the wires.

Last thought: think of the material for 30 Rock! It almost makes me not care about the latest possible media monopoly.