Weeks after floating a huge trial balloon, Comcast followed through this morning, announcing plans to spin off most of its linear cable networks into a separate company, including such stalwarts as CNBC, MSNBC, USA Network and SyFy.
It’s the first tangible action among media executives who exulted in the days after the election about a more relaxed regulatory and M&A regime under the imminent Trump Administration. More importantly, the Comcast announcement likely will set off other spinoffs, mergers, and other deal-making as traditional Hollywood continues to undergo a wrenching transformation to better meet the media and entertainment future.
The resulting SpinCo, as it’s being called for now, would create a company with a more focused makeup, and really crummy long-term prospects, given the continued cord-cutting that has sent cable subscriptions plummeting. It also may become the fulcrum for a roll-up of other cable networks.
Even CNBC’s own media reporter, Julia Boorstin, noted, “the smaller company can be more acquisitive” in dealmaking with other media companies that are also seeking to offload their cable offerings. The larger Comcast, she and others suggested, couldn’t afford to do such a roll-up because of the negative impacts on its share price, a concern the smaller company wouldn’t face.
Boorstin also mentioned analyst speculation that the spinoff may lead to other shifts in Comcast’s remaining structure, possibly including the rest of the NBCUniversal entertainment operations as well as its Universal theme parks.
Macquarie senior media-tech analyst Tim Nollen wrote after the trial balloon that a cable spinoff probably helps Comcast share prices, clearing out an underperforming unit that is dragging on results. But he questioned whether investors would invest in in a pure-play SpinCo in a troubled, declining sector without the cross-platform synergies possible as part of Comcast.
Wall Street investors are already betting on the spinoff’s potential impacts on other media companies too.
Warner Bros. Discovery shares jumped 5 percent in early trading after the news broke. Paramount Global, already amid a restructuring ahead of its takeover by David Ellison’s Skydance Entertainment, jumped a little more than 1 percent.
Disney, already up 17 percent since election day, and sector champion Netflix, up 15 percent over the same period, also saw their shares rise slightly. Expect at least the three traditional Hollywood studios to consider whether they too need their own spinoff or perhaps a deal with Comcast’s SpinCo.
Disney is already planning to launch a standalone subscription streaming service featuring all of ESPN next year that may be a precursor to a spinoff of the sports giant. It’s also been sunsetting lesser cable networks in the year since signing a ground-breaking carriage deal with Charter that makes streaming service Disney+ available free to customers with Charter’s most popular tier.
In a lengthy analysis posted a few weeks ago, MoffettNathanson senior analyst Robert Fishman suggested that media companies need a handful of key assets to thrive in the looming post-Peak TV, post-Streaming Wars era: “We see these assets as: a scaled streaming service (both in the U.S. and globally), a free AVOD platform, top-tier sports rights, a U.S. broadcast network, and film and television studios.”
Pointedly not among those assets: traditional linear cable networks.
The nets are mired on the cable box, their content largely also available on direct-to-consumer streaming services such as Peacock, which Comcast is keeping. The cable nets’ revenue models are built on advertising and carriage fees, both declining alongside those shrinking audiences. And cable distributors, including Comcast, are more focused on higher-growth broadband and wireless opportunities.
Fishman’s top candidate for a tie-up would merge Fox and WBD. Fox has a broadcast network, strong sports rights including the NFL, and the hugely popular Tubi ad-supported free streaming service. WBD has major film and TV production studios, and streaming services led by Max that collectively have 110 million global subscribers.
That merger idea doesn’t suggest what might happen to the two companies’ all-news linear channels, Fox News and CNN, or other notable cable holdings, such as Discovery Networks. Fox News has been thumping both CNN and MSNBC in ratings since election day, though CNN’s CEO Mark Thompson has been focusing on shifting CNN to an online-first operation less tied to cable.
Comcast executives said they expect their cable spinoff to be completed within a year, and did not anticipate regulatory roadblocks. Less clear is how the company manages to extricate its cable operations from the units Comcast plans to retain. For instance, how will NBC News be separated from CNBC and MSNBC operations? And ad sales may also face some complicated disentangling.
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