A Big Deal, but Not a Good One

David Carr|The New York Times

Content never became king — search did — but the notion continues to lure otherwise careful companies to the deal altar with its abundant charms.

Sometime in the near future, Comcast , the largest cable system operator in the country, is likely to buy a majority stake from General Electric in NBC Universal, a huge enterprise with content assets in broadcast, cable and film and on the Web.

Comcast | NBC Universal

It’s just like the good old days, when media titans strode the earth in search of the grail of synergy, a magical elixir that emerged from vertically integrating seemingly disparate enterprises.

In this case, Comcast — a company with around 24 million customers in 39 states that make up 95 percent of its revenue — wants to diversify when cable systems are under a variety of threats.

Nothing like a little deal flow to get the blood pumping. Peter Chernin, former head of the News Corporation, has been brought in as an adviser by Comcast, and the possibility of a change in ownership has ginned up all manner of speculation about the fate of Jeff Zucker, the head of NBC. Even Rupert Murdoch has made noises about kicking the tires on the prize, which adds spice. And just in case people aren’t feeling the nostalgia, the conglomerate Vivendi, a battered expression of a bygone era when synergy was not an epitaph, is in the mix as a 20 percent owner of NBC Universal.

We haven’t seen anything quite like it since the merger of Time Warner and AOL. And that turned out well, right?

Jeffrey Bewkes, the chief executive of Time Warner and a major competitor to both Comcast and NBC Universal, has seen this movie before and is glad his company is not the star this time. Ever since he took over the company, he’s been busy trying to undo the merger, spinning off the cable division of the company and planning to do the same with AOL.

“Somebody has finally noticed that these things don’t work out so well,” Mr. Bewkes said at a media conference this month, according to Peter Kafka, of the blog Media Memo at AllThingsD. “We love to see our competitors taking risks.”

The deal Mr. Bewkes seems to wish on his competitors would go something like this: Comcast would make an offer of about $27 billion, creating a new separate enterprise that takes on $9 billion in debt while Comcast would contribute its cable channels, including E Entertainment, the Style Network and the Golf Channel, along with other channels and its local sports networks worth about $6 billion. Comcast would give, by some estimates, $6 billion to Vivendi for its 20 percent share of NBC Universal, and then own 51 percent of the enterprise and use cash flow to gradually buy out G.E.

The deal is not without business logic, if you stay away from the S word. It’s not a bad time to be buying NBC Universal, which is struggling with big assets like the peacock network (primetime Leno, anyone?) and Universal Studios (remember “Land of the Lost”? Me neither). But the company’s cable channels — CNBC, MSNBC, Bravo, SyFy and USA — are profitable jewels.

And at a time when video on demand is taking off, the enterprise would have lots of audience and plenty of studio product to show, especially as we move to a world where movies are released simultaneously on all manner of platforms. And let’s not forget that the deal comes with a 30 percent stake in Hulu, the online video service, which may not be profitable but could be if it makes the leap to a pay service, which appears likely.

And it’s not as though being a stand-alone cable system were a walk in the park these days. They face all kinds of threats. But cable has been a surprisingly stable business while the rest of the media lurches from hit to flop and back again.

Brian Roberts, the chief executive of Comcast, has never made a secret of his desire to diversify the company and with it, his family’s assets. Unfortunately for Mr. Roberts, his shareholders have the ability to diversify on their own and they’d like the company to stick to its core knitting.

According to a report on the potential ramifications of the deal from Bernstein Research, investors have not forgotten Mr. Roberts’s last content crush. “Comcast has spent five years in the penalty box after attempting to buy Disney in 2004,” the report said, mentioning that the company’s stock had underperformed the Standard & Poor’s 500-stock index in the last five years by 31 percent.

The report was called “Comcast: Snatching Defeat From the Jaws of Victory?” and lowered the stock’s target price to $18, from $21. Beyond the economics of the transaction, which are very much in flux, the report predicts a rough road toward regulatory approval: “cable-bashing in an election year is a no-lose bipartisan proposition.”

“Media moguls see it almost as a birthright to buy and sell assets, but most of it clearly has not worked out,” said one of the report’s authors, Craig Moffett. “The value of the deal is the conceptual value of vertical integration, and most of it is against the law as a regulatory matter.”

He said that by attracting government scrutiny to the tie-up, Comcast could end up encountering some unintended consequences. He invokes the AOL Time Warner deal, in which the newly formed enterprise had to sacrifice its proprietary messenger service — an asset that would have been golden in the development of AOL — and open it up to other users.

“Where would that company be today if they had not given up AIM?” he said. “At the time, they didn’t even fight that hard because they wanted to get the deal done so much.”

Other stop signs are visible as well, maybe not big enough to halt media companies in full mating frolic, but worth thinking about. Investors have already expressed skepticism, and marginal improvements in earnings will not bring them around. If the price is cheap, investors are free to go ahead and buy shares on their own. And whether he likes it or not, Mr. Roberts is sending some pretty strong signals about his lack of faith in the company’s core business.

“Right now, they are in the most structurally advantaged businesses there is in media,” said Mr. Moffett. “People can talk all they want about content being king, but distribution has historically been a much better business because of the huge barriers to entry.”

Speaking of which, if Comcast is so hellbent on going shopping, there is a company out there that has been orphaned by the conglomerate that owned it. Its stock has not only outperformed Comcast, but also significantly outperformed the market, and it could generate billions in, yes, synergies on the cost side: Time Warner Cable.