Comcast spending multimillions to fight for NBCU merger

Analyst Craig Moffett of Sanford C. Bernstein has a name for it - "NBC purgatory."

Six months into the regulatory review of its proposed deal for NBC Universal Inc., Comcast Corp. is spending tens of millions of dollars on lawyers, accountants, lobbyists, and bankers to gain approval for a $30 billion deal that is being fought, as anticipated, in the political trenches of Washington.

The merger has become such a hot topic in the nation's capital that the cable giant has published full-page, pro-deal advertisements in the Washington Post and other ads in Roll Call, the Hill, the National Journal, and Politico.

Comcast's tab for the merger, which includes financing costs, will easily exceed $100 million. Through the second quarter, the company had spent almost $90 million, and the government's exhaustive scrutiny - Comcast has produced millions of pages of documents - likely will not wrap up until fall.

More importantly, the Justice Department, the Federal Communications Commission, or both are likely to ask for conditions to limit Comcast's flexibility in running the huge entertainment conglomerate before approving the deal. NBCU includes the Universal movie studio, the NBC broadcast-TV network, and cable-TV channels.

The uncertainty is taking its toll, Moffett and others say. While peer cable stock prices have soared, both because of a recovering economy and the strength of cable's Internet business, Comcast has returned more modest gains to shareholders over the last year.

Time Warner Cable, the nation's No. 2 cable company, returned 67 percent to shareholders, and New York's Cablevision returned 57 percent over the last year, according to Bloomberg News. Comcast trails with 26 percent. The returns include reinvested dividends.

On a positive note, Comcast has outperformed competitors Verizon Communications Inc., which returned 8.9 percent to shareholders, and AT&T, 10.7 percent, over the same period. Those familiar with Comcast's stock performance, including some analysts, argue that Time Warner and Cablevision are both smaller companies and that Wall Street could be valuing Comcast as if it already owned NBCU - and thus was no longer a pure-play cable company and was exposed to NBC's advertising-dependent broadcast-TV network.

"The gorilla in the room is NBC Universal," said Matthew Harrigan, an analyst with Wunderlich Securities in Denver. Comcast chief executive Brian L. Roberts "will have to go in there and make a lot of concessions to get this done," he said. "It will be hard to get a lot of synergies out of the deal."

Roberts has said the deal will not lead to large-scale employee cutbacks at NBCU or Comcast, which would be one way to justify the deal. Government restrictions, meanwhile, could prevent Comcast from experimenting with new business models to generate new revenue and profits by combining the nation's largest cable system with NBCU.

According to one trade publication, the Justice Department's Antitrust Division has had 30 lawyers working on the review. The FCC separately has appointed a special outside official to handle the thousands of public comments and steer the review process.

Areas of interest appear to be Comcast's possible use of NBC content as exclusive programming for its cable customers or online subscribers. Exclusive programming distinguishes one pay-TV provider from another, and Comcast's current control of regional sports programming in Philadelphia, for example, is considered a powerful competitive advantage against satellite-TV providers.

Comcast has said it would not have the incentive to withhold NBC programming from pay-TV competitors and, in fact, David L. Cohen, executive vice president at Comcast, has said it would be illegal to do so.

Another area of analysis has been the Internet. Some have suggested that Comcast should sell NBCU's ownership position in Hulu, a popular Internet site of broadcast-TV shows.

The online video business is so new that it would be a mistake for the government to place restrictions on how it could develop, Cohen said Thursday.

Comcast voluntarily agreed to certain conditions on the deal when it was announced in December but would not accept government-imposed "abusive" conditions, Cohen said.

"We are not willing to accept conditions that would impede our ability to run the legacy Comcast business and our new NBCU business and deliver outstanding returns to shareholders," Cohen said.

Fearful that the regulatory review could drag on, Comcast has been pushing the merger agenda to both regulators and members of Congress.

Comcast also has agreed to place a Hispanic member on its corporate board of directors and says it will finance $6 million in independent films, or TV shows, and $20 million for African American businesses - measures that silenced potentially vocal critics. Among Comcast's board of directors currently is Kenneth Bacon, an African-American and an executive vice president at Fannie Mae.

Comcast spokesman John Demming said the company considered the $26 million investments, not deal costs.

Each week brings new issues. Comcast opponents, organized as the Coalition for Competition in Media, last week sent letters to the National Association of Attorneys General and to five individual state attorneys general through the Glover Park Group communications and lobbying firm.

The letters said the merger "poses a grave threat to both consumers and competition," continuing onto a second page with: "Comcast has argued that this merger will spark innovation. However, there is scant evidence that this sort of market dominance drives innovation; it is far more likely to stifle it."

The group includes Bloomberg, the financial-research and media giant; the National Organization for Women; the Sports Fans Coalition; and the Parents Television Council.

The cable giant noted last Wednesday that an additional 11 African American and 13 Hispanic representatives in the House had signed letters supporting the merger. One of the signers was Rep. Chaka Fattah, a Democrat from Philadelphia.

In a release, Comcast said: "We're proud of the over 1,000 elected officials and diverse organizations across the country that have expressed support for this transaction. We are confident reviews will find this deal to be pro-competitive and in the public interest."