NBC, Comcast and moguls at play

The possible combo is a case study for the next wave of media link-ups.

By Richard Siklos, editor at large

LOS ANGELES (Fortune) -- NBC Universal looks to be in play, with minority shareholder Vivendi considering shedding its stake and Comcast, and now undoubtedly others, kicking the tires.

As the news broke, I just happened to be getting through the new book -- The Curse of the Mogul: What's Wrong with the Worlds Leading Media Companies, written by a trio of industry experts who teach a class at Columbia Business School. Nothing like a real live case study.

Essentially, the authors argue lucidly that the cadre of media moguls who dominated headlines for much of the past two or three decades have been deal junkies chasing rivals out of misguided notions about how to achieve long-term success.

Among other things, the writers -- one of whom, Jonathan Knee, is actually a media investment banker -- argue that such attributes as deep pockets, strong brands, and talent are "sham sources of competitive advantage", and that four key "media myths" have colored the mogul world-view: growth at all costs, globalization, the idea that "content is king" and "the cult of convergence."

It's hard to argue with these folks -- another author, Bruce Greenwald, is a respected economist at Columbia -- but I will quibble with the book's numerical set up: that many of the biggest and best-known media stocks have seriously underperformed the market.

The quibble is mainly existential in nature, rather than financial: if you measure only surviving companies in industries that have had enormous amounts of consolidation and deal-making, it stands to reason that they would under-perform.

As the authors point out, most mergers across all industries have been shown in academic studies to destroy value rather than create it -- but they argue that this has taken place more egregiously in media mogul-land, as evidenced by some $200 billion in writedowns this decade.

My counter-point is simply that some investors have done quite well by investing in media companies, particularly if they were sellers into mergers, and took cash or sold their shares in the combined company around the time of its sale.

To wit, if you were a CBS (CBS, Fortune 500) shareholder when it was merged into Viacom (VIA) or an AOL shareholder around the time it combined with Time Warner (TWX, Fortune 500) (owner of Fortune and CNNMoney) or a Polygram shareholder when it sold to Seagram you could have done nicely. Ditto Pixar to Walt Disney (DIS, Fortune 500), and, if its deal with Disney proceeds as planned, Marvel Entertainment -- and so forth.

Again, this is an existential (and maybe slightly cynical) point. Keeping in mind the book's line that "only careful selection of dates can make any of the individual media conglomerates look good," yesterday I arbitrarily charted 10-year performance for Time Warner, News Corp. (NWS, Fortune 500), Comcast (CMCSA, Fortune 500), and Disney -- the biggest of the survivors -- against the S&P 500. With the index down 18% during that period, Disney was up 17% and News was down 3%. Comcast was off 28% and Time Warner sank 73%. One supposes "The Mixed Bag of the Mogul" is not such a compelling title.

Getting back to NBC and, its suitor Comcast: As it turns out, Comcast is one of the heroes of the book, with its CEO Brian Roberts praised for his well-conceived and deftly-executed acquisition of the former AT&T cable systems.

NBC, of course, is subsidiary of a giant conglomerate whose CEO, Jeff Immelt, has said he is committed to keeping the media business and shrinking GE's (GE, Fortune 500) dependence on finance -- though that was at a time before GE's sinking market cap was in danger of being eclipsed by Apple's.

Vivendi looks to be the catalyst. If the French telecom and music company wants to shed its 20% stake in NBC U, it has a put to do so which it can exercise in a few weeks' time; this means GE either has to put up between $4 and $7 billion to buy the stake or consider an IPO of NBC U, which may not be an appealing option given some of the challenges at the company's broadcast and movie divisions. People familiar with the talks say that Comcast would end up with 51% of the private joint venture being contemplated, by putting in some cash and content assets.

The authors of Curse of the Mogul do have one big caveat in their praise of Comcast's acquisition of AT&T: that Comcast overpaid. Comcast shares have fallen amid the deal reports, just as they did when the company bid unsuccessfully for Disney a few years back.

Analyst Vijay Jiyant at Barclays Capital said in a report this morning that based on media reports valuing NBC at around $32 billion in the deal, Comcast would be overpaying again. And of course all this attention could smoke out other potential bidders, perhaps DirecTV but probably not (as I and others have speculated in the past) Time Warner.

As the latest dance gets underway, all involved might heed one of the book's many cautions: "you can want a thing too much, and media moguls frequently do." To top of page

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