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Comcast Shares of NBCUniversal rose slightly on Wednesday after the company announced plans to spin off all NBCUniversal cable networks except Bravo into a separate publicly traded entity.
Investors’ initial shrug at the proposed deal underscored the uncertainty surrounding the move.
Comcast’s hope is that by shedding its declining assets, the company’s stock price will rise. Cable networks are still profitable, but they are losing subscribers and revenue every year as Americans cancel traditional pay-TV streaming services. This could be a pillar for Comcast’s stock price. Wall Street generally doesn’t like assets that see declining revenue and profits.
Still, there are many uncertainties surrounding the spinoff. It’s unclear whether Comcast investors will care that much. NBCUniversal’s relatively small cable network assets generated about $7 billion in revenue in the 12 months ended Sept. 30, according to a Comcast news release. By comparison, Comcast’s other companies have revenue of about $116 billion.
It’s unclear whether the spinoff will thrive as a publicly traded entity. If Comcast is abandoning its cable network because Wall Street doesn’t like it, why would shareholders want a company with declining assets?
There is a reason disney Decided not to divest its cable TV assets. The company considered this and ultimately decided that the revenue loss from spinning the profitable network would outweigh any potential multiple expansion from spinning. Still, Disney’s cable network, which includes FX and the Disney Channel, is more integrated with its streaming platform than NBCUniversal’s cable network is with its subscription streaming service, Peacock.
The new company, tentatively called “SpinCo,” will generate cash and can pay substantial dividends to shareholders looking to invest their declining cash assets. But this is typically more of a private equity strategy. This may be where cable networks end up — private ownership willing to extract cash from them.
It’s also possible that some cable networks will find a new footing outside of NBCUniversal ownership. SpinCo’s future chief executive, Mark Lazarus, may be able to strike new licensing deals with other streaming services, since the cable TV assets are no longer purely a marketing and content distribution vehicle for Peacock.
Profits from the spinoffs could be reinvested in businesses including CNBC and MSNBC, rather than being diverted to Peacock and NBCUniversal’s theme parks.
Another possible avenue for a spin-off is as an aggregation entity for other cable networks. Comcast intends to structure the spinoff with low debt. Maybe the company can take on some Warner Bros. Discovery Debt and its cable television network. The same can be said Paramount Worldwide.
greater motivation
With so many unknowns, Comcast likely won’t do it because it’s convinced this spin will be a big hit for investors. Instead, Comcast’s motivation may be a signal to the media industry that it’s time to enter a new phase.
“The revenue from these businesses simply isn’t enough to cover costs,” Kevin Mayer, co-chief executive of Candle Media and a former Disney executive, said in an interview. “Consolidation has to happen now. That’s Econ 101. “
This is the view expressed by Warner Bros. Discovery CEO David Zaslav at the company’s press conference. earnings call earlier this month.
“The industry really needs meaningful consolidation,” Zaslav said. “If the best content is going to win, there needs to be some consolidation to make these businesses stronger and have a better consumer experience.”
In other words, even if the spinoff struggles as a public company and Comcast doesn’t achieve any multiple expansion, it might be worth it just to signal to the media world that it’s time for a change. In the long run, maybe trying something is better than trying nothing at all.
One more thing: If Comcast wants to try a big merger in the Donald Trump administration, like buying American Cable Charter Or other telcos, ditching MSNBC might not be a bad idea. The last time Trump was president, his Justice Department blocked AT&T’s acquisition of Time Warner — reportedly because of Trump Not a fan of CNN.
Comcast shares closed up 1.5% on Wednesday.
Revealed: Comcast-owned NBCUniversal is the parent company of CNBC.
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