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comcast Shares posted modest gains on Wednesday after the company announced plans to spin off all of NBCUniversal’s cable networks, except Bravo, into separate publicly traded companies.
Investors’ initial shrugs at the proposed deal highlight the uncertainty of this strategy.
The hope for Comcast is that by shedding declining assets, the company’s stock price will rise. Cable networks remain profitable, but they are hemorrhaging subscribers and revenue each year as Americans cancel pay TV for traditional streaming services. That could be the deciding factor for Comcast stock. Wall Street typically doesn’t like assets with declining revenues and profits.
Still, there’s a lot of uncertainty regarding spinoffs. It’s unclear whether Comcast investors will care that much. The NBCUniversal cable network is a relatively small asset, generating approximately $7 billion in revenue for the 12 months ended Sept. 30, according to a Comcast news release. By comparison, the rest of Comcast’s divisions generate about $116 billion in revenue.
It is also unclear whether the spin-off company will grow as a listed company. If Comcast is getting rid of its cable network because Wall Street doesn’t like it, why would shareholders want a company with declining assets?
There’s a reason disney It was decided not to divide the cable assets. The company considered it and ultimately decided that the revenue lost from spinning a profitable network outweighed the potential for multiple expansions from spinning. Still, Disney’s cable networks, including FX and Disney Channel, are more integrated than NBCUniversal’s cable networks are with the company’s subscription streaming service, Peacock.
The new company, tentatively called SpinCo, could generate cash and pay a healthy dividend to shareholders looking to invest their dwindling cash assets. But it’s usually more of a private equity strategy. The ultimate destination for cable networks may be private ownership willing to collect them in order to turn them into cash.
It’s also possible that some cable networks will find new homes outside of NBCUniversal’s ownership. SpinCo CEO Mark Lazarus may be able to strike new licensing deals with other streaming services, as the cable property is not a pure marketing and content distribution tool for Peacock.
SpinCo’s profits could be reinvested into companies like CNBC and MSNBC, rather than being diverted to Peacock or NBCUniversal’s theme parks.
Another possible path for a spinoff is as a rollup entity for other cable networks. Comcast intentionally built Spinco with low debt. Perhaps the company could take on some of that. Warner Brothers Discovery Debt and its cable network. the same can be said Paramount Global.
greater motivation
With so much unknown, Comcast may not be doing something like this because it is certain that this spin would be a huge blow to investors. If anything, Comcast’s motivations may be a signal that it’s time for a new phase for the media industry.
“These businesses no longer have enough revenue to cover their costs,” Kevin Mayer, co-CEO of Candle Media and a former Disney executive, said in an interview. “We need integration now. That’s Econ 101.”
That’s the sentiment expressed by Warner Bros. Discovery CEO David Zaslav during an earnings call earlier this month.
“This industry really needs meaningful consolidation,” Zaslav said. “For the best content to win, there must be some kind of integration to power these businesses and provide a better consumer experience.”
In other words, even if SpinCo struggles as a public company and Comcast fails to make multiple expansions, it might be worth it just to send a signal to the media world that it’s time for a change. In the long run, it may be better to try something than to do nothing.
One more thing: If Comcast wants to try a big merger under Donald Trump, like buying a U.S. cable company. charter Or another carrier, it might not be a bad idea to get rid of MSNBC. The last time Trump was president, the Justice Department blocked AT&T’s acquisition of Time Warner Inc., reportedly because Trump was not a fan of CNN.
Comcast stock closed up 1.5% on Wednesday.
Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.
