Comcast Corporation: Acquisition of NBC Universal and the Battle for Sports Programming

Transcription

1 Comcast Corporation: Acquisition of NBC Universal and the Battle for Sports Programming

2 Executive Summary Comcast acquired NBC Universal on January 28 th of2011. Upon this purchase, they also acquired the various networks of USA, Bravo, SyFy, CNBC, and MSNBC all being huge additives in the purchase adding to the revenue of the business venture at stake. Comcast s resource development has been established by Comcast s marketable assets defining themselves by product research as well as the development of the acquired technology, and the development of various systems. Comcast s general idea is to implement the thought of a resonating concept that radiates to the general public regarding itself in a way that is marketable to all. The resources and abilities combined with Comcast s already strong logistics, as well as their excellent marketing abilities and excellent customer service departments have created a strong infrastructure that is more than capable and prepped for expansion. The major expansions that appear on the horizon for Comcast are equally distributed by the ability to expand their corporation. As such, their acquisition of NBC will vastly expand their ability to obtain new technological and content capabilities As it is, Comcast itself is a multimedia giant, being known throughout the United States as one of the leading providers of cable television as well as a provider of internet and phone services. It is through this vast resource system that has not only allowed Comcast to grow into a multimedia giant, but create the opportunity to grow into a national leading provider and well subscriber to all.. Comcast s recent acquisition of NBCU has now given them the ability to create a new sustainable competitive advantage through the only area Comcast may have been deficient in. Comcast should now have a very rare competitive advantage that will be difficult to match by many competitors. Comcast s ability of becoming a stronger competitor to their rivals such as Walt Disney Co. s ESPN, News Corp. s Fox, and Time Warner s Inc. s Turner will allow them to gain more market power. Comcast will increase their market power towards these three companies by multipoint competition and through vertical integration. The multipoint competition strategy will be utilized against its competitor Walt Disney Company. Since acquiring NBC Universal, Comcast will be in direct competition with Walt Disney Company in two product areas; the theme park sector and broadcast network sector. Walt Disney Co. s ESPN is currently the leading provider in sports and is Comcast s biggest competitor when it comes to gaining market power in the venue of sports entertainment. Another way that Comcast is able to gain market power is through vertical integration. When the cable and broadcast network came together they created a media powerhouse says Brian Stelter and Tim Arango of New York Times. Comcast is now a major producer of television shows along with movies. The NBC Universal joint venture will give Comcast an advantage over Walt Disney Co. s ESPN, News Corp. s Fox, and Time Warner s Inc. s Turner because they will still have to make contracts with cable companies unlike Comcast and NBC Universal. Comcast Corporation decided to operate with a strategy to position itself differently from its competitors by providing its customers with an acceptable level of cost, with unparalleled products and services. Value is created for the customer in how Comcast chooses to differentiate its products or services from those produced by its competitors. To properly differentiate themselves amongst the likes of Disney, News Corp., or Turner, Comcast must improve upon its customer relations. Providing value delves further than merely providing an exceptional product at low cost. Satisfaction is also realized by exceptional customer service. It is the final recommendation after thorough analysis of Comcast Corporation, their internal and external environments, and their business strategies, that they do indeed pursue the addition of sports programming to compete against the likes of Disney s ESPN. However, even with a television audience of well over 100 million people for the more recent Olympic Games, NBC suffered substantial losses from the Games to the tune of $220 million. Thus, it is recommended that Comcast no longer pursue the Olympic Games to be televised on NBC Universal based on their newly formed strategy of only making deals when money can be made.

3 Company History Comcast Corporation is one of the world s leading media, entertainment, and communications companies today. Comcast is principally involved in the operation of cable systems through Comcast Cable and in the development, production, and distribution of entertainment, news, sports, and other content for global audiences through NBC Universal. (Comcast) Comcast Corporation has been headed by Chairman and CEO Brian L. Roberts since In this instance, CEO duality has enhanced effective decision making and actions for Brian L. Roberts and Comcast, as under his leadership Comcast has grown into a Fortune 100 company, the nation s largest video provider, largest Internet services provider, and the fourth largest phone company. (Comcast) Brian L. Roberts managerial success has been rewarded by his receiving of business and industry honors for leadership, such as being named as one of America s top CEOs for six consecutive years by Institutional Investor magazine, and getting Comcast named as one of the most shareholder-friendly companies for the fourth consecutive year. Comcast continually attains such excellence by enthusiastically following their mission to deliver a superior experience to customers every day by providing the best products and offering the most customer-friendly and reliable service in the market. Prior to becoming the communications giant Comcast is today, Comcast was founded in 1963 by Ralph J. Roberts, Daniel Aaron, and Julian A. Brodsky with the purchase of a 1,200 subscriber cable system in Tupelo, Mississippi, under the name American Cable Systems. Not until 1969 did Comcast officially become known as Comcast Corporation after being incorporated in Pennsylvania where the company is still headquartered to this date. The initial public stock offering for Comcast Corporation took place on June 29, 1972 for 430,000 shares at $7 per share under the NASDAQ stock symbol CMCSA. (CMCSA) As of April 21, 2011, however, Comcast was trading at $25.34 per share with nearly three billion shares outstanding. And recently, Comcast announced plans of increasing their planned annual divided by 19 percent to $.45 per share while also intending to accelerate their share repurchases by purchasing $2.1 billion of its stock by the end of Instead of a measly 1,200 subscribers, from December 31, 2009 data, Comcast Corporation serves approximately 24 million video customers, 16 million highspeed Internet customers, and 8 million phone customers, as well as approximately 51 million homes in 39 states in addition to the District of Columbia. (Yahoo Finance) The year 1986 marked the first year for a long line of mergers and acquisitions by Comcast Corporation that have shaped how their organizational culture functions today. Comcast doubled in size to 1.2 million customers with the purchase of 26 percent of Group W Cable, and then followed this purchase by making a founding investment in the now popular television shopping channel QVC. By 1988, with the purchase of 50 percent of Storer Communications, Inc., Comcast possessed over two million subscribers, making it the fifth largest cable operator. With the acquisition of Maclean Hunter s US cable operations in 1994, Comcast became the third largest cable operator. Comcast continued to expand via cable with the acquisition of different television networks, and also entered into other areas of telecommunications such as the Internet with the launching of their first broadband product in 1996, and cellular telecommunications with the purchase of American Cellular Network Corporation in After Comcast and AT&T broadband completed a $47.5 billion merger in 2002, Comcast became the nation s largest video provider, the nation s largest Internet service provider, as well as an innovative and reliable source for traditional and cellular phone services. Case Background It was then in 2004 that Comcast attempted and failed a hostile takeover attempt of Walt Disney Company. In its rejection notice, Disney stated the Comcast offer of approximately $50 billion undervalued the company by at least $7 billion based on the stock closing price on the day after the hostile takeover was announced. Comcast had hoped a marriage with Disney, and thus the acquisition of its ABC network, ABC family, and ESPN cable outlets, would have created one of the world s leading entertainment and communications companies with an unparalleled distribution platform and an extraordinary portfolio of content assets. (Internet news) Frustration after the unsolicited bid for Disney triggered Comcast to pursue other options, NBC Universal in particular. Comcast Corporation in January 2011 announced the approved joint venture by the Federal Communications Commission between Comcast and General Electric that Comcast had bought 51 percent of NBCU for $6.5 billion in cash, and injecting cable channels into the joint venture. As a part of this joint venture, Comcast will control and manage NBC Universal s operations, and each will retain their popular consumer brand names. (mediamorph) The value of NBCU lies in its lucrative cable channels USA, Bravo, SyFy, CNBC, and MSNBC. With the channels Comcast is contributing to the joint venture, it is suggested about 82 percent of the company s cash flow will result from these channels. (nytimes) From a business perspective it is thought that this deal would

4 allow Comcast to make more of their own cable networks such as the Golf Channel and E! when paired with the NBCU cable channels such as Bravo, USA, and CNBC. The deal also initially seems as a hedge against the prospect of a slowdown in the cable business as subscribers turn towards online and on-demand alternatives, by offering risk diversification. While Comcast has long been interested in building a more viable competitor to previously spurned Walt Disney Company s ESPN with their additions of the Golf Channel, Comcast Sports Net, and Versus, it was not until Steve Burke become CEO of NBC Universal that this idea seemed practical. Upon the closure of Comcast s acquisition of 51 percent of NBC Universal from General Electric, Comcast s former chief operating officer, Steve Burke, was named NBCU s new CEO. Within three months of being named CEO, Burke has already begun angling for sports deals and pushing a big shift in how the entertainment company would use them in order to stave of online competition and raise NBCU s standing among its chief network competitors. (wsj.com) Instead of the hoarding of marquee sports coverage by NBC, they will bid for deals only when coverage of popular sporting events can be split across the combined company s cable television and broadcast assets. The attempt here is to break down the walls between Comcast and NBCU s cable networks and broadcast business in order to revitalize NBC and transform Comcast beyond its core business of being a cable television service provider. (wsj.com) Comcast only wishes to make deals if money can be made, which appears to have unclear long-term results. Prior to the NBCU acquisition, Comcast had acquired stakes in regional sports networks and had gained rights to franchises like the NHL. Their Versus network has failed to become a first-tier player with distribution in only about 80 million homes compared to ESPN s more than 100 million homes. Also, unlike ESPN, Comcast has been unable to charge a premium in carriage fees as Versus costs cable operators 28 cents per month per subscriber while the entire ESPN lineup costs more than $5 per month per subscriber. (wsj.com) Thus, there are questions as to whether Comcast should pursue a newly proposed plan by Steve Burke to make bids for rights to the newly formed Pac-12 college sports conference including televised football and basketball games, or for rights to the next set of Olympics, a proposal that has cost Comcast substantial losses in the past (a loss of $223 million on the Vancouver games). For Comcast to successfully acquire the rights to the Pac-12 conference, it would need to compete against ESPN, News Corp., and Turner from winning such a bid that would increase the fees Comcast s cable business would have to pay. There is also the fear that the Pac-12 conference would form their own network similar to that of the Big Ten Network. The current asking price from the Pac-12 conference is a 10-year deal worth $220 million per year, plus a commitment to launch a regional sports network, requiring an approximate $100 million in start-up costs for this venture. (wsj.com) Similarly, Comcast must consider whether it should reinvest in the Olympics, a proposition Comcast executives feel only makes financial sense if it can acquire all of the Olympic Games from , instead of just 2014 and These moves are an attempt to compete with Disney s ESPN and to move towards programming that makes it less likely for customers to watch on-demand or online. The overriding questions concerning the case become: How does the NBC Universal acquisition impact the Comcast core business, and would it be a practical investment for Comcast Corporation to battle over sports programming? With these questions in mind, Comcast will be analyzed in terms of the following: Comcast s internal organization comprised of its resources, capabilities, core competencies, and competitive advantages; a competitor and external industry analysis based on the perusal of the sports programming bid; the competitive rivalry and competitive dynamics concerning Comcast and sports programming; the current and proposed business level strategy, corporate level strategy, and merger and acquisition strategy for Comcast; and how those strategies are and should be implemented. This overall company and industry analysis should provide Comcast with enough insight in order to make the recommendation of whether or not they should participate in a battle for sports programming, the potential strategies they would need to administer for successful implementation, and what the future holds for the Comcast-NBC Universal joint venture. Internal Organization Resources Comcast s resource system is well defined and established, able to successfully compete with any of the nation s top communication networks. From the top management, led by CEO Steve Burke, intangible resources begin with a terrific leadership structure that has helped to create a media giant in Comcast. Additionally, Comcast has a large network for service and operations. They are technology professionals who not only deliver the products but those who must also maintain them as well. As for tangible resources, the majority of Comcast s assets can be

5 defined by product research and development, technology, and systems development. The key to Comcast s resource chain is to create or obtain the content, create a way to deliver it, and finally implementation (Eaton). These resources and abilities, combined with their already strong logistics, marketing, and customer service departments, have created a strong infrastructure that is more than capable and prepped for expansion. Major expansion is on the horizon for Comcast, as their acquisition of NBC Universal will vastly expand their ability to obtain new technological and content capabilities that are both tangible and intangible to their customers. Comcast leads the field in terms of technology innovation through product research and development and this supporting activity allows it to offer a differentiated service (Eaton). The blending of sports assets between Comcast and NBCU should enable the company to make an attempted challenge at ESPN for sports programming supremacy. NBC Sports group was a result of this merger and will consist of NBC Sports, Versus, the Golf Channel, and 11 of Comcast SportsNet channels, as well as digital assets, will be guided by Dick Ebersol, current chairman of NBC Sports. (aolnews) Capabilities It is through this vast resource system that has not only allowed Comcast to grow into a multimedia giant, but has created the opportunity to grow into a national leading provider. Comcast s recent acquisition of NBC Universal has now given Comcast the opportunity to create a new sustainable competitive advantage through the only area Comcast may have been deficient in. Sports content and broadcasting is a large and rapidly growing segment of the American viewing audience, and the merger with NBCU will be a springboard for Comcast to become a leader in this area (Eaton). NBC s Sunday Night Football coverage regularly eclipsed 15 million viewers and top spot on the for Sunday night viewership each week during the NFL season. (Nielsen) College football television ratings have witnessed comparable increases to that of the NFL in recent years as football continues to transform into America s new favorite pastime. Similarly with resources, the strength of Comcast s capabilities is driven through their Research and Development, technology systems development, and distribution. As said best by Matt Eaton, because of Comcast s size, it is able to secure favorable distribution deals with the biggest content owners, such as the National Football League and Disney. In addition, Comcast forms close ties with its technology partners, which strengthens their ability to offer leading products to their customers (Eaton). Comcast has also recently announced the completion of distribution deals with Time Warner and that they are in talks with Al-Jazeera over United States television distribution. (wired.com) Core Competencies There are three main core competencies that Comcast uses to thrive in the US media industry. The first is to create and provide products and services that are better, faster, and more advanced than their competition. As this is the main key factor for success in the industry and technological advances can make content more compelling, it is important for Comcast to focus on both innovation and delivery. Secondly, Comcast s ability to offer multi-service tethering options. Comcast s large network has allowed it to compete not only in the cable television market, but phone services and internet as well. Combining these services into a bundled package has appealed to consumers for convenience and budget concerns. Their ability to reach more people through their network is what has set them apart from the competitors. Comcast s third main competency is its ability to create and deliver a wide range of services to customers. Due to their size, they have the ability to not only deliver service through multiple outlets, but secure rights to additional content as well. As this is the growing trend in the cable industry, it is essential for them continue to develop this competency in order to grow and sustain a competitive advantage. Competitive Advantage Comcast leads the field in terms of technology innovation through product research and development and this supporting activity allows it of offer a differentiated service. (Eaton) Comcast has a large amount of capital invested in their network systems, which has allowed them to be able to deliver a product that is better and different from the competition. Comcast is a leader in product innovation, but content delivery as well. This is their most valuable advantage and will help them to compete with anyone in the industry. However, many consumers wish for more than the television, phone, and internet value bundles that Comcast offers. Therefore, it was necessary to add to their product offering more compelling content that exist online as well as live sports programming in order to compete with the free or cheap online substitutes.

6 With Comcast s recent acquisition of NBC, they should have a very rare competitive advantage that will be difficult to match by many competitors. This new ability will allow for them to add a plethora of new viewing options to subscribers. Most importantly of these options will be that of sports broadcasting. NBC s content combined with Comcast s abilities will provide a very attractive option for large networks to conglomerate with. Additionally, acquisitions of this measure are often hard to complete and costly to imitate (Eaton). In order to sustain this competitive advantage against their competitors, they must continue to invest in newer technologies with NBCU and continue the aggressive acquisitions and value delivery system that has enabled them to become the industry leader they are today, thus pursuing sports programming. Industry Environment Analysis The cable television industry is an important provider in the delivery of home entertainment and information to the American consumer. Recently, it has increased its role in the delivery of telecommunications services. Cable operator revenues in 2010 totaled more than $94 billion, providing direct employment to 233,700 people (NCTA). The industry has become highly saturated and concentrated, with the top 5 companies comprising nearly 70% of the market. In order for companies like Comcast to sustain their competitive advantage and gain market share in this competitive environment, they must understand how the industry has developed in the past 20 years, how the status quo is changing, as well as what it is going to be in the future. In the past, the companies in the industry focused mainly on their core competency, which was to provide broadcast through cable television. With the dot-com boom, consumers started demanding more content and services, at a cheaper price. In order to meet this demand, companies like Comcast got involved in a series of mergers and acquisitions. Through these mergers and acquisitions, the big corporations have diversified their businesses beyond being just cable television providers. Nowadays, the leaders in the cable television industry are also Internet service providers, phone service providers, and equipment vendors. Through their aggressive reinvestment of capital and their efforts to deploy new and innovative services to consumers, the companies in the cable television industry have fostered the development of a highly competitive telecommunications market. Nowadays, most major cable providers are able to offer transmission speeds to their broadband subscribers that range from 50 megabits per second to more than 100 megabits per second (NCTA). By utilizing their economies of scale and scope, every major cable company has created bundle packages that bring more value to the consumer, at a cheaper price. As a result of all these changes in the industry, the big corporations have established barriers to entry that protect their market share from the smaller cable television providers. One such barrier to entry is the broadcast licensing agreements. In the cable television war there is a fierce battle among providers as to who will possess the exclusive rights to broadcast popular sporting events, like the NFL, the NHL, collegiate athletics, or the Olympics. It has always been the big companies in the industry, like Comcast, which have the resources and capabilities to bid for the license agreements, leaving fewer options for their smaller competitors. Another barrier to entering the market for the smaller providers is the access to distribution channels. The physical capital needed to utilize technology like high-definition television, broadband internet, and video on demand, hinders the ability of smaller companies to provide those services efficiently. Finally, small cable television providers do not hold the necessary capital requirements to invest in new markets that the leaders in the industry do. Verizon, for example, invested $23 billion when they decided to launch their broadband Internet service (NCTA). Investment and innovation are the driving forces behind the cable companies evolving products, services and content. Despite the recent economic downturn, cable television providers have continued to invest in content and infrastructure. Since 1996, cable operators have invested more than $170 billion to upgrade their networks, while cable programmers have spent $185 billion in content that entertains, educates, and inspires (NCTA). This content includes proposals for collegiate conference television rights to broadcast football and basketball games over their networks. The primary contenders for the Pac-12 television contract make up the cable television industry s major competitors. Fox is the conference s longtime partner offering an over-the-air channel, a widely available basic cable network in FX, and the experience of being a partner in the launching of the successful Big Ten Network. Fox will televise the Pac-12 s inaugural football championship game regardless of contract winner after a $25 million bid, as well as paying $23 million for the Big Ten title game, with bids for the Big 12 and Conference USA tentative. (finance.yahoo) However, because Fox no longer has a stake in DirecTV, they cannot guarantee access into as many household as Comcast, even if they could pressure cable and satellite providers. Turner Sports only recently began televising college football game over their series of network, but this year made a sizeable investment in sports programming by sharing this year s NCAA tournament with CBS. As a result of their successes Comment [CW1]: What is this?

7 and the highest rated first round tournament coverage in tournament history, Turner Sports has received great acclaim which could prompt them to make an offer. Turner lacks in easy access to cable or satellite providers for a Pac-12 network, and the conference would have to look elsewhere for a network partner. As the leader in sports programming, no partner can match the exposure ESPN offers. Being the giant ESPN is and tied up to as many college sports programming contracts as they are, ESPN might not be looking to add yet another conference to their deals with the SEC, Big East, and ACC. (finance.yahoo) Disney would have a difficult time, thus, offering the exposure the Pac-12 so desires. Regardless, ESPN serves as the leading competitor in the sports programming industry. Competition Competitive Rivalry Competitive rivalry focuses on the set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position. Comcast s acquisition of NBC Universal is a clear attempt to form a sportscast competitive rivalry with Walt Disney Co. s ESPN. By making this acquisition, Comcast is planning on becoming a more viable competitor to ESPN. In the past, Comcast has tried to challenge ESPN s dominance in the sportscast business with its own Versus network. However, Versus has not been much of a contender to ESPN as evidenced by their current carriage fees of roughly 28 cents per subscriber per month to ESPN s ability to charge a premium at over $5 per subscriber per month. Walt Disney Co. s ESPN is currently the leader of the sportscast world, and it has been for the past few decades. ESPN has an estimated 100 million domestic subscribers. ESPN also broadcasts on a 24-hour basis, in 21 languages, in over 165 countries around the world. ESPN owns more than ten popular channels across the world (including ESPN, ESPN 2, ESPN News, ESPN Classic, and ESPN Deportes), and it also owns the ESPN.com website which is a highly-trafficked locale on the Internet. As of 2010, ESPN.com averaged more daily hits than any other sports related website on the Internet and ranked among the top 60 websites in terms of average daily users. (alexa) Comcast s acquisition of NBC Universal will allow the company to challenge the dominance of ESPN in the sports-media market. Comcast already owns the Golf Channel, which reaches 120 million homes, Versus, which reaches 75 million homes and 14 local networks that deliver 2,400 sporting events annually to more than 50 million homes with cable and satellite. The purchase of NBCU will help Comcast to grow furthermore in sports programming, since NBC by itself is known for investing a lot of money in this area. This move creates a lucrative opportunity for Comcast, because some important sports deals come with the purchase of the NBC network. NBC Sports has broadcasted 16 Super Bowls, more Olympics than any other network, and it is currently in negotiation for the rights to the next set of Olympics, as well as contemplating a bid for exclusive rights to the Pac-12 conference. Some of the other important sporting events that NBCU broadcasts and will look to hold rights to for the sake of competitive actions include: the U.S. Open Championship, the Ryder Cup, Presidents Cup, Kentucky Derby, Preakness Stakes, Wimbledon, French Open, and the Stanley Cup Finals (Berr, DailyFinance). Although ESPN currently maintains a competitive advantage over Comcast in sports content and delivery, this joint venture will allow Comcast to become a credible rival to the current leader in the lucrative business of sports-media, ESPN. News Corp. and Turner would also be forced into action if Comcast can become a viable competitor to ESPN, creating competitive dynamics. Competitive Dynamics Comcast s acquisition of 51 percent stake in NBC Universal from General Electric Co. creates competitive dynamics between Walt Disney s ESPN and Comcast-NBCU. Competitive dynamics refers to all competitive behaviors, including the total set of actions and responses taken by all firms competing within a market. Therefore, Comcast s latest move is almost certainly to create a reaction from ESPN. Even though this move was not meant to threaten ESPN, a firm s strategies are dynamic in nature because actions taken by one firm elicit responses from competitors that, in turn, typically result in responses from the firm that took the initial action. One of the first situations that might cause a reaction from either one of these two companies might be the dispute over the rights to broadcast the NHL (National Hockey League). Currently, Versus and NBCU hold the rights to broadcast the NHL. However, this 10 year $2 billion deal expires at the end of the year 2011, leaving room for a bidding war between competitors. The growing popularity of the NHL has again sparked the interest of ESPN. ESPN is planning to attempt an aggressive $ million per year bid for rights to broadcast the NHL that will test NBC s and Versus right-to-match clause. (yahoo sports) This

8 proposal by ESPN includes televising every Stanley Cup playoff game nationally, streaming games to authenticated broadband and mobile users, and guaranteeing an international component as part of the offer. If ESPN is able to achieve a deal with the NHL, it might increase its leadership in the sportscast business, and thus generate an immediate response from Comcast. However, if it turns out to be the other way around and Comcast s own NBCU and Versus acquire the deal, Comcast could become a serious threat for Walt Disney s ESPN. ESPN will then be forced to come up with a strategy in order to maintain their supremacy. Turner and News Corp. have also inquired into the addition of the NHL for their respective companies. Such competitive actions illustrated the likely competitive dynamics that will ensue during a potential bidding war, or even acquisition, over the Pac-12 conference. Comcast needs to be sensitive to how its competitor will react when implementing any business strategy, because a business strategy s success is determined not only by the firm s initial competitive actions but also by how well it anticipates competitor s responses to them and by how well the firm anticipates and responds to its competitors initial actions. Business-Level Strategy Comcast Corporation decided to operate with a differentiation strategy and thereby positioning itself differently from its competitors by providing its customers with an acceptable level of cost, with unparalleled products and services. Value is created for the customer in how Comcast chooses to differentiate its products or services from those produced by its competitors. Their investments via mergers and acquisitions have increased their distribution channels and enabled the company to become the nation s largest cable and Internet service provider, as well as the ability to offer their product affordably to Comcast consumers. Compared to their primary competitors (AT&T, FiOS, Direct TV), Comcast offers competitive pricing through their bundle, double play deals, digital cable, high speed Internet, and digital voice offerings. Also, their investments in new technologies and content have enabled Comcast to further differentiate their product offerings with an on-demand offering of more than 10,000 selections each month. This has resulted in a viewership that has grown to surpass more than 6 billion views since 2003, with their on-demand service being selected 100 times per second at 275 million views monthly. (Comcast) Comcast s HD service offers more programming than any other service provider. Comcast makes accessible more than 1,000 HD movies and television shows monthly. The industry leading Comcast.net portal and their high-speed Internet access offers access to online television, the ability to check , get the latest sports scores, and provides access to more than 90,000 videos available at any given time. With the acquisition of NBCU, Comcast should realize several new potential products and services that will allow it to further differentiate itself from its competition. With NBCU, Comcast wishes to speed up the availability of on-demand movies, bringing them closer to their DVD and Blu-ray release dates. The acquisition would allow Comcast to take shortcuts with NBC s content forcing their competitors to eventually follow their lead. Comcast s online content should grow exponentially, while also being able to provide more content in more places. Cable, over the air, on-demand, and online will deliver thousands of more programming hours in more in categories Comcast previously overlooked such as: local news, children s shows, Spanish-language content. (pcworld) Finally, this acquisition will further differentiate their product by increasing the choices for customers. Comcast executives pledge to only go after marquee sporting events through NBCU, and also to add an additional 5,000 choices within the first three years of the acquisition. However, Comcast should be wary of attempting to differentiate too much. In 2010, Comcast decided to rebrand their triple play services, digital cable, cable Internet access, and cable telephone, by the name Xfinity. Xfinity was defined by Comcast as meaning infinite content choices and cross-platform features (customer central) Comcast then pushed the Xfinity brand during the 2010 Winter Olympic Games only it backfire when Time magazine listed Xfinity as number one in their Top 10 Worst Corporate Name Changes list published in February The new name was intended to help customers forget the high prices and poor customer relations. (Time) Results of the change are not yet known, but across the Internet, polls regarding the change are not in support of Xfinity. In a BNET poll, only 33% of users approved of the change. (bnet) While the acquisition of NBCU and the potential bids for lucrative sports programming to further increase Comcast s differentiation to better serve value to their customers has been met with positive feedback, Comcast s customer service record has not. To properly differentiate themselves amongst the likes of Disney, News Corp., or Turner, Comcast must improve upon its customer relations. Providing value delves further than merely providing an exceptional product at low cost. Satisfaction is also realized by exceptional customer service. In 2004 and 2007, the American Customer Satisfaction Index survey found Comcast as having the worst customer satisfaction in the country. And only once since 2001 has Comcast s customer service improved, that being a 3% jump in May (ACSI) Even with the

9 downward customer service trend, Comcast somehow found a way to increase revenues. This oddity is likely due to the little competition cable companies seem to have at the local level. Compared to the 10 largest cable and satellite television providers, Comcast ranked in the bottom 5 of every United States region; this according to a 2008 J.D. Power and Associates annual customer satisfaction survey. (JD Power)Therefore, it is imperative going forward that Comcast improve upon its customer service if they intend on capitalizing their revenue streams with the NBCU by appealing to as many diehard or causal sports fans as possible. Many potential customers could be turned away from tuning in to Pac-12 televised football or basketball games based on the channel s affiliation with Comcast due to its sour customer relations past. Corporate-Level Strategy On February 25, 2011, Comcast Corporation reported their annual 10-K report for the period ending December 31, Comcast had generated $37.9 billion dollars in revenue between the three segments of cable, corporate and other, and programming during the fiscal year of (10-k) Of the $37.9 billion in revenues the cable segment accounted for $35.8 billion dollars or nearly 94 percent of the consolidated revenues. (10-k) This is interpreted to mean that in the past, Comcast has had a corporate level strategy that is focused on low levels of diversification. Of the two strategies included in the low level of diversification class, Comcast was using the Dominant-business diversification strategy. It appears this strategy was being used due to 94 percent of their revenue being generated within the single business area of cable. The recent transaction between Comcast Corporation and General Electric on January 28, 2011 has prompted the newly acquired ownership of NBC Universal to change the diversification strategy Comcast uses over time. As a result of the NBC Universal transaction, in 2011Comcast expects to present five reportable segments: Cable Distribution, Cable Networks, Broadcast Networks, Filmed Entertainment, and Theme Parks. (10-k) Changing from three segments to five segments will make Comcast more diversified therefore leading them to utilize a related constrained diversification strategy. Comcast s acquisition of NBC Universal was a plan to extend its resources and capabilities to create more value for the company while acquiring market share from their competitors through a value creating diversification strategy. Comcast believes that the sharing of resources and capabilities between Comcast and NBCU while transferring some of Comcast s core competencies into NBCU will create economies of scope. NBC Universal will consist of the well-recognized and respected entertainment brands from NBC Universal, along with the technology and consumer reach of Comcast. (PA and Fairfield) Comcast and NBC Universal are sharing activities to create the ideal entertainment and distributing company. This can be characterized as Comcast having a corporate-level strategy that is focused on operational relatedness. It is also apparent that Comcast is using a corporate-level strategy of corporate relatedness when it comes to creating value through its joint venture NBC Universal. Upon acquisition of NBCU, Comcast took several key management positions from both companies along with some independent, external members to form NBC Universal s management team. One example of this would be the promotion of Comcast s former Chief Operating Officer, Steve Burke, to his current position as NBC Universal s Chief Executive Officer. This reassignment of Burke was viewed as a transferring of core competencies within Comcast s corporate strategy. Steve Burke was one of the driving forces behind Comcast s growth from a cable industry leader to one of the nation s leading providers of entertainment, information, and communication products and services. (Burke) If Burke is able to allocate similar knowledge and insight on creating a successful company, that he learned during his time at Comcast, to his position as CEO of NBCU, Burke will undoubtedly help Comcast financially. Such transference of inner knowledge will prevent Comcast from having to hire from outside the company, and it should also create a more viable competitor out of Comcast. Burke is planning on accomplishing this through the venue of sports entertainment. Comcast s ability of becoming a stronger competitor to their rivals such as Walt Disney Co. s ESPN, News Corp. s Fox, and Time Warner s Turner, will allow them to gain more market power. Comcast will increase their market power towards these three companies via multipoint competition and through vertical integration. The multipoint competition strategy will be utilized against its competitor Walt Disney Company. With taking control of NBC Universal, Comcast will be in direct competition with Walt Disney Company in two product areas; the theme park sector and broadcast network sector. Walt Disney s ESPN is currently the leading provider in sports and is Comcast s biggest competitor when it comes to gaining market power in the venue of sports entertainment. Another way that Comcast is able to gain market power is through vertical integration. When the cable company and broadcast network came together they created a media powerhouse says Brian Stelter and Tim Arango of New York Times. (Stelter) Comcast is now a major producer of television shows along with movies. The Comcast and NBC Universal joint venture will give Comcast an advantage over Walt Disney s ESPN, News Corp. s Fox, and

10 Time Warner s Turner Sports because they will still have to formulate contracts with cable companies unlike Comcast and NBC Universal. Merger and Acquisition Strategies Before becoming incorporated and changing its name to Comcast Corporation, American Cable Company was a reasonably small company. Over the past 48 years Comcast has become the largest cable television provider, and the number one provider of video and residential internet service in the United States. The company has been able to grow to such heights by its several mergers and acquisitions over the years. There have been approximately 23 different mergers and acquisitions in Comcast s history ranging from the acquisition of Maclean Hunter s US Cable Operations and the merger with AT&T Broadband to the most recent acquisition of NBC Universal from General Electric. As of January 28, 2011, Comcast gained 51 percent ownership over NBC Universal while also receiving the option to buy a larger share of NBC over time if it chooses to do so. Some of the motives behind these acquisitions along with the one of NBC Universal were to increase market power, overcoming entry barriers, increased diversification, and learning and developing new capabilities. As stated earlier, Comcast is able to increase their market power by multipoint competition, horizontal integration, and through vertical integration. Improvement in market power can have the beneficial effect of increasing the company s market share enough to make them a market leader. Over the company s life, Comcast has been able to use each of these strategies in order to create more market power. The most recent example of Comcast using the multipoint competition strategy is when Comcast acquired NBC Universal to improve their market power over Walt Disney through the different business sectors they are both in together. For Comcast, this competition would take place in the business segments of broadcast network and theme park. In becoming a multimedia giant, Comcast has performed multiple horizontal acquisitions in each of its cable, internet, and telecommunications segments. These horizontal acquisitions have proven to be synergistic for Comcast. The biggest example of a vertical integration Comcast has been a part of is through the joint venture of NBC Universal. Comcast, which is a distributor of television programs, now has the ability to produce television shows and movies. Controlling multiple parts of the value chain allows the company to cut expenses and increase revenue leading to a higher market power that competitors will struggle duplicating. When American Cable Company was first founded by Ralph J. Roberts, Daniel Aaron and Julian A. Brodsky it was strictly cable provider. While focusing on increasing its market share in its primary market, Comcast wanted to grow as a company in other business markets as well. To get around the barriers of entry (that tends to be expensive and difficult for new companies coming into the market), Comcast merged and acquired companies within that business sector. This approach not only helped save Comcast money and resources but it also brought diversification to Comcast s portfolio of products. An example that shows Comcast s involvement in this particular strategy is when they purchased American Cellular Network Corporation (AMCELL) in As a company, they were able to bypass the barriers of entry while diversifying and entering the cellular telecommunications field. As a result of the initial purchase of AMCELL, Comcast took advantage over the opportunities available and merged with Metrophone in 1992, thereby tripling their customer base. Learning and developing new capabilities is a major part of a company becoming successful and or continuing to be the market leader. Through the acquisition and creation of NBC Universal and NBC Universal, Comcast has opened up new opportunities to learn and develop new capabilities. Mr. Copps, a senior Democratic commissioner, said The Comcast-NBCU joint venture opens the door to the cable-ization of the open Internet. (Stelter) Due to the conditions the Federal Communications Commission put on the deal Comcast will have to play fair with its competitors in programming, cable providers, and broadband internet providers for the first seven years. After the seven years, Comcast will be allowed to take advantage of the opportunity it has at becoming an even greater multimedia giant. Recommendation It is the final recommendation after thorough analysis of Comcast Corporation, the acquisition of NBC Universal, Comcast s internal and external environments, and Comcast s business strategies, that they do indeed pursue a bid for the Pac-12 conference close to the asking price of 10 years at $220 million per year. The addition of the Pac-12 conference and college football s high television ratings would enable Comcast and NBC Universal to differentiate their product offering against their competitors and offer significant value to their current subscribers. Sports programming would offer Comcast the opportunity to significantly compete against the likes of Walt Disney s ESPN, and possibly transform Versus, the Golf Channel, and Comcast SportsNet into premium content

11 with higher carriage fees. With the slowing cable television industry, and an increasing focus on cheap or free online, on-demand programming, adding live sports programming would provide a hedge against consumers straying away from Comcast s cable television services altogether. Because Comcast is a provider for approximately 25 million homes, one potential downfall would be finding other providers to make deals with to carry Pac-12 games not carried by NBC. Comcast should not purse, however, the Olympic Games between 2014 and Even with a television audiences of well over 100 million people for the more recent Olympic Games held in Vancouver, Canada, NBC suffered substantial losses to the tune of $220 million. It is also believed that NBC suffered substantial losses from the Beijing, China Games as well, though financial numbers have not yet been released, meaning a bid for the Olympic Games could strain Comcast s budget to effectively distribute content to its customers. Therefore, bidding on the Olympic Games to be televised across NBCU s entire network after significant losses would contradict Comcast CEO Brian L. Roberts newly formed strategy of only making deals where money can be made. It can also be concluded that the acquisition of NBC Universal, instead of primarily being a distributer of content, Comcast will have the opportunity to produce television shows and movies that their competitors cannot. Controlling this part of the value chain permits cuts in expenses, provides Comcast with cost leverage against other distributers of cable television, high-speed Internet, and on-demand content, and increases the revenue stream of Comcast, leading to a higher market power that competitors will struggle to duplicate. As far as Comcast is concerned, the acquisition of NBC Universal will provide the company with immense risk diversification and the ability to offer their customers value in the ability to utilize the content experience whenever and however they wish to experience it, propelling Comcast even further atop the media, entertainment, and communications industries today.

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