The industry is abuzz with reports that NBC Universal (NBCU) will likely be spun off by its parent company, General Electric (GE), once French conglomerate Vivendi sells its 20 percent stake in NBCU back to GE. Who could be the potential buyer, under this scenario? Comcast. According to publications like MarketWatch, the company is considering contributing its cable assets, along with up to $6 billion in cash, to purchase a 51 percent stake in NBCU. While no official announcements have been made, industry analysts are already anticipating the possible consequences of such a merger. For example:
Comcast boosts its content library. The move would significantly expand Comcast’s entertainment portfolio and Web reach, placing it among the top industry players, says ZDNet. Through NBCU, Comcast would gain network TV assets like NBC and Telemundo; cable content such as CNBC, A&E, Bravo, USA Network; global properties such as The Weather Channel; various Universal Studios assets; Internet sites such as MSNBC.com, iVillage and a partial ownership in Hulu.com; and more.
Comcast gains better online leverage. Comcast would also gain more control in deciding how and when TV shows and movies are distributed online, and at what price to consumers, says the LA Times. As more people stream videos online for free [see our previous post on online streaming], cable companies are pressured to step up their game to maintain viewership. Comcast and Time Warner, for example, recently launched a “TV Everywhere” service that allows consumers to watch shows online — provided they are paying cable subscribers.
"This deal (Comcast-NBC) has major implications on the success of TV Everywhere," Thomas Eagan, an analyst at financial advisory group Collins Stewart, tells the LA Times. "Comcast may decide to change Hulu to some degree to facilitate a premium Hulu service much faster." Hulu, now the number two online video site, according to market research firm comScore, is jointly owned by NBCU, News Corp and Walt Disney Co.
Comcast could shorten DVD release “window.” According to studio executives and media analysts, Comcast could try to reverse the current movie release sequence by offering movies through its paid On Demand service ahead of their DVD release date. "It's a potential game changer that could completely upset the traditional windowing position of the studios, if Comcast were to decide to get very aggressive in releasing new movies and TV shows in a variety of ways," Tom Adams, founder of financial and market research firm Adams Media Research, tells Reuters. Such a move, however, is likely to meet opposition from theater owners whose box office revenues could be threatened by a shortened “window,” reports Reuters.
Whether or not Comcast strikes a deal to buy NBCU, however, some analysts believe spinning off NBCU may be a good move for GE. "Selling NBCU will increase management focus on the core infrastructure businesses and that is a good thing," Steven Winoker, analyst for investment research and asset management firm Sanford C. Bernstein, wrote to clients. "GE has long suffered from too much complexity and faced significant investor pressure to part with its media and entertainment assets."
Walt Disney Co., the world’s largest media and entertainment conglomerate, is buying Marvel Entertainment, a character-based entertainment company, for $4 billion in cash and stock, pending approval from shareholders and regulators. Analysts from Wall Street firms such as Standard & Poor’s question the steep price tag, which amounts to a 29 percent premium over Marvel’s closing price as of the deal’s announcement. At the official conference call, Disney CEO Bob Iger said, however, that a full price is fair and necessary when acquiring a premium company with a premium set of assets. Which begs the question: What exactly is Disney getting from Marvel?
A recipe for blockbusters? Marvel’s portfolio boasts 5,000 plus comic book characters. However, the better-known ones are already tied-up with other studios, cable networks, video game publishers and even a theme park. For example, the Los Angeles Times reports that Sony Pictures has rights in perpetuity to make Spider-Man movies, while Twentieth Century Fox has rights in perpetuity to make movies based on the X-Men, Fantastic Four, Silver Surfer and Daredevil.
As Marvel’s new owner, Disney would have to content itself with collecting royalty fees from these and similar deals, until it can either revert the rights in-house or renegotiate contracts. Of course, there are still plenty of other characters in Marvel’s roster. Considering Disney’s reach, financial clout and talent pool (Disney also owns Pixar, which has proven skills in making critically-acclaimed top grossers), it’s not farfetched to think that Disney could make its own blockbuster hits from less popular characters. As Marvel CEO Ike Perlmutter said: “This is an unparalleled opportunity for Marvel to build upon its vibrant brand and character properties by accessing Disney’s tremendous global organization and infrastructure around the world.”
More boy appeal? Disney is known for family-friendly fare that primarily targets young and teenage girls. Think Hannah Montana, High School Musical, and the fairy tale/princess franchise (Sleeping Beauty, Snow White, The Little Mermaid). Marvel, on the other hand, has a loyal fan base among boys and older kids — an audience segment that spends about $50 billion each year (according to a recent article by The New York Times). The merger seems like a perfect fit. In fact, Disney recently launched Disney XD, an online and TV channel primarily aimed at boys. The channel already runs Marvel characters about 20 hours per week, and Iger says they are looking to add more Marvel content, and to expand merchandising opportunities worldwide. Some Marvel fans are concerned that their favorite characters would get “Disneyfied.” Both Disney and Marvel say they will protect Marvel’s artistic independence.
Online and video game content? Aside from beefing up Disney XD, the deal would also give Disney fresh content for its online and video game library. Currently, game publishers like Activision, THQ, Sega and Gazillion Entertainment have licensing rights to a number of Marvel characters, but all options are open once they expire. “We don’t rule out the possibility of a blend of licensed games, as well as self-produced and self-distributed,” says Iger. “And what is nice about this is that as some of these deals near expiration, we have the luxury of at that time considering what is best…from a financial perspective, from a quality perspective and an exposure perspective.”
What about the comic books? Marvel’s origins, and one of its core strengths, is comic book publishing. The New York Times reported that the company edged out rival publisher Time Warner’s DC Comics for the top spot in 2008, in both unit market share (46 percent for Marvel and 32 percent for DC) and retail dollar share (41 percent for Marvel and 30 percent for DC). And as Disney’s publishing division is currently the world’s largest when it comes to children’s books and magazines (says ICv2), Marvel is getting a powerful platform to raise product awareness and sales.
On the flip side, Disney can now compete with DC Comics. And as comic books expand into digital distribution, the opportunities increase. Marvel, for example, recently debuted the Spider-Woman “motion comics” with live actors providing voices for moving comic book images on iTunes, which the company says quickly hit the #1 and #2 sales chart spots.
The takeaway? Obviously, Disney is thinking here of long-term, not short-term benefits. This move helps it build an impressive arsenal of content that can be monetized across the globe, in multiple technology and entertainment platforms, whether now or in the future. It’s a strategy that drives many entertainment companies. In fact, The Financial Times reports that shares in DreamWorks Animation, creators of hit films such as Shrek, were up almost 5 percent on speculation that it could be sold to a larger studio such as Time Warner, which has oodles of cash to spend after selling its cable business.
In its most expensive purchase to date, Amazon snaps up rising rival Zappos for more than $900 million. This came as a surprise to those expecting the shoe e-tailer to hold out for an IPO, but what’s even more surprising was how Amazon announced the merger: CEO Jeff Bezos posted a video on YouTube, a move more characteristic of Zappos and its CEO Tony Hsieh, who himself broke the news on his company blog and Twitter account.
Indeed, Amazon may have the resources, technology and operational experience of an e-commerce giant, but it has long been criticized for not “getting” social media. A recent example is AmazonFail, where Tweeters lashed out at the company after it removed sales ranking of books with "adult content,” including LGBT-themed books. Amazon took a day to respond, and when it did, sent the statement to the Associated Press first, instead of fighting the fire where it started — at Twitter.
Zappos, on the other hand, has mastered Web 2.0 branding. In a recent survey by Abrams Research, the company was voted as having done the best job of using social media. Hsieh himself now has more than one million followers on Twitter, and encourages his employees to tweet, use Facebook and Multiply, or upload videos online to let customers get to know them personally.
“I think people worry too much about bringing their personal selves into business, when I think the way to succeed in today’s world is to make your business more personal,” says Hsieh in an interview for Mashable.com. That “personal touch” also means Zappos makes sure every customer leaves with a positive experience — whether through super-fast shipping, long phone conversations or 365-day refunds.
Will the Zappos culture be zapped, or will it be tolerated, if not emulated, by Amazon? That remains to be seen, but one thing is clear: social media know-how is becoming an indispensable tool in business success. As Hsieh concludes at Mashable.com, “Today anyone, whether it is an employee or a customer, if they have a good or bad experience with your company they can blog about it or Twitter about it and it can be seen by millions of people. It’s what they say now that is your brand.”
