Watch Out, ESPN: Comcast Forms Big Rival with NBC Universal

Comcast's (CMCSA) takeover of NBC Universal was approved, as expected, by the Federal Communications Commission and U.S. Department of Justice on Tuesday, creating a media and entertainment colossus with a huge footprint in television, movies, the Internet and theme parks. The deal will also create a sports behemoth that could challenge the dominance of Walt Disney's (DIS) ESPN.

Comcast already owns the Golf Channel, which reaches 120 million homes; Versus, which reaches 75 million homes; and 14 local networks that deliver 2,400 sporting events annually to more than 50 million homes with cable and satellite. It also owns the Philadelphia 76ers professional basketball team and the NHL'sPhiladelphia Flyers, as well as the the Wells Fargo Center in Philadelphia, where the two teams play.

NBC Sports has broadcast more Olympics than any other network. It owns the rights to the Olympic Games through 2012 and also has aired 16 Super Bowls. Its properties include NBC Sunday Night Football, the U.S. Open Championship, The Ryder Cup, Presidents Cup, Kentucky Derby, Preakness Stakes, Wimbledon, French Open and the Stanley Cup Final. ESPN counts an estimated 100 million domestic subscribers, including both its main channel and ESPN 2, and often carries the most highly rated programs on cable. Both companies also have formidable presences online.

"The sports-media monster that comes from Comcast-NBCU has the potential to be the biggest alternative to ESPN in the history of sports media," ESPN.com's Dan Shanof writes on his blog. "No one will ever replace ESPN, but this might offer another comprehensive high-end option."

Behemoth Sportscast Rivalry Begins

Last year, Richard Sandomir of The New York Times went further, arguing ... "if Comcast is serious financially and qualitatively, it and NBC could turn Versus into a credible rival. It could turn Versus into a network that would provide cable operators (like Comcast) leverage in negotiations with ESPN. It might also make leagues giddy, knowing they could potentially juggle large-scale bids from Versus."

ESPN is a cash cow for Burbank, Calif.-based Disney. The company's Media Networks business, which includes the sports media network, earned $5.13 billion in operating income in the fiscal year that ended Oct. 2. It has been expanding into local markets, challenging Comcast's foothold in local markets. A spokesman for ESPN could not be reached for comment.

One of the first battles between the two big rivals may be over hockey.

According to SBNation, the NHL's broadcast deal with Versus and NBC expires at the end of this year. ESPN, which wanted nothing to do with the NHL after the 2004 lockout, now wants hockey back because of its growing popularity along with its already-crowded line-up of programming ranging from the NFL to professional bowling.

"The NHL will become the foundation for whatever (NBC Sports head DIck) Ebersol, NBC and Comcast hope to build at Versus, and with that, the League will be in a very enviable position," according to the website.

A Deal Like No Other

Under the terms of the deal, Philadelphia-based Comcast will merge its $7.25 billion worth of cable channels -- including E! Entertainment Television, Versus and the Style Network -- with General Electric's (GE) NBC Universal assets, which are valued at $30 billion and include the NBC television network, Universal Studios and MSNBC. Comcast will wind up with a 51% interest in the new media conglomerate and will give it huge power to decide the content Americans read and watch. Critics say the deal goes too far.

"Comcast's acquisition of NBC Universal is a transaction like no other that has come before this Commission -- ever," FCC Commissioner Michael Capps, who cast the sole vote against the deal set to close later this month, said in a press release. "It reaches into virtually every corner of our media and digital landscapes and will affect every citizen in the land. It is new media as well as old; it is news and information as well as sports and entertainment; it is distribution as well as content. And it confers too much power in one company's hands."

Comcast rejects these criticisms, arguing that the transaction is pro-consumer. NBC Universal -- the named will be used by the new company as well -- will be required to take "affirmative steps to foster competition in the video marketplace," increase local coverage and expand children's and Spanish language programming, the FCC says. Moreover, it must provide discounted broadband services to low-income consumers and provide high-speed broadband to schools, libraries and underserved communities.

"This is a proud and exciting day for Comcast," Comcast CEO Brian Roberts said in a press release."Our original vision for the combination remains intact so that consumers will benefit, and our competitors will be treated fairly."

Activists immediately denounced the FCC's 4-to-1 decision, arguing that it placed too few restrictions on Comcast to prevent it from abusing its power at the expense of consumers. Comcast has customers in 39 states and the District of Columbia and reaches close to 24 million homes in the United States. NBC also owns a stake in the online video service, Hulu, as well as 26 local broadcast stations that reach nearly one-third of U.S. households.

Shares of Comcast, the world's largest cable company, grew slightly on the news. The shares have gained more than 37% over the past year. General Electric will reduce its ownership interest in NBC Universal from 80% to 49%. At its closing, the transaction will generate about $8 billion in cash with a small after-tax charge. Shares of the Fairfield, Conn.-based conglomerate were trading down in late afternoon action. Its shares have risen more than 13% over the past 52 weeks.