As the legacy pay TV industry continues to undergo changes and experience its own struggles, including splintering viewership amid the shift to streaming, cable operator Comcast is looking to stay ahead of the game. Executives disclosed on Thursday that the company is exploring spinning out its cable TV networks portfolio into a standalone entity.
The comments came during Comcast’s Q3 earnings, where the operator reported revenue growth for its media segment.
On the call, Comcast President Mike Cavanagh said the company is feeling effects of the transitioning video business and has been studying the best path forward.
“We are now exploring whether creating a new, well capitalized company owned by our shareholders and comprised of our strong portfolio of cable networks would position them to take advantage of opportunities in the changing media landscape and create value for our shareholders,” Cavanagh said, adding the company isn’t ready to talk about specifics but will come back once it’s reached firm conclusions.
Note, a potential standalone entity would only consist of Comcast’s portfolio of cable networks – such as Bravo, CNBC, MSNBC, SyFy, and USA Network - not NBC broadcast or the Peacock streaming platform.
And while exploring, the executive made clear that there is much to investigate before deciding on a move.
“There are a lot of questions to which we don't have answers,” Cavanagh said. “I think the idea of playing some offense, when you combine the balance sheet strength that we have, the assets we have, and the management team we have, there may be some smart things to do, and we want to study that.”
Other media companies in recent quarters took major write-downs on their linear networks businesses, including Paramount’s $6 billion charge for its cable TV business and Warner Bros. Discovery’s $9 billion TV networks impairment charge in Q2.
nScreenMedia Founder and Chief Analyst Colin Dixon told StreamTV Insider that it makes sense for Comcast to move declining linear assets off of the company’s books.
“There is still value there, but to maximize it, the company needs to make decisions that aren't aligned with Comcast's broader interests,” he commented. “For example, distributing flavors of the channels on FASTs could boost overall revenue, but hurts the value of Xfinity TV.”
He also believes the move “has profound implications” for the Peacock streaming service, which offers programming from networks like Bravo.
“NBCU pulled assets back from other streaming services to boost Peacock's appeal,” Dixon noted. “If those assets are handled through the spun-out company, it should offer them to the highest bidder. And that might not be Peacock. ”
Separately on the call, Cavanagh suggested that during a time of transition, it’s open to the idea of teaming up with others on streaming.
“We chose not to participate in the M&A process around Paramount in the earlier part of this year, but we would consider partnerships in streaming despite their complexities,” said Cavanagh Thursday.
Potentially spinning out its cable networks portfolio comes as Comcast reported growth for its content and experiences unit, driven by studios and media – the latter which includes cable and broadcast networks and the Peacock streaming platform. Media revenues were bolstered by the Olympics, growing 36.5% yoy to $8.2 billion in Q3. Excluding the Olympics, quarterly media revenues were up 4.9% yoy to $6.2 billion. The Summer 2024 Paris broadcast drove record-high incremental Olympics revenue in the media segment of $1.9 billion. But media Adjusted EBITDA declined 10% yoy to $650 million in the period, as higher operating expenses, primarily related to sports programming costs, more than offset increased revenue.
As for streaming, Peacock added 3 million net subscribers in the quarter for a base of 36 million. Peacock revenue grew 82% yoy to $1.5 billion for Q3, including $761 million in advertising revenue. Peacock's quarterly Adjusted EBITDA losses improved to $436 million in the period.
On the Comcast operator side of the house, attention has been on building out higher-margin broadband connectivity network, as well as a mobile business – as traditional linear video losses continued. In Q3 Comcast lost 365,000 net video customers, for a total base of 12.8 million. Video revenue declined 6.2% yoy to $6.7 billion in Q3.
Comcast consolidated Q3 revenues totaled $32 billion, up 6.5% year-over-year. Consolidated Adjusted EBITDA declined 2.3% yoy to $9.7 billion. Free cash flow was $3.4 billion at the end of the quarter, down 15.5% yoy.