Comcast To Spin Off Cable Networks As Subscribers Flee The Bundle

Brian Roberts, CEO, Comcast, speaks with Jim Cramer, on CNBC’s “Mad Money” from Philadelphia, September 6, 2018.

David A. Grogan | CNBC

Comcast is moving forward with the spinoff of its cable network channels, including CNBC, MSNBC and E!, the company said Wednesday.

The announcement comes weeks after Comcast executives said during the company’s quarterly earnings call that it was considering a split of the cable networks. Comcast President Mike Cavanagh said at the time the company was exploring creating “a new, well-capitalized company owned by our shareholders and comprised of our strong portfolio of cable networks.”

The networks being spun off also include Syfy, Golf Channel, USA and Oxygen, according to a company memo from Cavanagh. Bravo will remain part of Comcast’s NBCUniversal and will continue to fuel the company’s streaming service, Peacock.

The separation will also include digital assets such as Fandango and Rotten Tomatoes, GolfNow and Sports Engine, the memo said. Cavanagh said in October that NBCUniversal’s broadcast network NBC and Peacock would remain with Comcast.

The combined properties of the new entity generated approximately $7 billion in revenue in the 12 months ended Sept. 30, Comcast said in a news release.

The new entity will be led by Mark Lazarus, the current chairman of NBCUniversal’s media group. NBCUniversal’s chief financial officer, Anand Kini, will serve as the CFO and operating chief.

The separation is expected to take about a year.

“As a standalone company with these outstanding assets, we will be better positioned to serve our audiences and drive shareholder returns in this incredibly dynamic media environment across news, sports and entertainment,” Lazarus said in the release. “We see a real opportunity to invest and build additional scale and I’m excited about the growth opportunities this transition will unlock. Our financial strength will also provide capacity for an attractive capital return policy while allowing for investment in the growth of these businesses.”

Comcast Chairman and CEO Brian Roberts will maintain economic and voting interests in the company, being referred to for now as “SpinCo,” but will not serve as an officer or on the board of directors.

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Cutting the cord

Cord cutting continues to impact the traditional TV business. Comcast lost 365,000 TV customers during the third quarter, it said last month. The industry overall lost roughly 4 million traditional pay TV customers in the first six months of the year, according to analyst firm MoffettNathanson.

Still, traditional TV networks remain cash cows for media businesses. Comcast reported in October that third-quarter revenue for its media segment, which is mainly comprised of the TV networks, was up nearly 37% to $8.23 billion, largely due to the Olympics. Without the Summer Games, revenue was up almost 5%.

Disney executives recently said they don’t plan to separate their TV networks anytime soon, noting the complexities of doing so, and saying the costs would outweigh the benefits. And Warner Bros. Discovery CEO David Zaslav called the business “extraordinarily important” to the company, despite a $9.1 billion write down of its TV networks.

By separating Comcast’s cable networks from NBCUniversal, it will give them the optionality to merge with other networks, or potentially be sold to private equity, CNBC previously reported. It will also leave room for further investment in the networks, particularly the entertainment division, one of the people said.

The company had been recently integrating its news businesses — CNBC, MSNBC and NBC News. That will now be undone, according to a person familiar.

Comcast executives will take the next year to determine whether licensing agreements need to be put in place between NBC and the new entity, and whether MSNBC and CNBC will continue to work with NBC News in any capacity, according to two people familiar with the matter.

Formal discussions have yet to take place between CNBC, MSNBC and NBC News, one of the people said.

NBCUniversal’s wide breadth of sports featured on USA and The Golf Channel, which includes the English Premier League, NASCAR, WWE, the Olympics, college basketball, PGA Tour and other content, will still be featured on the cable networks, the release said. While NBC’s broadcast network and Peacock will still carry sports content, it’s expected for it to be shared with the spun-off networks in the future, the person said.

Padding Peacock

Cable network Bravo, known for its “Housewives” franchises and other reality TV, will remain with NBCUniversal because its content is a big part of Peacock, the people said.

Separating the other networks will be simpler as much less of the content is integral to Peacock, one of the people said, noting that only 2% of the viewing on the streamer is of content from the networks that will be separated.

In addition to Bravo, Peacock’s platform is heavily padded by Universal’s films, and entertainment and sports from the NBC broadcast network.

Peacock has gotten a big boost from NBC’s sports programming, particularly the National Football League and the Olympics. During the most recent quarter Peacock added 3 million subscribers, largely due to the Olympics, where it was exclusively streamed, bringing its total to 36 million paid customers.

NBCUniversal’s streaming platform continues to rack up losses, but they have narrowed compared to prior quarters. Media companies have focused on making their streaming businesses profitable, with Disney reporting streaming growth and profitability again this past quarter.

Once the cable networks are separated from Comcast, Lazarus will have the power to move forward with a variety of options when it comes to licensing content to other platforms, the person added. The networks’ content could find a home on other streaming platforms, and networks would be free to create their own streaming services, the person said.