Comcast will be in Washington on Thursday pitching its plans to buy NBC Universal. While politicians will be more interested in making noises about consumer protection, they might also do a service to Comcast investors by asking the company to explain why it makes sense to mix programming in with the pipes.
Wednesday's fourth-quarter results from Comcast certainly gave a foretaste of what may lie ahead if it is allowed to take control of General Electric's media division. Content is the smallest part of Comcast (just 4 per cent of revenues), but higher programming costs caused profits from the unit to plunge, even while sales expanded. More experienced management from NBC may help – although its own prime time line-up has recently been the subject of some very high profile troubles – but the move is a reversal of the split undertaken by Time Warner last year.
The bisection allowed both to stand on their own merits. Time Warner returned to profit in the fourth quarter thanks largely to its film division and the surprise contribution from The Hangover. Such volatility is a fact of life for content companies – News Corp raised earnings guidance on Tuesday to reflect the success of smash hit Avatar. Along with less need to invest in physical infrastructure, it is the reason they typically command higher valuations than the pipers.