Behind Comcast’s big TV deal: a bleak picture for once mighty cable industry

As someone who has spent countless hours glued to the screen, flipping through channels and streaming shows, I can’t help but feel a sense of nostalgia mixed with a dash of intrigue as I read about Comcast’s decision to spin off its cable networks into a separate company.

14 years ago, when Comcast acquired NBC and Universal Studios, USA Network, Bravo, and CNBC were seen as hidden gems among its sister cable channels.

USA Network prospered with its “Blue Skies” approach to programming: cheerful and lively TV shows filled with optimistic vibes and brightness reminiscent of real daylight. These cable channels represented the equivalent of blue skies for NBCUniversal, consistently accounting for 75% of the company’s earnings. In 2012, these cable networks generated an impressive $3.3 billion in cash flow.

Times have changed.

This week, Comcast has revealed their intention to keep only one cable channel and transform the rest into an independent, publicly traded company, which is expected to be fully formed within the next year.

Craig Moffett, the analyst, stated during an interview on Wednesday that the cable television network industry is no longer relevant. He likened it to Comcast discarding a burden, which it indeed appears to be doing.

Currently, Comcast’s cable channels continue to be profitable, bringing in approximately $7 billion annually. However, by examining the properties that the Philadelphia media conglomerate is retaining, it becomes evident that the company’s leaders are strategically choosing winners and losers in a rapidly evolving media environment.

Comcast will continue to own NBC’s broadcast network, encompassing its renowned NBC News and NBC Sports divisions, plus the highly productive Universal film and television studios based in Los Angeles, Universal Studios theme parks, local TV stations like KNBC-TV in Los Angeles, and their streaming platform Peacock, currently boasting 36 million subscribers.

The lone cable outlet set to remain within NBCUniversal is Bravo, which has a bold brand, cultural cachet and the “Real Housewives” franchises. Company executives reviewed data that showed NBC and Bravo shows had strong viewership on Peacock, insiders said.

The new independent business will consist mainly of our remaining cable networks such as MSNBC, CNBC, USA Network, Oxygen, Syfy, E!, and Golf Channel, in addition to our digital platforms like Rotten Tomatoes, Fandango, and SportsEngine.

Comcast’s latest action is one of the clearest indications yet that traditional Hollywood companies are feeling uneasy. For years, cable networks have served as a substantial financial backbone due to the enormous sums generated from cable distribution fees. These fees often compensated for the losses incurred when expensive movies bombed at the box office or during tough advertising periods.

As a follower, I’ve noticed that the trend of canceling traditional cable subscriptions, often referred to as cord-cutting, has caused quite a stir in the television industry. Channels that used to be staples for couch-potato viewing are now finding themselves in danger of extinction.

Industry leaders quietly concede that they unwittingly hastened the decline by making cable channels less enticing – filled with repetitive sitcom re-runs, outdated films, and prolonged advertisement intervals. This move paved the way for the surge in popularity of on-demand streaming platforms.

As a film enthusiast, I’ve noticed a significant shift in the way people consume movies and TV shows. More and more viewers are ditching traditional pay-TV services and opting for streaming platforms that provide an ad-free or less-interrupted viewing experience at lower subscription costs. In fact, over the past six months alone, approximately 4 million households have made this switch, as reported by MoffettNathanson.

That’s a 30% decline since 2012, when there were more than 100 million pay-TV homes in the U.S.

Consumers too, have the convenience of terminating their streaming subscriptions simply by clicking a button – eliminating the need for negotiations with a customer service agent over the phone at a traditional pay-TV company’s call center.

Over the past four years, the impact has been significant. Numerous employees from various entertainment firms have faced job losses, often in repeated rounds of reorganization that seem relentless. Conventional media outlets have found it challenging to boost their falling share values.

In August, Warner Bros. Discovery recorded a write-off of approximately $9 billion on the estimated worth of their basic cable collection, comprising networks like CNN, TBS, TNT, and Cartoon Network. Around the same time, Paramount Global also reported a $6 billion value reduction for their cable channels, which encompasses MTV, Nickelodeon, VH-1, and Comedy Central.

Pay-TV channel interruptions are happening more frequently now. Recently, the trailblazing satellite TV provider, DirecTV, declared their intent to acquire rival Dish Networks for approximately $1 two months ago. This potential merger is predicted to draw attention from regulatory bodies.

More separations and roll-ups may be coming.

David Zaslav, CEO of Warner Bros. Discovery, has made it clear that he’s open to negotiations or transactions, as President-elect Donald Trump prepares for his inauguration. Zaslav’s company is eager to reduce the debt they took on two years ago when Discovery merged with WarnerMedia, a move that alleviated AT&T from its entertainment-related troubles.

seven years ago, Netflix started gaining popularity among younger viewers, setting in motion a series of events that would eventually challenge Comcast. This shift also coincided with Rupert Murdoch’s decision to sell a significant portion of 21st Century Fox to The Walt Disney Company for an estimated $71 billion, a move some investors and analysts consider overvalued given his advanced age (93 years old).

After that, Disney has started to downplay the importance of cable broadcasting, and they are planning to release ESPN directly to consumers next year. This action, which is expected by many in the field, could signal a significant shift or turning point in the cable network industry.

As a devoted cinema enthusiast, I’ve noticed that Comcast is ramping up the competition within the cable industry with the thriving success of Peacock. This triumph has made the traditional pay-TV model, which bundles numerous cable networks, a significantly tougher proposition moving forward.

Comcast leaders clarify that they won’t completely abandon their cable channel enterprise. Instead, they plan to leverage the new company’s resources for potential acquisitions of more channels or other assets to expand its size and scope.

As I pen this message to you all, I’m thrilled to share that we, as a company, are expecting a substantial influx of cash, boasting a robust financial foundation, and the agility to seize growth prospects, whether they sprout from within our current setup or through strategic acquisitions.

The as-yet unnamed offshoot company will still be under the leadership of Brian Roberts, chairman of Comcast.

Mark Lazarus is moving on from his role as chair at NBCUniversal Media Group to take up the position of CEO in a newly established company.

Comcast shareholders will receive stock in the new company in tax-free transactions.

According to Moffett, the cable channel company may encounter significant obstacles in holding onto their spots within the pay-TV and advertising industries.

Moffett commented that the spinoff is positive for investors, but it doesn’t guarantee success. He points out that we’ve witnessed a similar scenario with Viacom and CBS where splitting the broadcast network from the cable channels might leave the cable channels in a precarious position.

Back in 2006, the influential media tycoon, Sumner Redstone, decided to divide his sprawling media conglomerate. This empire encompassed various cable channels and the iconic Paramount film studio. In the spirit of moving forward, CBS continued its journey with its broadcast network, television production studio, Showtime, and a thriving book publishing house.

Approximately five years ago, Shari, Redstone’s daughter, brought the company back together under her leadership. More recently, in July, she opted to sell the entire enterprise, now known as Paramount Global, to the Ellison family. This sale is currently subject to a regulatory review.

Experts like Moffett and others suggest that the newly independent company might find it challenging to preserve the scale of distribution fees Comcast managed to secure from TV operators. This was partially due to the strength of NBC and its popular show, “Sunday Night Football,” giving them an advantage in negotiations.

Certain experts are pondering if Comcast might be planning to sell off its cable networks to another corporation or a private investment group.

“It looks like this is set up for [another] transaction,” Moffett said of the Comcast spin.

It appears that Wall Street showed approval for the spin-off announcement, as Comcast’s shares increased by 1.6% on Wednesday, closing at $42.99.

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2024-11-21 05:32