What is Comcast thinking?

Normally Get Real is about politics but I can’t help myself on this one. I worked at NBC for 11 years and in the television biz for 21 years. It gives me a little perspective on the Comcast-NBC deal. A lot of people have written a lot of copy on this takeover and there are a lot of angles on it. But I haven’t see anyone point out the obvious: Comcast is looking a lot like Time-Warner, Rupert Murdoch, and GE in betting on the wrong company in the wrong business at the wrong time. The only thing Comcast has gotten right is the price — NBC is being stolen. We’ll get to that.

In all the coverage about Comcast’s purchase of NBC there’s been tons of talk about how NBC Universal has done very badly in traditional broadcast television world but very well in cable. True enough if your horizon stretches no further than, say, next summer. The obits for broadcast have been written before and with $600 billion in ad revenues sloshing around I’d bet the reports of broadcast television’s death are still very premature. But there’s no denying cable networks have a better economic model — at this moment. Here’s the conventional wisdom as written in the New York Times on Saturday:

NBC has been mired in fourth place among the major broadcast networks, and the economics of the broadcast television business has deteriorated in recent years amid declining overall ratings and a decline in advertising. By contrast, cable channels have continued to thrive because they rely on a steady stream of subscriber fees from cable companies like Comcast.

True dat. But for how long? AOL seemed like a sure thing when Time-Warner made one of the dumbest, costliest decisions in the history of corporate America. After all, everybody was getting on the web and AOL had the biggest market share. In dial-up.

Fast forward a few years and Rupert Murdoch’s News Corportation made what many considered a very savvy play by buying MySpace for $580 million. Rupe grabbed the hottest company in the hottest tech segment, social networking. But a funny thing happened on the way to the rich house — Facebook. FT has a pretty devastating look at all this here. As News Corp employee Homer Simpson would say, “Doh!”

And then there’s NBC itself. In 2006 GE allowed NBC honcho Jeff Zucker to spend $600 million (really!) on women’s web portal iVillage. Even at the time a lot of people questioned what they were smoking on the 52nd floor of 30 Rock. Needless to say, iVillage didn’t prove to be NBC’s salvation as women moved on to websites with better social networking. And that promised synergy? The iVillage Live TV show didn’t work out so well.

So now comes Comcast to snatch NBC away from a desperate GE. Clearly Comcast has driven a hard bargain as it is getting 51% of a $37 billion company (the new NBCU) for just 37% of $37 billion ($6.5 B paid to GE and $7.25 B in Comcast cable networks being put into the new company). But even at this fire sale price, is it a smart deal?

The potentially fatal troubles for broadcast have been easy to see for a decade for anyone bothering to look. Broadcast is a linear medium: you experience it in continuous timeframe. While first the VCR and now the DVR allowed viewers to take some control, broadcasters could still be sure their programming was being watched on televisions. That day is swiftly ending and with it broadcasters will be left high and dry.

Comcast, though, is a cable company and is not terribly interested in NBC’s broadcast unit nor it’s anachronistic television stations. For now the company is making all the right noises about keeping broadcasting free for the public, blah, blah, blah but there are a lot of regulators to please in the next year so what do you expect. Think about it: take NBC’s local stations. From Comcast’s perspective, what’s the point? When 90% of Americans get their TV via cable or satellite, what purpose does a local TV station play? Comcast could get NBC programming directly from NBC, split the cable fee revenue, and it’s cable subscribers wouldn’t know anything has changed (other than they’re missing the local news but NBC has pretty much given up on local news anyway and Comcast has 24/7 news operations in many markets so it’s unclear anyone would notice).

No, Comcast doesn’t care about broadcast. It wants Universal’s movies to fill its cable pipelines and it wants NBC’s hot cable networks and their hefty cash flows. Cable nets like the supposed crown jewels in NBC’s crown (Bravo, USA, SyFy) have two big advantages over their broadcast counterparts. First, cable audiences have different expectations about the amount and quality of programming on cable. While it’s true that cable nets are increasingly running first-rate original dramas, most of these channels live on a diet of reality, reruns, and replays. Programming a week of USA or Bravo is an exercise in putting a small number of shows into a large number of slots. And audiences are okay with that. Imagine CBS getting away with running only 3 or 4 hours of fresh programming a week.

The other edge cable has over broadcast is money. Cable nets get money from advertising and from the cable companies like Time Warner Cable, Cablevision, and Comcast. That’s why your cable bill is a hundred bucks a month. You are paying a buck for  O, another buck for Nat Geo, maybe two bucks for Discovery or A+E, and pretty soon you’ve spent some real money. That’s the dirty little (not so) secret of the cable biz. But it’s also where the fallacy of Comcast deal lies.

People have stopped watching broadcast TV in large numbers because they can see broadcast TV programming when and where they want it. Viewers are in control and that is decimating the broadcast industry. A friend of mine watches downloaded commercial-free episodes of Fox’s “Glee” on his iPhone. Not because he can’t watch it on TV when it actually airs or on DVR playback but because this method gives him TOTAL control. And there’s the canary in cable’s coalmine.

What happens when people start dropping their cable TV connections in the same way they’re dropping their telephone landlines? It’s not a hypothetical. There’s strong evidence this is just beginning to happen with young adults who aren’t cutting out cable — they’re not getting in the first place. Did you catch the lead paragraphs in Brian Stelter’s Times piece on this very topic?

As she prepared her daughter for college, Anne Sweeney insisted that a television be among the dorm room accessories. “Mom, you don’t understand. I don’t need it,” her 19-year-old responded, saying she could watch whatever she wanted on her computer, at no charge. That flustered Ms. Sweeney, who happens to be the president of the Disney-ABC Television Group.

“You’re going to have a television if I have to nail it to your wall,” she told her daughter, according to comments she made at a Reuters event this week. “You have to have one.”

But she does not, actually. For 60 years, TV could be watched only one way: through the television set. Now, though, millions watch shows like “Grey’s Anatomy” on demand and online on network Web sites like Ms. Sweeney’s ABC.com and on the Internet’s most popular streaming hub, Hulu.com.

Ask a 25-year-old what night, time, and channel her 3 favorite shows are on — cable or broadcast. You’ll be stunned at how few can do it. That’s because it’s no longer how people find and use video media. Here’s another way of looking at it: why do we still have channel numbers? I have no idea what channel number MSNBC or Bravo or TNT are on. Do you? Verizon FiOS already groups cable networks by themes in their system. Channel numbers are as archaic and irrelevant as program times.

Which brings us back to GE’s pathetic stewardship of NBC and Comcast’s late-to-the-dance takeover of the faded legend. Everybody touts the great cash-generating cable nets Comcast is getting. But if the band has packed up, the bar has closed, and the lights are about to be shut off at broadcast’s goodbye party, the DJ is clearly preparing to spin “Last Dance” at cable’s shindig.

GE is taking a well-deserved bath on NBC Universal but it’s far from clear Comcast is getting  an asset with anything other than declining value. AOL anyone?