Two weeks after Comcast officially became the first major U.S. media company to spin off its declining linear cable networks, equity analyst Craig Moffett sent a note to investors outlining what comes next.
For starters, the freshly coined spinoff, called “SpinCo,” will very likely be involved in some kind of consolidation-oriented dealmaking, but that won’t come until at least 2026, after certain tax liability thresholds associated with spinning off such assets are cleared.
Moffett also delved into what kind of valuation SpinCo investors might expect. And that’s where things get tricky: the NBCUniversal channels have experienced what the analyst described as “catastrophic” ratings declines.
“A collection of networks with this viewership profile will have little negotiating leverage, not much of a story to tell advertisers, and nothing indispensable to offer streaming services,” Moffett wrote.
The associated revenue declines for SpinCo make business as usual “unsustainable” for SpinCo, meaning consolidation of some kind is inevitable, he added.
Spin to Win
Comcast could have entered into some kind of M&A arrangement for its cable channels without spinning them off. But choosing the spinoff model will ultimately ease consolidation.
“The spin obviously makes dealmaking more likely,” Moffett said. “That’s in part because it makes dealmaking easier. As a publicly traded company, SpinCo will have a market-derived valuation, making it much easier to arrive at mutually agreeable exchange ratios…”
So who might serve as consolidation partners for SpinCo?
Moffett noted that revenue for Warner Bros. Discovery’s cable networks is set to drop by 13% in 2024 vs. 2022, while AMC Networks channels will see a sales decline by more than 20% over that same span. Fox’s mix of news and sports, meanwhile, offers resistance to the erosion, with revenue expected to grow by 6%.
“Given the backdrop, it is clear further consolidation is needed,” the analyst wrote.
Also in his report, titled “Comcast: Separation Anxiety,” Moffett outlines just what is “going” with SpinCo and what is staying at Comcast/NBCU with what he calls “RemainCo.” (This nomenclature got a little confusing in the immediate aftermath of the SpinCo announcement.)
“The spin will assemble cable networks MSNBC, USA, CNBC, SyFy, E!, Oxygen and Golf Channel, plus forgotten stepchildren Fandango and Rotten Tomatoes (and afterthoughts GolfNow and SportsEngine),” he explained.
“Notably left behind,” in addition to Bravo, Moffett added, “will be Peacock, the NBC Network and its affiliate stations, NBC Sports, Telemundo, Universal and its sister studios, and Universal Theme Parks.”