In Depth

NBC Sports Will Give Comcast a Needed Broadcast Edge

By Jon Lafayette

The sports world will be lining up against a new giant when Comcast’s $30 billion acquisition of NBC Universal finally pushes into the end zone.

Like Walt Disney Co., which owns 80 percent of ESPN, a leader in cable and online sports, as well as a broadcast network in ABC, Comcast will boast a formidable roster of broadcast, cable and online properties.

That muscle should mean that Comcast, which tried and failed to land an NFL package five years ago, now will have the count more in its favor when it comes to bidding for the most prominent and prestigious sports properties.

“Comcast will likely downplay the impact of the combining of the sports business because they don’t want to make it seem as though they’re going to be in control of so many assets,” said Thomas Eagan, analyst at investment company Collins Stewart.

At first it will be a reverse image of Disney. “More strong in broadcast than strong in cable,” Eagan said. But Comcast’s new brawn in broadcast with NBC “will help them in terms of being able to get eyeballs. In the broadcast business today it’s about getting eyeballs that are real-time eyeballs.”

Comcast tried to acquire Disney — and with it ESPN — in 2004. Now no company puts more money into ESPN’s coffers than Comcast. SNL Kagan estimates Comcast pays $5.8 billion a year to carry ESPN’s domestic networks.

Like a golf score, Comcast would love to see that number come down.

By taking properties away from ESPN, Comcast would be building its own business while at the same time intercepting rationales ESPN could use to justify more increases in the subscriber fee it charges cable operators.

“Comcast probably at some point would like to at least hold down future payments, maybe even seek a reduction. One way to do that is to render ESPN not quite as exciting a network as it is today,” said Neal Pilson, former CBS Sports president and now chief of Pilson Communications, a consultancy specializing in sports and media. “And the way to do that is to take some of the sports properties that have up till now been controlled by ESPN and perhaps taking them on yourself.”

“It’s not going to happen overnight, but over the long term, I’m sure Comcast would like nothing more than to be able to turn [its national cable sports network] Versus into a viable competitor to ESPN, which would give it at least some negotiating leverage,” said Derek Baine, senior analyst at SNL Kagan.

“ESPN has this love-hate relationship with cable operators. It’s a must-have, but every time the negotiations come up, they’re just horrendous,” Baine said.

Comcast declined to comment. Executives there are discouraged from talking about their plans for NBC Universal while the merger awaits government approval.

Last month, the Federal Communications Commission extended its review of the deal for as much as six weeks, giving Comcast time to prepare two reports on whether the combination is in the public interest. The deadline for comments on the deal will be a month after the reports are filed.

ESPN executives, while noting they’ve always operated in a very competitive environment, also declined to comment.

All by itself, NBC is a powerful player in sports. Among the events NBC telecasts are the NFL on Sunday nights, the Olympics on broadcast and cable, the NHL and the Stanley Cup Finals, Notre Dame football, Wimbledon and some top professional golf tournaments.

Comcast airs the NHL, the Tour de France and professional bull riding on Versus. It also owns the Golf Channel and array of regional sports networks. After a long feud, Comcast finally reached a deal with the NFL to provide wide distribution of the NFL Network on its cable systems. With NBC on board, Comcast becomes an important media partner with the league.

Baine said that Versus has been an underperformer for Comcast, and the merger could help shore it up.

“They’ve just had all of these problems getting carriage, and the ratings have not been good and the programming is not that great. There are big synergies in being able to take existing sports rights like that and slam them in there,” he said.

Dick Ebersol, chairman of NBC Universal Sports, appears likely to be put in charge of the combined companies’ sports assets, according to Pilson.

Jeff Shell, president of Comcast Programming Group, has been leading Comcast’s push into sports.

Having Comcast in his corner might give Ebersol more latitude in pursuing big-ticket items.
“I think the next Olympic negotiations are going to be an example of where NBC is a stronger contender for rights with Comcast that it would have been with GE, which is much more concerned about the P&L of the games themselves, even though the games have tremendous supplemental value or ancillary value that no one ever seems to account for,” Pilson said.

The NCAA’s decision last month to award rights to its annual men’s basketball tournament to CBS and Turner Sports for $10.8 billion over 14 years shows the power of combining the reach of broadcast and business model of cable for major sports properties. CBS also puts tourney games online with March Madness on Demand.

Turner expects to be able to recoup some of its new March Madness costs by raising subscriber fees it charges operators, led by Comcast.

As rights fees go up, televising sports becomes a tougher business on which to make a profit.
“There’s nothing written in the constitution of the United States that says every sports event, or even the sports network has to be profitable,” Pilson said.

“The fact is that sports is clearly an enormous platform for launching and sustaining your entertainment and news programming. The most recent example was that NBC used the Olympics, basically, to restart its entire prime-time schedule.”

And where does that leave ESPN?

“They can decide strategically what’s important to them and what isn’t, which they’re in the process of doing right now,” said Pilson.

He said ESPN advised the Atlantic Coast Conference that they’re not prepared to bid up to levels it pays for the Southeastern Conference for college sports It also apparently decided not to bid as much as CBS and Turner did to secure the NCAA basketball tournament.

ESPN is a smart well-managed company. I’m sure they can deal with some added competition,” Pilson said.