Wednesday, February 3, 2010
The Comcast-NBC transaction proceeds apace. Like all transactions of any size, this transaction will be subject to regulatory approval. This entails, of course, HSR pre-clearance. But given the high profile nature of any acquisition involving a cable company, there will be hearings on Capitol Hill. Rep. Boucher and Sen. Kohl have scheduled the first public hearings on Thursday, February 4 (9:30a in the House and 2:30p in the Senate). The morning hearings will be held in front of the House's Subcommittee on Communications, Technology, and the Internet and in front of the Senate's Subcommittee on Antitrust, Competition Policy, and Consumer Rights. Info and web-cast for the Senate hearings here. Info and web-cast for the House hearings here. These are not statutory hearings, but necessary political events.
The other clearance required is that of the FCC. Because this transactions involve media entities, the FCC does its own review. This review also requires a series of extensive filings. You can find all the filings here. The FCC approval process gives us a chance to look at the transaction documents. The Comcast-NBC transaction agreement has already been filed. It's rather lengthy (150+ pages). In general, GE will contribute NBC/Universal to a JV with Comcast. Comcast will contribute a series of programming properties. The resulting NBC JV will then borrow $9.1 billion and distribute that to GE in the form of a special dividend. Following the transaction, Comcast will control the new NBC JV with 51% equity. GE will continue with 49%, but subject to certain redemption provisions that make it possible for Comcast to ulti mately control 100% of NBC over time.
Apparently a major motivation for doing this deal is the transaction costs associated with making content deals. From the declaration of Robert Pick, SVP for Corporate Development at Comcast:
A natural question is why these issues cannot be fully addressed through contracts between Comcast and unaffiliated content owners. The simple answer is that we have tried and not always succeeded, certainly not as quickly or robustly as we would have liked. One reason is that it is very difficult to determine how to structure the financial terms of contracts for new and untested distribution technologies. Both sides in the negotiations want certainty and predictability with respect to the revenue-generating capabilities of the assets they are contributing. But given the rapid developments in content and technology in this extremely dynamic environment, it is difficult for either party to develop business models that allow them to achieve the certainty and predictability they need. In addition, it is difficult to write contracts flexible enough to permit the experimentation and learning that both parties need as they develop new technologies and business models.
Comcast contends that it's simply cheaper to vertically integrate than it might be to contract. This is consistent with Oliver Williamson's view on the topic. He argued that where transaction costs are high, parties might try to contract around information problems, but that a firm can economize - an not subject itself to threats of opportunism - by vertically integrating. The Fisher Body case is an example of this principle in action (See Ben Klein's Economic Lessons of Fisher Body). Here, Comcast is making a similar efficiency argument.