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Comcast’s announcement that it will split into two companies, one focused on video distribution and the other on entertainment, will provide “flexibility,” said CEO Brian Roberts Monday.
Okay, flexibility to do what?
Clearly, flexibility to make deals, even if Roberts, whose clan will continue to hold controlling shares in both spinoffs plus previously spun-off Versant, said during the same news conference that the company isn’t looking to sell either part of itself.
But at a time when dealmaking is rampant in distribution and advertising (see also, Charter and Cox, Fox and Roku, Walmart and Vibe.co), this relatively straightforward spinoff could be most consequential of all, setting up the two split companies for future partnerships, purchases or other corporate constructs.
That prospect sent Comcast shares soaring 25 percent higher pre-market open, before settling back to about 7 percent. One minor anomaly: the biggest immediate beneficiary on the day’s announcement was the other biggest cable provider in the land, Charter.
Charter, which is still digesting Cox Communication from a previous deal, saw shares spike 31% Friday on a possible partnership with SpaceX, which may launch its own residential mobile service and would need access to a more traditional 5G network to better reach urban areas poorly suited for Starlink’s satellite phone and broadband service.
Comcast’s announcement Monday sent Charter shares even higher, because though the companies are best known for their traditional cable-television distribution, they don’t directly compete in the dozens of markets each one serves.
In fact, a merger between the two has long been mooted as cord-cutting dramatically thinned cable subscriber rolls. The two companies are already partners on Xumo, which is both a free, ad-supported streaming service and a tech organization powered by Comcast’s X1 next-generation streaming devices.
Getting such a deal approved wouldn’t be simple, given the phalanxes of federal, state and even local regulators that would have to sign off, though shearing off the entertainment divisions, including NBC’s broadcast operations, means the politically attentive Federal Communications Commission wouldn’t have a legal basis to review the deal.
But it’s far from the only deal out there to be done with Comcast’s parts suddenly in the market.
Does, for instance, Netflix take a look the NBCU entertainment assets after briefly closing a deal for Warner Bros. Discovery, then losing out to Paramount Skydance’s massive and desperate $111 billion bid?
The streaming giant’s shares have settled back into the mid-$70s range after running as high as $133 almost exactly a year ago, even though it avoided $PSKY’s massive prospective debt load.
But Netflix Co-CEO Ted Sarandos also said during the WBD process that the company had come to appreciate Warner’s prodigious theatrical distribution and marketing operations. It’s safe to say Donna Langley presides over a similarly impressive distribution operation at Universal Studios.
Netflix has also moved aggressively into entertainment-adjacent sectors, such as videogames and live experiences. Universal has a theme-park operation second only to Disney, punctuated by last year’s Orlando opening of the recursively names Universal Epic Universe.
The Versant deal has already stripped off most of Comcast’s fading cable networks, keeping only Bravo because of the massive fan engagement its Bravoverse of unscripted programming brings to the money-losing Peacock streaming service.
NBCU also has plenty of attractive sports rights, another area where Netflix has increasingly invested the past couple of years. That includes more NFL games, a new NBA deal and Big 10 college sports.
Less interesting will be the NBC broadcast network and the owned-and-operated local TV stations in NBCU’s portfolio, especially because they give FCC Chairman Brendan Carr an opportunity to exact more regulatory pain on Roberts and any acquirer.
All of Comcast has a market valuation of about a quarter the size of Netflix’s $311 billion, so a deal for part of the company, minus the distribution and maybe the broadcast operations, would certainly be financially sustainable.
Any such dealmaking likely will be on hold for much of the next year, while the split process continues. But more broadly, at a time of rapid consolidation and reorientation of traditional media companies toward streaming (again, that Fox-Roku deal), it’s impossible to interpret Roberts’ invocation of “flexibility” as anything other than a green light for more deals to come in a chaotic sector.