Comcast’s (NASDAQ:CMCSA) decision to form a joint venture with NBCUniversal distinguishes the cable operator from its competitors like Time Warner Cable (NYSE:TWC), DirecTV (NASDAQ:DTV), Dish Network (NASDAQ:DISH), AT&T (NYSE:T) and Verizon (NYSE:VZ). The strategic value of the joint venture comes from the idea that by having more control over its content, Comcast is more resilient to competitive pressures going forward. While General Electric (NYSE:GE) and Comcast announced plans for the JV in December 2009, the deal took until January 2011 to secure the necessary regulatory approvals after intense scrutiny. Looking at NBCUniversal’s contribution to Comcast, we estimate that the JV accounts for about 16% of Comcast’s stock value, which we peg at $27.40 - implying a premium of around 10% to the market price.
Joint Venture at A Glance
The joint venture essentially consists of Comcast’s content business and NBCUniversal with Comcast holding 51% share and GE holding 49%. Comcast’s content business refers to its regional sports and news networks, some Comcast interactive media businesses (focused on online and mobile properties like XfinityTV.com, Xfinity TV app and Comcast.net) and channels like E!, Golf Channel etc. NBC contributes its own cable networks, broadcasting business, filmed entertainment and theme parks.
Cable Networks & Broadcasting are Biggest Contributors
We estimate that the joint venture will earn close to $13 billion in revenue from cable networks and broadcasting alone that represent roughly 75% of the total revenue from the JV. Therefore most of the value of NBCUniversal comes from these two business that are essentially dependent on the advertising market, the health of the economy, which correlates to higher subscription rates for cable services, and the quality of the shows offered.
In our Comcast model under the NBC & Comcast Content division, you can see how our estimates for cable and broadcasting revenue break out and how the introduction of the broadcasting business brings the combined EBITDA margin down to around 15% from around 40%-50% prior to the JV. Using the modifiable estimates, you can also explore how different levels of Comcast’s ownership in the JV impacts its valuation.
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