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February 14, 2013

For most media-company chief executives, the costly acquisitions of the 1990s and early 2000s were an object lesson. After the unwinding of such high-profile combinations as AOL-Time Warner and Viacom -CBS, few CEOs have been willing to buy anything big except their own stock. One prominent exception: Comcast CEO Brian Roberts. His $16.7 billion deal, announced Tuesday, to buy the 49% stake in NBCUniversal still held by General Electric Co. only two years after buying the first 51% and 18 months sooner than expected, is the biggest U.S. media acquisition in about five years. And when the purchase of the initial stake is included, according to Dealogic, it is the largest purchase since 2001, when Comcast became the biggest cable operator by buying AT&T's cable systems for $60.7 billion. "We have had an articulated strategy going back 20 years, maybe even longer," says Mr. Roberts. Initially, "we wanted to get bigger in distribution," he says, but after noticing how content gained value with new technologies, the company decided to diversify.

The deals have turned Comcast-founded by Mr. Roberts's father, Ralph, in 1963-into the biggest media company in the U.S. by market capitalization, at about $106 billion. Along the way it also has become the most vertically integrated, owning 25 TV stations, cable systems serving 22 million subscribers, Universal film studio, the NBC broadcast network and several big cable networks. The latest deal, doubling down on NBCUniversal, represents a big bet. The pay-TV market in the U.S. is stagnant, and it faces competition from cheaper online video outlets. Rivals like Discovery Communications Inc. are looking outside the U.S. for growth. Moreover, Comcast has combined a big film and TV company with a pay-TV distributor, a content-distribution strategy that rival Time Warner Inc. abandoned after years of trying to make it work. Mr. Roberts, 53 years old, wouldn't discuss other companies' strategies, saying he only owned "one stock."

A former Time Warner executive said Comcast's executives are more culturally attuned to each other than when Time Warner owned cable, where "you had guys from different industries culturally...and you couldn't make it work." Comcast executives dismiss concerns about the growth prospects for cable programming. Despite worries that consumers will start to disconnect their pay-TV subscriptions in favor of cheap online options, "from a macro perspective, you're not seeing any decreases" in the overall market, said Comcast Chief Financial Officer Michael Angelakis. He added that NBCUniversal's cable channels "will continue to grow."

Even so, there is skepticism among current and former media-industry executives about the logic of additional investing in traditional television. "It's too early to tell" whether Comcast is pursuing the right strategy, said Chris Marangi, a portfolio manager with media investor Gamco. He said, however, that the media industry is in a "more rational time," and company balance sheets aren't carrying as much debt. And with the rise in media-stock prices in the past couple of years, stock buybacks may be a less compelling alternative.

In fact, Comcast has done plenty of buybacks itself. Mr. Angelakis said the company has repurchased $12 billion of stock since 2008, as well as paid $7 billion in dividends. Comcast also can point to strong operational results from businesses it has acquired. On the cable side, Comcast has outperformed many others: It sharply narrowed its rate of video-subscriber losses in the fourth quarter; the rate widened at many other companies. Meanwhile, there are signs the new management team appointed at NBCUniversal has had some success in turning around the NBC broadcast network, which has lagged behind rivals for years. For the first three months of the new season, NBC's ratings rose while other networks had drops, thanks to Sunday Night Football, new shows such as "Revolution" and added episodes of the hit reality show "The Voice." Still, the ratings improvement has faltered in the past couple of weeks. For the season to date, NBC is flat compared with a year earlier, according to Nielsen, and it is in second place among the major networks among all viewers, behind CBS Corp.'s CBS.

Meanwhile, the much-bigger cable channels have run into their own ratings issues, contributing to a 3.6% drop in fourth-quarter cash flow for the cable channels unit. Viewership at USA, for instance, was down 10% between late September and the end of December. Comcast recently reshuffled top management at the unit and, Mr. Angelakis said, it is investing more in new programming. Wall Street Journal; analysts applauding Comcast in the Philadelphia Inquirer and Associated Press

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