The Cable TV Business Is Dying. Is It Worth Saving?

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As a long-time observer and analyst of the ever-evolving media landscape, I must say that Comcast’s potential spinoff of its cable TV channels has my attention piqued like never before. Having followed the industry for decades, I’ve seen countless changes and consolidations, but this move could potentially reshape the entire cable TV ecosystem.

Comcast Corporation began their recent financial conference call by unveiling an unexpected disclosure: The company, led by Brian Roberts, was contemplating the possibility of separating its cable TV channels into a distinct entity – a well-funded company – enabling them to capitalize on opportunities within the evolving media environment.

Was Comcast exploring the possibility? Indeed, Comcast president Mike Cavanagh confirmed they were merely starting to consider the concept, and had not yet taken any significant steps towards a final decision.

It turned out that Wall Street appeared to approve: Comcast’s stocks soared as the trading floor opened, ending the day with a 4% increase amidst a generally gloomy day for Wall Street. Interestingly, Comcast’s announcement seemed to stir excitement across the entire industry, causing Warner Bros. Discovery shares to rise as well, and Disney and Paramount inching upwards too. In fact, on a day when most stocks were falling, the media and telecom sectors managed to climb instead.

According to MoffettNathanson analyst Craig Moffett, writing on October 31st, a spinoff would be “a highly desirable move.” For quite some time now, investors have been longing for an event like this or something similar.

Why the excitement? Comcast, with its substantial involvement in cable TV and consequently experiencing a greater loss of pay-TV subscribers compared to competitors in recent times, could be a sign of things to come. This future might involve a landscape where numerous cable channels, currently seen as financial burdens by the companies that own them, can find a platform where they become the main attraction, giving them increased autonomy and flexibility to make strategic decisions.

In essence, it’s possible that a separate entity might evolve into an eclectic hub for networks that don’t quite fit elsewhere – a kind of sanctuary for channels not widely appreciated. For instance, Paramount Global manages popular cable brands such as MTV, Comedy Central, and Nickelodeon. However, its new owner, Skydance, seems to be keenly interested in the realms of streaming and broadcasting rather than cable television.

Warner Bros. Discovery boasts a robust collection of cable networks such as TBS, TNT, CNN, Food Network, HGTV, and Cartoon Network. However, due to a decrease in the value of these channels, they were forced to record an impairment charge exceeding $9 billion.

There are still cable-focused companies operating independently, doing their best to manage in this dynamic industry. These companies might find it advantageous to merge with larger corporations. For instance, AMC Networks, the owner of AMC, IFC, and BBC America, is one such independent company. Another example is A+E Networks, a joint venture between Disney and Hearst, which oversees brands like A&E, History, and Lifetime. Additionally, Hallmark Channel, owned by the greeting card giant, is also a significant player in this independent field.

It seems that only Disney, who initially considered exploring options with their linear channels last year but eventually decided against it, is not part of the picture now.

Among analysts on Wall Street, Bank of America’s Jessica Reif Ehrlich has been particularly vocal about the importance of cable consolidation. For quite some time, she has proposed this idea. In a recent analyst note dated November 1st, she expressed surprise that Comcast took the lead over Warner Bros. Discovery (WBD) in this matter, although she anticipates that a spinout could potentially serve as a catalyst for cable network consolidation within the industry – a trend she believes will ultimately emerge.

To be honest, following the disappointing Q2 earnings at Warner Bros. Discovery, I shared with The Hollywood Reporter in an interview that consolidating our cable channels could open up some fantastic chances for me as a gamer.

Reif Ehrlich stated that someone would divide their linear assets and consolidate them, while others would group them together (or ‘roll them up’). These cable networks, although part of larger companies, are not currently investment priorities or growth areas. By merging numerous cable networks, corporate expenses can be reduced, as well as duplicative advertising functions, distribution costs, and more. This consolidation could potentially yield cash.

A unified cable channel organization might offer an advantage during the growing, heated negotiations between TV service providers, as these disagreements become more contentious.

Comcast’s strategy includes certain complicating factors. One significant one revolves around CNBC and MSNBC. Unlike CNBC, which has traditionally functioned independently as its own news entity, separated from NBC News, MSNBC has relied on NBC reporting to bolster its opinion programs for a longer period of time.

If the spinoff occurs, MSNBC might have to establish its own news division, negotiate some form of agreement to keep using NBC News resources, or forgo news collection altogether and concentrate solely on opinion. (Similarly, it was reported by the Wall Street Journal that Bravo could remain under Comcast’s umbrella, attributing its success on Peacock.)

Apart from that, the agreement presents several uncertainties. How can we assess a diminishing asset such as this one? What degree of autonomy will a spinoff receive? Might such a transaction delay the inevitable demise of cable television, or is it destined to continue its rapid decline?

They are real questions, and Wall Street seems to think that Comcast will figure out the answers.

According to JPMorgan analyst Sebastiano Petti on November 1st, the review of the company’s situation is still preliminary and it’s not expected to offer updates soon. However, we believe that the company might discover means to create additional value through a spin-off, such as cost savings or increased longevity. This could potentially happen if the separated entity teams up or collaborates with other cable networks. Considering the difficulties in the PayTV industry, especially for cable networks, it’s uncertain how appealing these assets would be to investors when viewed individually.

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2024-11-01 18:58