Comcast is carving off most of its cable channels. Will its new spinoff be a hunter or prey?
The media big final week put an upbeat spin on its transfer to shed what Wall Road sees as an albatross — the majority of NBCUniversal’s cable networks, which have seen their income development stymied by the cord-cutting revolution.
Now Comcast execs see an opportunity to push again. They might not have the ability to reverse the migration of onetime cable subscribers to streaming, however perhaps — simply perhaps — they’ll win larger audiences total with a derivative that they’ll add to over time. The plan, Comcast president Mike Cavanagh mentioned, lets the corporate “play offense in a altering media panorama.”
This new “SpinCo,” which can take a couple of yr to separate from the remainder of NBCU, will home primary cablers MSNBC, CNBC, USA Community, Oxygen, E!, Syfy and Golf Channel. It can additionally embrace digital properties Fandango and Rotten Tomatoes, golf-course reserving service GolfNow and youth-sports platform SportsEngine.
Already, Mark Lazarus, the NBCU boss who will function the brand new firm’s CEO, has steered SpinCo might look to snap up a TV station group or sports activities entities, in keeping with two folks conversant in his assembly with MSNBC employees. “We see an actual alternative to speculate and construct further scale, and I’m excited in regards to the development alternatives this transition will unlock,” Lazarus mentioned in asserting the deal.
However there’s one other attainable consequence: A personal fairness agency or strategic purchaser might make a play and attempt to do the identical factor Comcast desires to. In spite of everything, the cable networks will nonetheless herald cash for the foreseeable future, due to current cable carriage contracts. The long-term outlook for linear cable is pretty bleak, however there are predictable money flows to be mined for at the least just a few extra years.
“As soon as they’re impartial, we might see [private equity] companies desirous about buying Comcast’s SpinCo with the cable networks,” says Howard Gutman, non-public fairness technique and protection lead for MorganFranklin Consulting. “This is a chance for Comcast to take a look at themselves and say, ‘Some belongings is probably not a precedence for me, however might be a precedence for a brand new proprietor.’”
That’s not the long run Comcast is considering in public. On the MSNBC assembly, Lazarus described the brand new firm as a “well-funded start-up.” It gained’t be saddled with the huge debt of rivals like Warner Bros. Discovery and Paramount International. In line with Comcast, SpinCo could have a “well-capitalized steadiness sheet with sturdy credit score metrics.”
As a result of Comcast is structuring SpinCo as a tax-free spinoff, there’s sometimes a two-year ready interval earlier than it engages in any strategic M&A to keep away from incurring taxes on the transaction, Morgan Stanley analyst Ben Swinburne wrote in a analysis notice final week. Nonetheless, he added, “we consider there are eventualities the place trade consolidation together with SpinCo might occur earlier.”
TV Static
Income in NBCU’s media section has stalled amid declines at its linear networks and development at Peacock.
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The economics of cable are in seemingly irrevocable decline. WBD in August unveiled an infinite $9.1 billion write-down of its TV belongings, citing enterprise headwinds in addition to the projected lack of its profitable settlement with the NBA to air video games on its cable networks. A day later, Paramount adopted go well with, revealing a $5.98 billion impairment cost for its cable TV biz forward of its acquisition by Skydance Media.
However Comcast has managed to remain in higher form. Since 2015, it has unsentimentally shut down eight networks (G4, Olympic Channel, NBCSN, Chiller, Common HD, Esquire Community, Cloo and Common Sports activities). “Comcast has been extra aggressive than another media firm in shutting down primary cable networks over time,” says Scott Robson, senior analysis analyst at S&P International Market Intelligence. It’s not shocking the corporate is spinning off the cable networks, which “are extra weak for future declines than the published networks as a result of contraction of the pay-TV universe,” he says.
SpinCo can be a defensive transfer, aimed toward preserving the NBC broadcast community and the Peacock streaming hub aside from the downward-sloping cable TV enterprise. The “new” NBCU will comprise NBC and stations, Peacock, Bravo, NBC Information Group, NBC Sports activities, Telemundo, the Common theme parks and resorts, and NBCU’s movie and tv studios. Notably, reality-TV powerhouse Bravo shouldn’t be a passenger on the SpinCo boat, as NBCU sees it as important to the well being of Peacock, the place favorites just like the “Actual Housewives” and “Under Deck” franchises gas a substantial quantity of the streamer’s viewership.
As Cavanagh indicated on Comcast’s Oct. 31 earnings name, offloading the cable nets is designed to spice up the core firm’s total development profile (and, by extension, its market valuation). The cable spinoff “ought to be constructive for Comcast shareholders,” Raymond James analyst Frank Louthan wrote in a analysis notice final week. SpinCo’s relative valuation “might be decrease than the place the guardian is presently buying and selling, despite the fact that it’s possible a money cow for a number of years.”
Separating from the NBCU mothership will introduce new challenges. SpinCo is angling to get higher scale by way of potential rollups. Nonetheless, as Louthan notes, the cable group will expertise “dis-synergies” within the close to time period. As a stand-alone enterprise, it can have extra restricted pricing energy in asking for bump-ups in carriage charges. There are additionally questions on, for instance, how MSNBC will disconnect from NBC Information and what’s going to occur to NBCU’s built-in ad-sales crew.
Whether or not SpinCo finally ends up shopping for different distressed media belongings or opting to promote the cable networks (as a complete or individually), Comcast’s formation of a separate cable-network firm indicators extra transformative M&A for the roiled pay-TV sector.
After the Paramount cope with Skydance, “Comcast is aware of that there are folks and teams which might be attracted to those sorts of leisure belongings,” says Gutman. “For the broader media house, it tells you that these corporations will start setting themselves up for consolidation over the following few years.”
