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TheStreet Open House

Comcast Is Now the Center Which the World Revolves Around

Stocks in this article: CMCSATWCTWXFOXATDTVGOOGFBAAPL

NEW YORK (TheStreet) -- Time was when Comcast (CMCSA) was just a regional cable-TV provider, and Brian Roberts was his father's son, quietly learning the business.

Comcast these days is at the center of heated debates about the future of media and the Internet. The Philadelphia-based corporation, the city's largest, has assumed the Bad Boy role once held by Microsoft (MSFT) and then later by Google (GOOG), though arguably Amazon (AMZN) has become Public Enemy No. 1 for putting the screws on book publishers and any number of retailers, large and small. But that's fodder for another column.

For the moment, Comcast and Roberts have become the lightning rod for net neutrality activists after securing a proposal with Time Warner Cable (TWC) to merge in a transaction valued at $45 billion. In doing so, Comcast more recently prompted Rupert Murdoch to issue a hostile bid on July 16 to merge his 21st Century Fox (FOXA) with long-time rival Time Warner (TWX) in a deal valued at $80 billion and likely to get pricier.

Murdoch, for his part, may also have been hearing footsteps from the new money guys at Facebook (FB), Amazon or Google while Comcast was clearly the reason AT&T (T) promptly secured an agreement to merge with DirecTV (DTV) in a deal valued at $48.5 billion. Furthermore, it's why subsequent acquisition speculation has recently boosted the share prices of smaller content producer such as Discovery Communications (DISCA), Scripps Networks Interactive (SNI) and AMC Networks (AMCX).

If Regulators Care, Here Are Hurdles to a Fox-Time Warner Deal

Time Warner Skyrockets as 21st Century Confirms Rejected Bid

Just how regulators at the Department of Justice and the Federal Communications Commission will view this morass of over-sized, complicated merger proposals is a source of additional speculation though the rush of deal proposals may ultimately prompt regulators to take action to block one of them "lest they be viewed as being asleep at the switch," said Craig Moffett, the media analyst at his boutique research firm MoffettNathanson, in an investor report published on Tuesday.

Indeed, Comcast, which has plenty of experience with regulators and key legislators, secured with some divestitures and competition agreements its full takeover of NBC/Universal from General Electric  (GE) for $16.7 billion in February 2013. In the process, Roberts' company has attracted numerous critics who have pointed out that Comcast spent $18.9 million in 2013 lobbying legislators around the country, the seventh-highest amount of any corporation or organization, according to the Center for Responsive Politics.

"There are only a small number of [telecom, medica and technology] companies truly playing the long-game in Washington, and Comcast is one of them," said Paul Gallant, the Washington-based analyst at Guggenheim Securities.

Business is clearly healthy at Comcast. Shares of the company advanced Tuesday after its total number of cable-TV subscribers fell by less than 1%, the smallest decline in years, according to Moffett, who poked fun at doomsayers who breathlessly predict the end of video only to realize that the business is more stable than it might appear. Assuredly, cable TV is a legacy business, but it remains a profitable one.

Broadband subscriptions, the real growth engine, rose 8.6% or 203,000 nationally, an addition that surpassed forecasts by some 26%, according to StreetAccount.

"Not bad for a seasonally weak quarter," wrote Wells Fargo analyst Marci Ryvicker. Shares of Comcast have gained 5.1% in 2014 compared to the S&P 500, which has gained 7.2% this year.

But let's be clear, Comcast's proposal to acquire Time Warner Cable, announced on Feb. 13, is all about broadband and the strength that greater size can give Roberts in future negotiations with content providers selling online video. These days, those content providers are Fox, CBS and Time Warner. But in the future they could be Amazon, Google or Apple (AAPL) as well as Netflix (NFLX) or whatever company comes next.

Roberts won't care who is making the content as long as he owns the pipes to bring online video to homes and businesses throughout the country. Seeking to deflect attention elsewhere, Roberts, in an investor conference call, referred to a potential AT&T-DirecTV merger as a potentially "powerful combination." Rivals just love to receive compliments.

Certainly, the proposal to combine the country's two largest pay-TV providers along with AT&T-DirecTV and the potential for Fox and Time Warner has put regulators on notice. Media consolidation has entered a round of potentially historic mergers, and Comcast lies in the middle of many of them.

Time Seeks to Go Where No Print Company Has Ever Gone Before

"It's unprecedented, so it's very hard to know what regulators are thinking," Gallant added. "Regulators tend to be reactive and tend to deal with mergers on a case-by-case by basis, but in the current situation, especially if Fox-Time Warner does get proposed, they may have to think more globally about how this ecosystem should be structured to benefit consumers. We're in unchartered territory."

For stakes as high as a dominant position in U.S. media and technology, no one should expect anything less, and Comcast isn't in the business of lagging expectations. The same goes for NBC/Universal, which Moffett said is showing "undeniable momentum in the broadcast segment for the first time."

Broadcast revenue grew 4.9% in the quarter to $1.8 billion while sales at its cable networks group rose 2.6% to $2.48 billion. Total revenue at NBC/Universal increased just 0.4%, short of forecasts, though total operational cash flow jumped 20%.

As for whether regulators might strike down Comcast's proposed deal with Time Warner Cable, AT&T-DirecTV or a possible combination of Fox and Time Warner, the smart money expects conditional approvals across the board.

"The government isn't looking for any arbitrary batting average that they need to reject one out of three or one out of four deals in order to appear vigilant," Andrew D. Lipman, a partner in the Washington firm of Bingham McCutchen, and the head for 35 years of its telecommunications, media and technology practice, said in a phone interview. "Many of the mergers that are out there are likely to be approved, though they are likely to be heavily conditioned."

Brian Roberts can live with conditions as long as he gets his newest prize.

-- Leon Lazaroff is TheStreet's deputy managing editor.

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Leon Lazaroff is TheStreet's deputy managing editor.

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