Comcast’s plan for network spin-off, Peacock partnership under control

• Comcast’s Mike Cavanagh said the company will look at dropping cable networks.
• The company could also look to partner Peacock with a rival streaming service.
• Wall Street analysts shared their thoughts on these potential moves and why they might not make sense.

Comcast said this week that it may part ways with cable networks and marry its streaming service. Several media analysts worry that these moves could only end in heartache.

Comcast Chairman Mike Cavanagh on Thursday floated the idea of ​​spinning off cable networks like CNBC and MSNBC into a new company while keeping NBC. If this sounds familiar, it’s because rival Disney considered a similar move last summer — by selling its broadcast network, ABC — before returning later.

Cavanagh also said that Comcast “would consider streaming partnerships, despite their complexity” — even after reporting that morning that its streaming service, Peacock, had added an impressive 3 million subscribers in the most recent quarter.

The comments come after Bank of America media analyst Jessica Reif Ehrlich opined over the summer that fellow firm Warner Bros. Discovery should find a streaming partner or is considering splitting his businessgiven the pay TV business is seriously challenged.

Why Wall Street isn’t sold on a network spinoff

At first, Wall Street appeared to be celebrating Comcast’s potential strategic shift, as its shares rose 6% in early trading after Cavanagh’s comments and his strong earnings report.

However, shares lost much of those gains in the hours before ending the day up 2.4%. Investors may want Comcast to exit the challenging media business altogether.

Several industry analysts said Comcast could boost its valuation by divorcing its declining cable networks as it would help highlight its thriving streaming business.

“We think a spin would help isolate the value of its growth areas,” UBS media analyst John Hodulik wrote in an Oct. 31 note.

MoffettNathanson’s Craig Moffett agreed, telling Business Insider via email that “it would be a welcome development to exit an albatross business and leave behind a cleaner, simpler growth story.”

“Investors have longed for this exact thing, or at least something close to it, for years,” Moffett wrote in a note to clients.

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While this move may make sense on paper, it could prove difficult in practice.

There’s an obvious problem with such a spin-off, as Business Insider’s Peter Kafka noted: Who would want to buy these less desirable assetsat least at a price Comcast could afford?

“The demise of the US cable networks, which include USA, CNBC and E!, without Peacock or broadcast network NBC would be strange,” wrote Michael Hodel, media analyst at Morningstar. “Cable networks probably have little value in themselves. A spin-off should be part of a larger strategic move, such as a merger with another firm.”

Macquarie’s Tim Nollen agreed, writing Friday morning that “we question how valuable stand-alone cable networks would be without ties to NBCU’s studio and streaming capability and without advertising ties.”

Rich Greenfield of Lightshed Partners went further, reasoning in its note to clients that there is no logical partner there. Starz is small compared to its peers, and Greenfield said it’s “certainly not strong enough to protect a weak portfolio of basic cable networks.”

And while the combination with WBD’s TV networks could result in significant cost savings, Greenfield suspects that David Zaslav and company actually have the upper hand on Comcast. While many thought WBD would be toast without the NBA, Greenfield believes the company might come out ahead saving money while maintaining the transport charges of their networks.

“There would be no urgency for such a combination,” Greenfield wrote. “If we were Zaslav, you’d wait for NBCU to suffer and be opportunistic about rushing into a merger to help Comcast.”

The Peacock Partnership Puzzle

The Comcast streamer has made steady progress but can’t really compete with its larger rivals, analysts said.

“Even though Peacock has enjoyed very consistent growth over the past few years, it’s still very clearly under the scale,” Brandon Katz, senior entertainment industry strategist at Parrot Analytics, said in an interview. “It doesn’t have the penetration to make up for what have been back-to-back years of very significant losses.”

Joining forces with other subscale streamers like Max and Paramount+ may seem like a sound strategy, but Greenfield explained that the logistics would be tough.

Peacock only operates in the US, while Max and Paramount+ have global aspirations. Comcast could continue to license Peacock’s content overseas, although this may not be effective.

Another concern would be subscriber cannibalization. Greenfield estimated that a substantial number of Max and Paramount+ customers already have Peacock. A combined service would cost more, although it might not compensate for the overlap from subsequent cancellations.

And then there’s the question of whether Peacock will absorb Max or Paramount+ or vice versa. One of the biggest benefits of building a direct-to-consumer business is owning the customer relationship, so it’s not clear which media giant would sacrifice that at this point.

Even so, Katz said a Peacock-Max combination could be powerful, given that the two services would amass a formidable share of demand on the platform, according to Parrot Analytics.

But a Paramount+ tie-up could prove to be a safer option given that its ownership structure looks more settled now than the Ellisons support him.

Any streaming partner would require Comcast to send a bunch of logistics, though this might be the best option.

“Once you’ve found the partnership you like, how do you most effectively distribute it to consumers and at what prices?” Katz said. “There are a lot of unknowns, but a very tempting possibility for the industry.”