Comcast CEO Brian Roberts, with company founder and father, Ralph J. Roberts,… (Tom Gralish / Philadelphia…)
In acquiring legendary Universal Pictures, Comcast Corp. would make its Hollywood debut during a particularly turbulent time for the movie business. Not only are all studios grappling with declining DVD sales and shifting consumer habits in entertainment, but Universal is also struggling to correct course from a prolonged box-office slump, runaway production costs and turmoil in the executive suites.
Comcast wouldn't be able to exert much influence over the operations of Universal until well into next year after its merger with NBC Universal is finalized. The cable giant is apparently willing -- at least for now -- to entrust current management of the studio, headed by Ron Meyer, with turning things around.
"We know what we don't know," Comcast Chief Operating Officer Steve Burke said in a company town hall meeting held Thursday, acknowledging the Philadelphia-based cable TV company's lack of experience in the movie industry.
Nonetheless, Burke added, "We're not naive either. We know how hard these creative businesses are."
Burke's boss, Comcast Chief Executive Brian Roberts, noted in a conference call with Wall Street analysts Thursday that the cable company and Universal would have to adapt to the changes rapidly sweeping Hollywood.
"The industry is in transition from DVDs to electronic distribution after a period of extraordinary growth, and it [has] to contend with a new set of realities with the electronic age," he said.
Among the changes that Comcast will be weighing for Universal is shortening the period of time from when movies appear in theaters to when they are available on DVD and video on demand -- a move studios have traditionally opposed.
In late October, Universal Studios President Meyer and his newly appointed lieutenants -- Universal Pictures Chairman Adam Fogelson, co-chair Donna Langley and Vice Chairman Rick Finkelstein -- met in New York with the Comcast officials to give an overview of the studio, detailing its recent financial performance and offering a glimpse of its upcoming movies and overall strategy.
The studio executives told their prospective bosses they intended not to repeat the mistakes of the last year -- overspending and underperforming with flops such as "Land of the Lost" and "Love Happens" -- that forced Meyer to oust his top movie executives.
The Comcast leaders have indicated they would not necessarily adhere to the playbook of NBC Universal's earnings-driven owner, General Electric Co., and continue slashing costs to boost the studio's bottom line. Burke said in Thursday's meeting that Comcast would "provide a supportive environment," including giving the studio the kind of financial resources it needed.
NBC Universal President Jeff Zucker, who would be CEO of the new joint venture reporting to Burke, has already instituted tighter studio controls. There are more stringent measures in place for greenlighting movies and for making sure that highly paid filmmakers are accountable for cost overruns on future productions.
Zucker is bracing for a nail-biting first half of the new year when Universal will release a trio of high-cost movies -- director Ridley Scott's "Robin Hood," the monster flick "The Wolfman" and Iraq war drama "Green Zone" -- and has several other major productions awaiting final approval, including sequels to its "Wanted," "Bourne Identity" and "Fast and Furious" series and an adaptation of the Hasbro board game Battleship.
Barclay Capital media analyst Anthony DiClemente warned in a report Thursday that Universal's upcoming movies "could prove weaker in 2010."
Despite its recent dismal box-office run, Universal is not expected to lose money this year, according to a person familiar with the situation. However, the lower movie ticket and DVD sales dramatically impaired the studio's bottom line.
Comcast knows that Universal wouldn't be the engine driving the profit train. In fact, the film studio would contribute a small percentage -- about 5% -- of the merged company's annual operating income, Comcast officials said.
But the world's largest cable company is nonetheless eager to get its hands on the 79-year-old studio's prized library of more than 4,000 movie titles and new releases that Comcast could use to help stock its video-on-demand services for its cable subscribers.
Comcast has been disappointed that its on-demand business hasn't taken off as quickly as hoped. The problem -- from the cable operator's perspective -- has been that because studios have earned the bulk of their profits from DVD sales, they've tried to keep their films off cable for as long as possible.
But as DVD sales sharply fall, the studios are looking at narrowing the time windows so that movies appear on cable simultaneous with their availability on home video. And as the country's biggest cable TV operator that will also own a major Hollywood studio, Comcast will be in a position to change the rules of the game if it wants.
On Thursday, Comcast executives suggested they would do exactly that.
"Clearly, there is the ability to create new [video-on-demand] packages, to move windows," Burke told analysts. There are "a lot of opportunities out there. Obviously not all of them are going to work."