Comcast And Their Cable Nets Spin-Off: What’s Next

Broadcast Tunnel in Inverted Colors

“Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.”

- Robert Frost, “The Road Less Traveled”

I’m not sure how familiar Robert Frost was with the media business. But after Comcast announced a potential spin-off of its cable networks, from MSNBC to CNBC to USA and more, the company has a lot more than two potential roads to travel. The traditional media business has been staring at these multiple roads for years now, and none of them are anywhere near as bucolic as Frost’s woods. So given the potential roads and potholes, where might Comcast go next and what are the implications?

For those who might have missed it, Comcast President and NBCUniversal Interim CEO Mike Cavanagh announced on Comcast’s most recent earnings call that the company is “exploring whether creating a new well-capitalized company, owned by our shareholders and comprised of our strong portfolio of cable networks, would position them to take advantage of opportunities in the changing media landscape and create value for our shareholders.” (Hey, I don’t write this stuff). In other words, when it comes to its cable networks and their continuing decline, Comcast well knows that the status quo isn’t sustainable for a publicly traded company. The cable giant is now public with its exploration of the most sensible alternative pathway forward for these cable programming assets, joined publicly or privately by much of the rest of the industry. Here are few of their potential roads to take:

This road has been pretty heavily trafficked by the media business for many years, and it’s not all that scenic. Theoretically for maturing industries, re-evaluating its asset mix, leveraging operating efficiencies (read: cutting costs) and growing market share through a combination all make much sense. But how many good deals have there been in the media business in recent years? It depends how far back you want to go. I’ll spare you AOL-Time Warner, which was more about early irrational internet exuberance than traditional scale-based M&A. But AT&T-Warner Media? Mostly a misery for the buyer, then Warner turned around and combined with Discovery, but getting much greater volume and relative weight in the cable network business doesn’t seem like a winner to this point.

Disney appears to have overpaid pretty heftily for Fox, although luckily for Disney the government forced it to off-load Fox’s regional sports networks. CBS and Viacom split up 25 years ago to enhance shareholder value (losing much operating efficiency), then re-merged years later, only to turn around and sell off to Skydance Media and the Ellisons. Will any of these major media companies see the need to get bigger in cable right now? Combining with competitors in the absence of an innovation strategy is hardly a safe path today.

This is admittedly a little tributary on the M&A path, maybe more realistic if not that appealing either. Cable networks still generate cash, and combining operations of multiple networks certainly could bring about operating efficiencies, which private equity excels at unearthing. But nobody needs to tell the media world about some of the more treacherous alleyways for a business that brings in or sells out to private equity. Newspapers, in part due to a series of self-inflicting wounds in the early internet days (content wants to be free? Really?), began taking on private equity investment years ago and I just recently wrote about the devastation that has followed for many of those legacy companies. There is a local journalism pathway forward now, but it’s a digitally centered one and it’s been a rough row to hoe for many a publisher, editor, and reporter.

Broadcasting is in an earlier stage of looking to private equity, but the story may not be dramatically different. Local TV stations generate a nice flow of cash today from the combination of retransmission consent fees and advertising revenues, but PE firms hunting operating efficiencies aren’t looking at that flow as cash to tap into to invest further in these businesses. Is Comcast and the cable network world ready to jump into this briar patch?

“Shrinkage” has had a problematic reputation since Seinfeld’s George Costanza, but it’s probably long overdue for the cable network business. It is never appealing for media companies to get smaller – it interferes with the edifice complex - but it’s not a new concept. NBCU’s CEO Steve Burke said as far back as 2016 that there were “too many cable channels” and NBCU ultimately shut down several of them including Style, G4, Esquire, Cloo, and Chiller. Other cable casualties in the last decade include Scripps’ Qubo, the El Rey Network from Robert Rodriguez, MGM HD, Audience from DirecTV, and a handful of new ESPN entries. Did you notice they were gone? None of these cuts left subscribers bereft of programming choices.

Disney’s deal with Charter Communications didn’t end up eliminating any cable nets but provided a growing model for a de facto pullback. Disney agreed to drop demands that Charter/Spectrum carry several lesser cable networks such as Freeform, Disney Junior, and Disney XD in exchange for Charter providing more of their subscribers Disney+ and ESPN+. Some form of mutually assured network destruction here, with cable programmers saving operating costs, distributors saving affiliate fees and a shift towards greater mutual reinvestment in streaming seems more and more like a road worth exploring further.

The least trod road is one of rethinking the content and purpose of cable networks. This isn’t easy and GPS isn’t going to help you too much. But the reality is that most non-news and non-sports cable nets are almost completely 24/7 repositories of a handful of well-known library products (Big Bang Theory, Law & Order, etc.). I fully get the need for attracting eyeballs, ad dollars and trying to sustain affiliate fees but there is no strategy here for reinforcement of the cable brands – these are merely the running of shows all fully available on streaming.

Engagement with hard-to-reach audience segments (hello there, young men) are increasingly valuable to and measurable for advertisers (we learned this a generation ago at CNBC where our audiences were miniscule). Why not find the best content producers on Tik Tok and Instagram and let them experiment a bit on cable (the new film Saturday Night is a bit of a history lesson on this)? We have plenty of data to tell us what advertisers and agencies are looking for in the marketplace. Could the incumbents put that to work to invest in newer forms of content to attract and retain these audiences? You don’t need to fork over anywhere near Peak TV series spending levels to do that. In the end, what do you want your cable networks to be? Maybe they can be pieces of a media tableaux at Comcast and elsewhere but they need some shiny new coats of paint.

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