Comcast (CMCSA) recently stated that it will not make much profit from the broadcast of 2016 Summer Olympics.  Despite this, the company’s media unit, NBCUniversal, spent close to $4.8 billion additionally to acquire the rights for 2016 and 2020 Summer Olympics. The natural question is would it have been better if NBCUniversal had invested this capital somewhere else? Let’s take a brief look at the individual segments within NBCUniversal to better understand this.
We estimate that NBCUniversal accounts for close to 25% of Comcast’s value making it a $30 billion business as per our estimates. A big portion of this value comes from cable networks, which accounted for about 80% of NBCUniversal’s operating cash flow in 2012.  The operating cash flow from NBC’s broadcast division were a little over 10% of those from its cable networks division.
There seems to be a huge gap, much bigger than that for other media companies such as Disney (DIS) and News Corp (NWS). Therefore, there seems to be an opportunity to improve NBC broadcasting’s profits. However, is acquiring the Olympics rights the best way to do so? In fact it did the opposite in 2012 when NBC incurred a net loss on its broadcast of Summer Olympics. The low profits in 2016 might further create pressure on margins and predicting what will happen in 2020 is next to impossible.
The idea is something else and it appears that NBC is using Olympics as a platform to achieve slightly different goals.
Firstly, it allows the company to have a much higher visibility among distribution partners and viewers. Such visibility could help the company get more sports rights and eventually have enough compelling content to compete with ESPN. There is no doubt that there is plenty of money in the sports programming business, but currently no other network is good enough to challenge the market leader ESPN.
We estimate that ESPN is a near $40 billion business for Disney. Eventually, NBC wants to be one of the main players in national sports programming. In addition to this, Olympics broadcast and higher visibility can give the company a platform to successfully launch new programming. One such example is the launch of “The Voice” last year.
Our price estimate for Comcast stand sat $46, implying a premium of about 15% to the market price.
- How Comcast’s $4.4B Investment In The Olympics Will Pay Off Big-Time, Business Insider, Mar 24 2013
- Comcast’s SEC Filings
Disclosure: No positions