Is Content or Distribution King?

The much-rumored purchase of NBCU by Comcast is now public. The company has paid $30 billion for a controlling interest in the company. According to the NY Times report:

The agreement will create a joint venture, with Comcast owning 51 percent and G.E. owning 49 percent. Comcast will contribute to the joint venture its stable of cable channels, which includes Versus, the Golf Channel and E Entertainment, worth about $7.25 billion, and will pay G.E. about $6.5 billion in cash, for a total of $13.75 billion. For now, the network will remain NBC Universal, but ultimately Comcast could decide to change the name.

The strategy according to the joint statement issued by Comcast and GE is media “anytime, anywhere”:

Comcast Chairman and Chief Executive Officer Brian Roberts said, “This deal is a perfect fit for Comcast and will allow us to become a leader in the development and distribution of multiplatform ‘anytime, anywhere’ media that American consumers are demanding.  In particular, NBCU’s fast-growing, highly profitable cable networks are a great complement to our industry-leading distribution business.  Today’s announced transaction will increase our capabilities in content and cable networks.  At the same time, it will enhance consumer choice and accelerate the development of new digital products and services.

So this would seem to be a great marriage of “carriage” (distribution) and content and the “anytime anywhere” media concept also seems right for a bold, new multi-platform world. It’s worth noting that this combination is potentially much more potent than TimeWarner and AOL were. However an AP analysis suggests that Comcast is weighting content over distribution as the future of its business:

Comcast Corp. is buying control of NBC Universal from GE largely because Comcast wants to own more movies and TV shows. The point is to give it a position of strength if fewer people sign up for its cable TV services and watch more video online.

I would tend to agree that cable TV subscriptions will decline over time as people get the Internet on TV and use the Internet to consume TV and movies, unless bundling and aggressive pricing with other services (phone, Internet) keeps people hooked in.

But think about this: on the Internet distribution has become more important than content; consider the Google vs. News Corp. debate . . . or Google vs. YP publishers. Or perhaps it’s more accurate to say that some categories of “content” have become commoditized (general news, local business listings) and thus distrubtion is more important in those situations. Branded content remains in demand.

So one view of this GE-Comcast deal, as the AP article argues, is to value content above distribution. Clearly both are required for success. But what do you think? Is branded content more important than disribution or vice versa?

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4 Responses to “Is Content or Distribution King?”

  1. Josh Grotstein Says:

    Greg -

    It’s hard for me to see how in the long run (and perhaps even the short run), this is more of a “content” deal than “distribution” deal (though, perhaps these buckets are losing their old meaning).

    As this deal increases Comcast’s market power horizontally, it gives them added leverage to negotiate down the affiliate fees they have to pay to Content providers.

    I don’t expect to see new business/financial channels (CNBC), news channels (MSNBC), general entertainment channels (USA, Bravo) being more easily launched in this new environment.

    Some have conjectured that they may even attempt to put together a competitor to ESPN to help defra/lower the affiliate fees they pay ESPN each month, which is likely close to $100M.

    I suppose that one could argue that the other MSO’s may want to launch competitors to Comcast-owned channels; but realistically, none of them will want to do this if they can’t ensure distribution on Comcast, which was and will be required for any successful cable venture.

    Yes, over-the-top will eventually make a dent here. But this deal, and the push towards a TV Everywhere model will dampen the potentially disruptive nature of over-the-top.

    Cable is and has been fundamentally about distribution gained from a legal oligopoly. I don’t see this economic reality changing with this deal. If anything, the Comcast-NBC deal ratifies this.

  2. Greg Sterling Says:

    Thanks Josh. Very interesting perspective. I’m not a cable industry insider obviously. But I see cable facing eventually what the YP industry faces today with its advertisers: downward price pressure on the traditional product and the need to bundle to retain subscribers.

  3. Josh Grotstein Says:

    Yes…but the beauty of the Cable model is its dual revenue stream structure. Cable content companies can withstand cyclical downward price pressures on advertising as long as the subscription fees continue to be paid.

    The BIG battle, IMHO, is over competing distribution modalities: a) a somewhat walled-garden Cable approach vs b) an open Internet approach.

    Right now, the open Internet approach doesn’t make available sufficient resources (particularly, capital) to be directed towards high quality production…said another way, it would be extremely risky (and foolish) to launch an HBO competitor which would be distributed solely on the Web.

    This will change over time. But the Comcast-NBCU deal ensures that the time it will take for it to change will be longer than it would otherwise have been, since Comcast now owns more of the content players who might otherwise have made the jump to an over-the-top/Hulu-esque model.

  4. Greg Sterling Says:

    Very interesting Josh. Thanks.

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