Deal Overview
Comcast Corp (NASDAQ: CMCSA, $43.20; Market Capitalization: $165.3 billion), a massive conglomerate that provides broadband services, operates theme parks and a media company that includes NBC and affiliated properties, is planning to spin off a large part of its NBCUniversal’s cable TV channels into a separate publicly traded company (SpinCo). The transaction will be structured as a tax-free spin to existing shareholders.
Post Spin-off, the SpinCo’s portfolio would include: A News portfolio including MSNBC – one of the most-watched cable networks industry-wide, CNBC – the leader in business and market news; leading Sports properties through USA and The Golf Channel; popular Entertainment programming on USA and E! and Oxygen – a leader in true crime coverage and a Digital business that complements the above through Golf Now, Sports Engine, Fandango, and Rotten Tomatoes.
On the other hand, Comcast (RemainCo) will continue to focus on its key growth businesses, including broadband, wireless, business services, streaming, and its theme parks, as it further refines its strategic priorities across Content & Experiences and Connectivity & Platform categories. Some of the NBCUniversal’s assets will also continue to operate under the RemainCo, including NBC – one of the major broadcast television networks in the US; Peacock – Comcast’s streaming service and Bravo – a cable television network known for its reality TV shows.
Comcast President Mike Cavanagh had earlier mentioned during its quarterly earnings that the company was exploring creating a new, well-capitalized company owned by its shareholders and comprising of a strong portfolio of cable networks.
The new entity will be led by Mark Lazarus, the current chairman of NBCUniversal’s media group. NBCUniversal’s chief financial officer, Anand Kini, will serve as the CFO and operating chief.
The spin-off is expected to be completed in roughly a year, subject to approval by Comcast’s Board of Directors, regulatory approvals, and other conditions. The company has engaged Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC as financial advisors, with Davis Polk & Wardwell LLP providing legal counsel.
Deal Rationale
NBCUniversal’s cable networks are relatively minor assets for Comcast, generating approximately $7 billion in revenue over the past 12 months ending September 30, 2024, which accounts for about 5.7% of Comcast’s total revenue. The segment has experienced a negative CAGR of 8.3% from FY18 to FY23, indicating a consistent decline and reflecting that these businesses no longer generate sufficient revenue to cover their costs.
The cable networks industry is facing declining revenues and subscriber numbers as more consumers switch to streaming services. Traditional cable networks have seen a steady drop in viewership, further exacerbated by the rise of on-demand content, which offers greater flexibility and variety compared to scheduled programming. With fewer subscribers, cable networks are generating less revenue from both subscription fees and advertising. Advertisers are increasingly shifting their budgets to digital platforms where they can target audiences more effectively. In response, Comcast launched its own streaming platform, Peacock, in 2020 to compete with Netflix, Amazon Prime, and Disney.
As per media articles, Comcast lost 0.4 million TV customers during the 3Q24. The industry overall lost roughly 4 million traditional pay TV customers in the 1H24. Additionally, MSNBC, Comcast’s news-based TV channel, has faced intense scrutiny following Donald Trump’s election victory earlier this month. Ratings for MSNBC have dropped significantly since the election, while viewership for the right-wing Fox News has remained steady.
According to media reports, divesting this segment will likely enable Comcast to better showcase its more profitable core divisions. Brian L. Roberts, Chairman and CEO of Comcast, mentioned that the spin-off will allow the company to concentrate on its core growth areas, including residential broadband, wireless services, and streaming through Peacock.
Mark Lazarus, CEO of SpinCo, is optimistic about the growth opportunities this transition will bring. He believes that as an independent company, SpinCo will be better positioned to serve its audiences and enhance shareholder returns in the dynamic media landscape. However, there are still questions about how the spun-off networks will function independently, particularly regarding their ability to secure content and distribution deals without the support of the NBCUniversal brand. According to management, SpinCo will offer a diverse and unique content portfolio that will reach around 70 million US households, making it highly appealing to investors, content creators, distributors, consumers, and potential partners. The company will benefit from significant cash flow, a strong balance sheet, and the financial flexibility to pursue growth opportunities both organically and through acquisitions. Profits for SpinCo will be reinvested into businesses such as CNBC and MSNBC, rather than being allocated to Peacock and NBCUniversal’s theme parks.
Comcast Corporation is a global media and technology company connecting customers, viewers, and guests worldwide through its services and content. The offerings include broadband, wireless, video, and voice services under the Xfinity, Comcast Business, and Sky brands. The company produces, distributes, and streams top entertainment, sports, and news through NBC, Telemundo, Universal, Peacock, and Sky. Additionally, it owns and operates Universal theme parks. The company operates through two primary businesses: Connectivity & Platforms and Content & Experiences. It presents the operations of the Connectivity & Platforms business in two reportable business segments: Residential Connectivity & Platforms and Business Services Connectivity and Content & Experiences business in three reportable business segments: Media, Studios and Theme Parks.
Residential Connectivity & Platforms
The Residential Connectivity & Platforms segment encompasses residential broadband and wireless services and video services for residential and business customers. The segment also includes Sky-branded entertainment television networks and advertising. The segment offers broadband with speeds up to 1.2 gigabits per second in the US, UK, and Italy. It also provides wireless services for handsets, tablets, and smartwatches to residential customers in the US and UK. Video services are delivered primarily through the X1 platform in the US and the Sky Q platform in the UK and Italy. Additionally, it sells advertising time through distribution agreements with domestic cable networks and on Sky-branded TV networks, digital platforms, and third parties domestically and internationally.
Business Services Connectivity
The Business Services Connectivity segment provides broadband, wireline voice, and wireless services to small, medium-sized businesses and larger enterprises in the US. The company offers broadband services that include downstream speeds up to 1.25 gigabits per second and fibre-based services that deliver speeds up to 100 gigabits per second. It has also launched small business connectivity service offerings in the UK. This segment also provides cloud-based cybersecurity services, wireless backup connectivity, advanced Wi-Fi solutions, video monitoring services and other cloud-based services.
Media
The Media segment operates as a combined television and streaming business. It includes NBCUniversal’s national and regional cable networks, the NBC and Telemundo broadcast networks, their owned local television stations, the Peacock direct-to-consumer streaming service, and international television networks such as the Sky Sports networks in the UK and Italy. Revenue is primarily generated from the sale of advertising and the distribution of television and streaming programming.
Comcast’s cable networks operate predominantly in the US, offering a diversified portfolio that includes USA Network, Syfy, E!, MSNBC, Bravo, CNBC, Oxygen, Golf Channel, Universal Kids, Universo, and CNBC World. These networks provide a wide range of content, from entertainment and news to sports and children’s programming, catering to diverse audiences nationwide.
Domestic broadcast networks include NBC, Telemundo, and Peacock, each offering diverse programming. With over 200 affiliates, NBC reaches 28% of US households, delivering national and local content such as news and sports. Telemundo, a Spanish-language network, reaches 72% of US Hispanic households through 120 affiliates and serves Puerto Rico. Peacock, a premium streaming service, features NBCUniversal originals, live sports, and local NBC streams via ad-supported and ad-free tiers.
Studios
The studios segment includes film and television studio production and distribution operations. Studio production facilities primarily include the owned studios in Los Angeles, California, and leased studios in Atlanta, Georgia, and Elstree, UK. Revenue is mainly derived from domestically and internationally licensing film and television content and distributing produced and acquired films for theatrical release worldwide. Additionally, the company generates revenue by selling physical and digital home entertainment products, producing and licensing live stage plays, and distributing third-party content.
Theme Parks
The theme parks segment offers entertainment experiences through world-renowned theme parks and resorts. Theme parks include globally renowned parks like Universal Studios in Hollywood, Orlando, Japan, and Singapore. These theme parks and resorts provide guests with thrilling rides, live shows, and interactive attractions based on popular movies and characters. Revenue is generated primarily from guest spending at theme parks, including ticket sales and in-park expenditure on food, beverages, merchandise, and consumer products business. Despite being a smaller part of Comcast’s overall business, it is one of the fastest-growing segments, driven by continuous expansion and technological advancements.
3Q24
Total revenue grew by 6.5% YoY to $32.1 billion (+1.3% vs. consensus), driven by growth of 36.5% YoY to $8.2 billion in the media segment due to higher domestic advertising and domestic distribution revenue. Studios segment revenue grew 12.2% YoY to $2.8 billion, driven by higher content licensing revenue and theatrical revenue. Business Services Connectivity revenue grew 4.5% YoY to $2.4 billion, driven by an increase in revenue from medium-sized and enterprise customers, and an increase in revenue from small business customers driven by higher average rates. Residential Connectivity & Platforms revenue declined 0.5% YoY to $17.9 billion, due to decreases in video and other revenue, offset by increases in domestic broadband, domestic wireless, international connectivity and advertising revenue. Theme Parks revenue declined 5.3% YoY to $2.3 billion, due to lower revenue at domestic theme parks, driven by lower guest attendance. Adjusted EBITDA declined 2.3% YoY to $9.7 billion (+1.4% vs. consensus), and the corresponding margin contracted ~272 bps to 30.4% due to higher operating expenses in Media and lower revenue in Theme Park. Operating income declined 9.5% YoY to $5.9 billion (-2.2% vs. consensus), and the corresponding margin contracted ~323 bps to 18.3%. Adjusted net income declined 3.3% YoY to $4.3 billion (7.5% vs. consensus), and the corresponding margin declined ~136 bps to 13.5%. Adjusted diluted earnings per share came in at $1.12 (3Q23: $1.08), beating the consensus estimates by 5.6%.
YoY to $25.4 billion due to decreased domestic advertising and other revenue. Studios revenue declined 5.2% YoY to $11.6 billion due to a decrease in content licensing revenue primarily driven by the Writers Guild and SAG work stoppages in 2023, partially offset by an increase in theatrical revenue. Adjusted EBITDA grew 3.2% YoY to $37.6 billion (-0.6% vs. consensus), and the corresponding margin improved ~93 bps to 31.0%, driven by a decline in other expenses, programming expenses and an increase in revenue. Operating income grew 66.0% YoY to $23.3 billion (-1.3% vs. consensus), and the corresponding margin improved ~761 bps to 19.2%, due to Goodwill and long-lived asset impairment charge of $8.6 billion in 3Q23. Adjusted net income grew 2.1% YoY to $16.5 billion (1.4% vs. consensus), and the corresponding margin improved ~27 bps to 13.6%. Adjusted earnings per share came in at $3.98 (FY22: $3.64), beating the consensus estimates by 1.6%.
Company Description
Comcast Corporation (Parent)
Comcast Corporation, founded in 1963 and headquartered in Philadelphia, Pennsylvania, is a global media and technology company. It provides broadband, wireless, video, and voice services under the Xfinity, Comcast Business, and Sky brands. Comcast also produces, distributes, and streams entertainment, sports, and news through NBC, Telemundo, Universal, Peacock, and Sky. Additionally, Comcast owns and operates Universal theme parks. As of December 31, 2023, Comcast employs approximately 186,000 people worldwide.
Cable Network Business (Spin-Off)
The Cable Networks business includes USA Network, CNBC, MSNBC, Oxygen, E!, SYFY, and Golf Channel. The SpinCo also includes digital assets such as Fandango, Rotten Tomatoes, GolfNow and Sports Engine.
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