Note: This story, originally published Nov. 5, was updated on Nov. 20 to reflect Comcast’s formal plans to spin off its cable networks.
Comcast is cutting the cord on its cable network portfolio – a move that gets its most-distressed assets off its books and could spark a new wave of consolidation in the fast-declining linear TV business.
The tax-free spinoff into a standalone, publicly traded company will include MSNBC, CNBC, USA, Oxygen, E!, Syfy and Golf Channel, as well as digital assets Fandango, Rotten Tomatoes, Golf Now and Sports Engine. Meanwhile, Bravo, which is known for reality TV series such as “The Real Housewives,” will stay with Comcast, along with Peacock, the NBC broadcast network and Telemundo.
The spun-off entity could serve as a potential repository for troubled cable assets from other companies, including Warner Bros. Discovery and Paramount Global, analysts and industry executives told TheWrap.
“Comcast obviously isn’t alone here. You’re going to see others follow,” former Comcast Cable president and CNBC founder Tom Rogers said.
The move, which is expected to take a year to complete, comes as Paramount and WBD took a combined $15 billion in write-downs earlier this year related to the value of their linear networks and softness in the advertising market, while Disney just recorded a $584 million write-down of its entertainment linear networks during its fourth quarter of 2024. And Comcast is likely to join them soon in writing down the value of its cable assets, analysts told TheWrap.
In its third quarter of 2024, Comcast shed 365,000 pay TV subscribers for a total of 12.8 million. Video revenue fell 6.2% year over year to $6.7 billion. Comcast’s media segment reported $650 million in adjusted EBITDA during the third quarter, down 10.1% year over year, and $8.23 billion in revenue, up 36.5% year over year. Excluding the impact of the Paris Olympics, the segment posted $6.3 billion in revenue, up 4.9% year over year. The cable network portfolio generated an estimated $7 billion in revenue for the 12-month period ending Sept. 30.
“SpinCo,” which will be led by NBCU’s Mark Lazarus and Anand Kini, is expected to reach 70 million U.S. households. The venture will have a dual class share structure that will see Comcast chairman and CEO Brian Roberts hold a one-third voting stake, though he will not be on the spun-off entity’s board, a knowledgeable insider previously told TheWrap.
“This transaction positions both SpinCo and NBCUniversal to play offense in a changing media landscape,” Comcast president Mike Cavanagh said Wednesday. “Taken together, the entirety of NBCUniversal will be on a new growth trajectory, fueled by our world-class content, technology, IP, properties and talent – all working in concert with each other as an integrated media company.”
After Comcast initially teased its plans to potentially spin off its cable assets, TheWrap spoke with experts and analysts about the likeliest outcomes from this new venture.
A roll-up vehicle
Comcast could combine its troubled TV assets with those of other companies through a tax-friendly merger structure known as a Reverse Morris Trust.
“Typically, when we see assets in secular decline, it is very common for them to start getting rolled up by the remaining companies competing in the business to take costs out and to realize cost synergies, which could be significant, and increase cash flow as a result,” Moody’s Ratings senior vice president Neil Begley told TheWrap. “They usually do that with more leverage and typically private equity participants are pretty aggressive and participate in that.”
A spinoff of the assets could “fuel much needed cable network industry consolidation without distracting investors from the growthier portions of Comcast’s business,” Pivotal Research analyst Jeff Wlodarczak told TheWrap.
“That spun entity could be an acquirer or could sell itself, but M&A is much needed as it creates synergies and provides more scale if they ever want to go direct-to-consumer to compete against the streamers and the 800-pound gorilla Netflix,” Wlodarczak said.
Slicing the TV networks off from the rest of the company would allow Comcast to better highlight the growth in its internet service provider business, eMarketer senior analyst Ross Benes added. “A write down on the TV networks would not be surprising,” he said.
A spinoff from NBC could be sticky
While the spinoff was welcomed by Wall Street, it isn’t without challenges, such as the programming overlap with Peacock and separating MSNBC from NBC, which share resources. In order to ensure a seamless transition to operating as an independent business, SpinCo is expected to enter into a “transition services” agreement with NBCU, Comcast said Wednesday.
But Bloomberg Intelligence analyst Geetha Ranganathan warned that separating the cable portfolio from NBC could “severely hamstring” the network’s ability to maintain its over $5 in monthly affiliate fees.
Dish and DirecTV, which are in the process of merging, will represent about 25% of the multichannel video industry, Lightshed Partners analyst Rich Greenfield noted in a blog post. “If they push back on the affiliate fees of a standalone NBCU cable network entity, it is hard to see how a spin-out is viable unless there is significant cash layered onto the spin to keep the entity afloat,” he said.
If Comcast chose to sell off the new entity, spinning off the entertainment networks by themselves could prove difficult because they “don’t have natural buyers,” Rogers said.
“Anybody who is in that business who would have any degree of cost synergy I don’t think is of a mind to double down and purchase more declining assets at this point,” Rogers added. “The premium that somebody would probably be willing to pay if CNBC and MSNBC were part of the spun off bundle makes that far more interesting than just spinning off the entertainment channels by themselves.”
As for the impact on Peacock, Benes believes that the relationship with NBCU’s broader programming shouldn’t change if Comcast still owns the TV networks — and Bravo, provider of all the popular “Real Housewives” shows to Peacock, is sticking with NBCU and not moving to the spun-off company — but he warned there would be a “revisioning of how to provide Peacock programming” if they’re sold. Comcast has plenty of free cash flow from its other divisions to support Peacock’s profitability efforts, Wlodarczak added, and it could look to partner with other streamers — which Cavanagh has said Comcast is open to.
The most likely buyers
If Comcast opted to sell the spun-off company, private equity would be the most-logical buyers, given they would have an easier time hiding future financial losses, Benes said.
Another possible option would be merging Comcast’s cable networks with WBD’s networks, which could result in large cost savings. But doing so would add more linear exposure to WBD.
And embattled WBD CEO David Zaslav can afford to wait to see if WBD’s cable networks can sustain current subscriber fees with their sports portfolio, Greenfield said.
“If we were in Zaslav’s shoes, you would wait for NBCU to suffer and be opportunistic versus rushing into a merger to help Comcast,” Greenfield added. “To date, WBD has not been enthusiastic about a breakup of the company, even if they could withstand debtholder challenges to a break-up. And if WBD cannot maintain sub fees after losing the NBA, the prospect of merging with NBCU cable networks creates an even more undesirable company heading toward bankruptcy.”
Starz CEO Jeff Hirsch also is reportedly interested in acquiring cable networks to bulk up following the service’s split from Lionsgate this year. A Starz spokesperson declined to comment. But that wouldn’t solve the carriage challenges the cable networks would face without NBC and NBC Sports. “Starz is certainly not strong enough to protect a weak basic cable network portfolio,” Greenfield said.
If the spun-off entity is used as a roll-up vehicle to acquire other distressed linear TV assets, analysts and experts believe that WBD and Paramount would be likely contributors.
“At some point you reach antitrust issues as to how big that bundle of channels can be and the leverage that it would have relative to cable customers going forward, and the outcome of that depends on who’s running the [U.S.] antitrust department,” Rogers said.
Linear decline deepens
The pay TV industry lost nearly 30 million users between 2015 and 2023 and could lose another 6 million by the end of 2024 and fall below 50 million by 2027-28, Bloomberg Intelligence has estimated. The firm noted that virtual TV providers like YouTube TV and Hulu with Live TV helped reclaim 40% of traditional cord-cutters, with 18.9 million subscribers possible by year end, implying a total universe of 68.8 million.
“There was a view at some point that cord cutting was going to level off, but it isn’t,” Rogers said. “It’s accelerating and that obviously impairs asset value. All these companies are going to look at their lesser linear channels as a drag on earnings … So there’s going to be sacrifices and spinoffs of those channels.”
Rogers noted that as part of its deal with Charter, Disney sacrificed some of its lower-performing channels including Freeform and Disney Junior. Despite previously calling the linear TV business “non-core” to the company, CEO Bob Iger pushed back against the possibility of linear asset sales earlier this year.
Fox Corp.’s executive chairman and CEO Lachlan Murdoch previously shot down the idea of segmenting off its cable networks.
“From my perspective, I don’t see how we could ever do that,” Murdoch said. “Breaking apart the business would be very difficult, both from a cost point of view and promotional point of view.” He noted how Fox derives a “tremendous amount of synergy across all of our platforms,” which include Fox News, the entertainment arm of the company, Fox Sports and Tubi. The potential Comcast spinoff plan does not affect Fox “in any way at all,” he said.
If Comcast can’t pull off a spinoff or other companies don’t opt to roll up their linear networks into SpinCo, the other option would be to shut down their underperforming cable networks.
“If you have a lot of networks and the viewership declines so much you can’t program it at a profit, it makes sense to change the type of programming to less expensive programming,” Begley said. “At some point even after cutting costs, if you can’t show a viable product and distributors don’t want to pay you, you’re going to have to shut them down.”
