Comcast Corp. (CMCSA:US)’s $16.7 billion acquisition of the rest of NBC Universal signals Chief Executive Officer Brian Roberts’s increased confidence in the prospects for entertainment as a partner for cable distribution.
NBC Universal’s performance since Comcast bought control in 2011 has made Roberts more “comfortable” with his bet on television, film and other content, the CEO said.
“Now that we have two years of operations under our belt, our optimism drove our decision to buy the other 49 percent ahead of schedule,” Roberts said in a telephone interview. “We didn’t have to do this now, but we like the businesses and we got an attractive price.”
Buying entertainment properties runs counter to decisions by peers Time Warner Inc. (TWX:US) and Cablevision Systems Corp. (CVC:US), which decided to separate content from distribution. Roberts’s gambit is an “inexplicably good deal” for Comcast because NBC Universal is still undervalued, Matthew Harrigan, an analyst at Wunderlich Securities Inc. in Denver, said in an interview.
“Comcast got it at a steal, a phenomenal price,” said Harrigan, who recommends buying the stock. “NBCU is worth north of $40 billion if you turned around the movie studio and got the broadcast network to work.”
The enterprise value of NBC Universal is now $39.1 billion, up from $37.5 billion when Philadelphia-based Comcast bought a 51 percent stake for $13.8 billion, according to the company. Comcast agreed to buy the remaining stake from General Electric Co. yesterday, more than a year ahead of its original plan. It gained full ownership of the NBC broadcast network, cable channels MSNBC and Bravo, and the Universal film and theme park businesses.
Comcast shares jumped (CMCSA:US) 3 percent to $40.13 at the close in New York. The stock has advanced 46 percent in the past 12 month, while the Standard & Poor’s 500 Index gained 12 percent. GE rose 3.6 percent to $23.39.
NBC Universal CEO Stephen Burke said two years ago his top priority was turning around the network. For the ratings season that began in September, NBC is second in prime time to CBS Corp.’s network among the four major broadcasters, in both total viewers and the 18-to-49 age group that marketers target, according to Nielsen data. A year ago, the network was third in the younger age group and last in total audience.
While broadcast ratings have improved, NBC’s reliance on football, which ended in January, and a single hit with “The Voice” expose a lack of depth through its schedule. After those, the network’s highest-rated show is “Revolution” at No. 22 in Nielsen’s household ratings. In the most recent week, NBC was last with one-third the 13.2 million average prime-time viewers of CBS.
Roberts’s optimism in NBC Universal is driven in part from rising retransmission and programming fees that the unit can charge other pay-TV operators for the broadcast and cable networks. Comcast said in a conference call today it expects fees to rise in the “low double-digit” percentages this year. While the cable operations’ profit margins are reduced with the rising costs, NBC Universal provides a hedge for Comcast.
“Comcast still has some work to do on the broadcast side of things, but they’ve shown some traction,” Andy Donchin, director of media investments for Carat North America, an advertising firm, said in an interview. “With NFL football over, those ratings gains are coming back to earth now.”
Part of Roberts’s decision to buy the rest of NBC Universal now instead of waiting may have to do with his sense that there’s still much more improvement to come, Donchin said.
Universal Pictures, the company’s movie unit, has also seen improvement with hits such as the R-rated “Ted” and “Dr. Seuss’ The Lorax.” It finished 2012 with $1.47 billion in North American ticket sales, fourth among the major studios, according to research firm Box Office Mojo. The studio was fifth in 2011 with $1 billion in sales, and sixth in 2009 and 2010.
Comcast also released fourth-quarter results yesterday. Net income rose 18 percent to $1.52 billion, while sales climbed almost 6 percent to $15.9 billion.
The company lost 7,000 video subscribers in the period, part of an industrywide trend of shrinking cable-TV viewers. Still, Comcast would have posted a gain for the first time since 2007 if Hurricane Sandy hadn’t occurred, Roberts said.
Comcast added 341,000 high-speed Internet customers and 168,000 voice customers. Both figures topped analysts’ estimates.
Comcast also raised its dividend 20 percent to 78 cents a share annually, and said it will buy back $2 billion of stock this year.
In addition to the entertainment assets, Comcast will pay $1.4 billion to buy the buildings used by NBC Universal at Manhattan’s 30 Rockefeller Center and CNBC’s headquarters in New Jersey. The sale is likely to spell the end of the GE sign on the iconic New York building. Roberts wouldn’t say whether he will replace it with Comcast’s new corporate logo, which includes the NBC peacock.
The price of the deal equates to about 9.2 times earnings before interest, taxes, depreciation and amortization, based on an estimated $4.27 billion in 2013 Ebitda, Paul Sweeney, a Bloomberg Industries analyst, said in a report today. That’s in line with other large entertainment deals.
At $39.1 billion in enterprise value, NBC Universal would rank as the fourth-largest entertainment company, after Walt Disney Co., News Corp. and Time Warner, he said.
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