Comcast: Peacock, Exclusivity, And - More Services?

Summary

• Comcast's NBCUniversal is reportedly considering consolidating its filmed-entertainment under the Peacock service.
• The company also may be interested in starting a new streaming service.
• The exclusivity gambit is a solid argument until one considers the loss of licensed revenue - there are solutions to such conundrum.
• An additional streaming service will offer flexible opportunities for Comcast.
• The shares are a buy for the long term, but on pullback days.

Photo by David McNew/Getty Images News via Getty Images

There are a couple news items that have caught my eye regarding Comcast (NASDAQ:CMCSA) and its continuing journey into the over-the-top industry. One mentions a possible desire on the part of management for consolidating content into Peacock - i.e., reduce its reliance on licensing films and television series to other streaming platforms. Another report suggests that Comcast may not be satisfied with just a single streaming brand: instead, it might want to create another one.

In this brief article, I'm going to consider both of these items and place them in the context of Comcast's long-term potential. I'll also offer an opinion on the current state of the stock itself - preview: it is still a long-term buy.

Peacock And...?

Let's face facts. I am bullish on Peacock, but for those who criticize it, yes, you have a point - not only does it have a long way to go until it even remotely gives Netflix (NFLX) and Disney (DIS) some solid competition, but also the management team behind it over at NBCUniversal clearly is finding its way in the streaming world. Here's the problem in the proverbial nutshell: streaming is receiving a multiple from the market. A healthy one. When you consider how overvalued Disney stock currently is (my opinion, of course), especially taking into account that parks and movies are essentially shut down and/or radically disrupted/displaced by the pandemic, when you consider that the market isn't even slightly interested in upping the risk column of the valuation model, and it's all because of streaming (in Disney's case, its D+ product), then it becomes clear that if you're a media conglomerate, you've got to be all-in on over-the-top. Now, all-in doesn't mean, in NBCUniveral's case, that it's going to shutter NBC and SyFy channel and all the rest of broadcast/linear, it's more of a mindset proposition: eventually, the company will have to shift further and further into over-the-top assets. And it simply is the case that if you're not the first-moving entity in the latest disruptive field, and you're getting in somewhat late in the game, you have to embark on a learning curve and begin to experiment and change-up the strategies.

So it is since last I covered the Peacock situation. But I believe investors, including those already in Comcast (as I am) can look upon the concept of adding another branded-streaming asset (if that does indeed come to pass, which I believe is of high likelihood) in a bullish context. On the topic of branding, many have found the name "Peacock" to be somewhat lacking; it never bothered me too much, but I can see that viewpoint. It's sort of like CBS All Access - that service became Paramount+, and that does have a better marketing ring to it. If NBCUniversal can start over again in terms of branding if it does create a second service, then that might present an opportunity at a second chance to capture value (in other words, never underestimate the value in a trademark).

Another opportunity exists in programming a service that isn't necessarily given away for free, as is the case with current Comcast subscribers and Peacock. Some Comcast subscriptions allow Peacock availability for those in the linear ecosystem, and as others have observed, this is evidence that the company doesn't want to abandon linear altogether (i.e., go after over-the-top cord-cutters while appeasing set-top-box/bundle enthusiasts). What I would like to see is aggressive courting of hardcore streaming fans who own Netflix, plus at least one other service, by Comcast with any new subscription service the company launches.

Adding another service to the portfolio allows for options to augment the current tiered structure of Peacock, which operates on the advertising/no-advertising model, in addition to the more-content-available-on-higher-priced-tier model. If NBCUniversal wanted, it could only allow subscriptions for an ad-free version of a new service, thus increasing its investment in streaming.

Having multiple platforms is useful, as content can bounce from one to the other in a repurposing fashion that amortizes costs (keep in mind Comcast's Sky could become a part of this new hypothetical entertainment ecosystem). Also, branding could take place that would position one service as more appropriate for certain content as opposed to the other. There are risks, too. Comcast might end up investing too much in one and not enough in the other. One thing that we know: grabbing consumer attention in the streaming marketplace requires the bravery of making big bets. Granted, talent tends to get overpaid, but Hollywood, if it is even looking for one, has yet to find a practical solution for the problem; therefore, the need to spend multiple billions of bucks on content is here to stay. This could lead to the biggest risk: one service withers away into nonexistence and turns out to be a waste of time and capital. While acknowledged, I believe the safer choice is to make the wager and go for the high reward, both in terms of cash-flow contribution and price-action/multiple.

And...Exclusivity?

Which leads to whether or not Comcast intends on playing hardball with content. Call it an exclusivity gambit.

Media companies, excluding Netflix, all have legacy linear assets. These assets need content, and all media companies have generally traded among each other various shows and movies. But as it concerns streaming, there is always a question that must be answered: Should content produced by X media company stay on X's streaming service and be seen nowhere else (at least in the pay-TV/SVOD spectrum)?

As the link stated in the introductory paragraph, Comcast management is trying to figure out what to do in this regard. To my way of thinking, it could be a mistake to necessarily take all content developed on a linear-based platform (The Office or a Modern Family, say) and then lock it away forever. Although that could be a good strategy depending on the situation (especially with new services), it might be best not to give up licensed-based revenue entirely. Selling content to other competitors' platforms is itself a useful hedge against the streaming business and its associated risks.

We have a real-time example of how that works, right from that SA news item. Modern Family comes from Disney (via the Fox purchase) and is actually an exemplary addition to the Hulu content portfolio; sure, it probably could get away being on D+ too, but Hulu is a better, more obvious fit. Comcast, however, which still has an interest in Hulu (until it goes away in a few years under a buyout deal with Disney), already had exposure to Family via syndication rights on its USA linear channel, as described by this Hollywood Reporter article. For Disney to gain the ability to bring the popular show to Hulu, an agreement was struck to allow Peacock streaming access. As time progresses in the streaming wars, studios will certainly iron that sort of situation out when selling rights, but it nevertheless indicates that a series asset can co-exist on two competing platforms. And for me, the key here is to think about what that exactly means, and what a streaming platform actually is.

So...what is a streaming platform? Is it all about exclusivity gambits? The best definition of differentiation is that one platform is its original content relative to another platform. If two platforms have the same show (as Hulu/Peacock do with Family), then the factor of differentiation will be its original content (the live-television component will be cited by many as another factor, but for me, I see original shows as the principal concern). Family being on both platforms creates an all-things-equal scenario that eliminates the complexity on the part of a consumer in terms of choice...it then becomes an original-content game. However, if you read this last sentence carefully, you might say, hey, that's the biggest argument for exclusivity...why make it easier to choose? In other words, give the consumer exclusive originals and exclusive linear-library content to really sell the platform. Yes, I agree, that does represent a valuable approach...but then we're back to the loss of licensing revenue, and unless we're talking about Disney, we might be inclined to conclude that the risk of non-exclusivity for library content is ultimately worth it, so long as killer-app originals are constantly developed.

There is a solution: sell incomplete libraries to competitors, and/or retain extra, supplementary content for Peacock. Comcast is currently experimenting with extra content on its streamer with The Office. If it wanted to, it could then use that as a way of enticing new subscribers, while still selling to other streaming units (along with not allowing all seasons on the competition's platform). All of this also brings to mind the exact definition of exclusivity...should that include cable channels, local channels? Should exposure to advertising only be done on Comcast's ad-supported Peacock? There might be an argument for that given Comcast's big investments in the tech side of advertising, as this article indicates.

Nevertheless, licensing is a big chunk of revenue to eliminate, and in fact, has been valuable during the pandemic when media companies, facing cancellation of movie slates, shifted to strategies of increased library-licensing, which was illustrated, to some degree, back in the fourth quarter. Media companies of smaller scale such as Lions Gate Entertainment (LGF.A) (LGF.B) rely even more heavily on licensing. This article shows how non-exclusivity can co-exist with Comcast's goals, but from the viewpoint of ViacomCBS (VIAC) (VIACA). In a deal struck last summer, Peacock received the right to show some Paramount films, as well as other content, but the seller, ViacomCBS, did not include exclusivity in the parameters. NBCUniversal management still perceived value from the deal, and ViacomCBS, which receives billions of dollars in licensing revenue per year, did not limit itself to one buyer (and it did not limit its own streaming ambitions, either, in terms of availability of its content to itself). Such precedent is a useful model. In a world where streaming concerns pay half-a-billion bucks for shows on par with Seinfeld, Comcast would do well to maximize licensing while prudently exploring some exclusiveness when it is appropriate.

The Stock

I continue to hold Comcast in my portfolio and regard it as a long-term buy. While linear has been challenged, I believe synergy between NBCUniversal and the company's multi-platform ecosystem, which includes the important investment in Sky, as well as broadband and strives in advertising initiatives, will propel cash flow through the years.

The price of the stock is closer to the high end of the 52-week range at $54 (price at time of writing). Dividend yield is 1.8%. While it's not egregiously expensive, the stock does come in higher on some metrics comparing it to the sector median. In conclusion, I proffer that the shares will be a better buy on pullbacks.

Analyst’s Disclosure: I am/we are long CMCSA, DIS, LGF.A, LGF.B, VIAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may initiate a position in Netflix over the next 72 hours.

Comments

[LONGBULL+]

Reading the whole article again I see that Comcast is following the strategy of VIAC

- AVOD
- Tier1 basis streaming
- Tier2 premium streaming
- Arms dealer licensing

This all has to do with the fact that T does not want to work together with Comcast in streaming

More than two years ago, former NBC CEO Steve Burke held conversations with AT&T's Warner Bros. to launch a joint streaming service that would have combined the two companies' libraries, but AT&T said no, choosing to focus on HBO Max

www-cnbc-com.cdn.ampproject.org/...

So for now Comcast follows that strategy of VIAC.

Comcast also is a gatekeeper to prevend churn:
Comcast Xfinity Flex Tops 3 Million Boxes. Comcast has deployed more than 3 million Flex devices and has X1 deployed to a sizable majority of its base of 18.9 million residential pay-TV subs.
Discovery+ was added as a tie-in.
The tie-in also adds another key premium service to Comcast's streaming and pay-TV platforms, expanding on the recent completion of similar integrations with Disney+, ESPN+ and Paramount+, ViacomCBS's successor to CBS All Access. Other services already integrated on X1 and Flex include NBCU's Peacock, Netflix, Hulu (SVoD service only), Amazon Prime Video, Comcast-owned Xumo, PlutoTV, Pandora, Tubi and Spotify, among others

Perhaps in the future there still could be combining streaming offers via a reverse Morris Trust.

Possible partners could be
VIAC
T

The future of streaming also will be influenced because of the wireless/wired consolidation in 5G

www-cnbc-com.cdn.ampproject.org/...

[LONGBULL+]

Some executives at NBCUniversal have worried if Peacock has enough heft to compete with Netflix and Disney. More than two years ago, former NBC CEO Steve Burke held conversations with AT&T's Warner Bros. to launch a joint streaming service that would have combined the two companies' libraries, but AT&T said no, choosing to focus on HBO Max

. Executives at Peacock and HBO Max, which is run by AT&T's WarnerMedia, have publicly stated a desire to aggregate content from other services on their streaming platforms to bulk up offerings. If consumers only have an appetite for three or four streaming services, other media companies may choose to license their content to the most popular services instead of competing on the strength of their original content

[Steven Mallas]

@LONGBULLPLUS Combining streaming units is a fascinating idea, but I have to wonder how that could ever be accomplished with competitive management teams.

I think Peacock will evolve over time into something different than is seen today. And on the topic of "If consumers only have an appetite for three or four streaming services, other media companies may choose to license their content to the most popular services instead of competing on the strength of their original content" I wonder sometimes if companies, especially lower-scale ones, will use streaming as a stop-gap to fill in for lack of scale and consider many of them limited in nature; in other words, imagine if a business plan for a streaming service were to be limited-edition in nature, maybe around for a year or so, and then gone. Almost like a digital collectible, perhaps...?

I do see the VIAC connection, and would say all media concerns need to follow that eventually (even NFLX at some point with its older content)

[nerd_rage]

Peacock's problem is that it was launched too late, because subscribers are sick of there being too many streaming services and are just sticking with the big ones.

CMCSA's solution? Launch another streaming service! Heck why not launch a hundred.

CMCSA: You. Are. Too. LATE! There is no solving this, just cut your losses and move on.

Maybe AMZN or AAPL will take NBCU off your hands or the portions valuable for streaming (the Disney-Fox approach). Or sell it to T, but the last thing they need is more content and debt. They need better execution of what they have now.

And just in general, SA needs more articles that analyze markets from the consumer's point of view, especially in a field like streaming where consumers have a lot of power.

Consumers hold the purse strings and what they do determines it all. Once you start to pay attention to consumer behavior, stuff starts to click, such as being able to predict that Netflix and Disney+ would both prosper and that the mistakes T made in HBO Max (obvious before launch) would seriously hamper them.

Just think of it this way: everyone has their streaming setup now. Netflix and Disney+ or Netflix and Amazon or maybe Netflix/Disney+/AppleTV+ etc. Various configurations shuffling around the same few names.

To the subscriber, everything is fine right now. They don't need Peacock. They have plenty to watch. Does CMCSA have anything that's going to change this cozy setup? I'm not seeing it. Reruns of The Office...please. That's just wishful thinking.

The one thing I do like about Peacock is the name. At least it stands out in a crowd. Universal+ would be just sad. What did Netflix or Hulu mean before those platforms were launched? What did Google, YouTube or Facebook mean? Those are all nonsense names, and their meaning was built up from the ground.

[Steven Mallas]

@nerd_rage I would agree about not using Universal+. The + thing probably should be limited at this point.

Not a bad idea about some articles focusing on consumers.

Comcast/NBCUni almost have no choice but to invest in streaming; the board would find management remiss if it didn't go after that bid. Plus, it does create a marketplace for its content (that was the whole idea behind the Hulu joint-venture approach when that platform was created). It does, though, have a lot of work ahead, especially as you have pointed out with generating killer-app content...

[LONGBULL+]

"Our thoughts about the logical combination of NBCUniversal and WarnerMedia to give the combined companies the needed scale to compete with Disney and Netflix were reinforced by other conversations across town," Nathanson wrote about his check-in with his Hollywood contacts

[LONGBULL+]

He said many discussions have focused on "further roll-ups of the smaller studios" via deals. "While Lionsgate is a frequently discussed takeover candidate, it was not among the companies discussed this year," he noted. "MGM is the one traditional studio most expect to get acquired eventually only if it was finally willing to sell (this was before recent press reports the company is exploring strategic options)
A MoffettNathanson report addresses pressure on content creators, the fallout of the coronavirus pandemic and a possible merger of Comcast's NBCUniversal with AT&T's WarnerMedia

[Steven Mallas]

@LONGBULLPLUS The part about pressure on content creators is fascinating. The comments about how all this streaming activity affects potential for box-office backend makes me think we'll be hearing soon about even more spending on above-the-line talent.

[La Marque]

As a Comcast shareholder, I'm comfortable with Peacock exactly as it is. No more than 5 minutes of ads per hour on the AVoD version with a limited library. Disney and The Roku Channel are pushing 60 minutes total (for a 45 minute show) on their AVoD platforms which is as bad as broadcast/cable channels with ads.

I'd say that WarnerMedia would be wise to emulate Peacock with its upcoming advertising version of HBO Max.

[Steven Mallas]

@La Marque I would agree, there has to be a balance with ad placement. Also, the company needs to figure out ways to integrate campaigns placed within product. No one has really figured out a best-practice way to do that yet. Considering the multi-platform approach of selling ads, limiting ads would seem a complementary concept.

[LONGBULL+]

Several analysts have called for Comcast to spin-off its NBCUniversal unit, and Cahall joined the growing chorus, writing in his report that Comcast’s cable and communications business is “value trapped in an inefficient capital structure.”

He called for the media giant to either sell off the NBCU division, spin it off along with its British satellite TV business Sky, or merge it with another media business. He prefers the third option, suggesting that a merger with WarnerMedia, via reverse Morris Trust, makes the most sense

www.nexttv.com/...

[LONGBULL+]

Apple and Amazon have previously been pegged as potential buyers, but MGM’s valuation has long been seen as a sticking point. Anchorage CEO Kevin Ulrich, as chairman of MGM’s board, had wanted a price of at least $7.5 billion, according to industry insiders. The studio’s market value is about $5.5 billion including debt, said one person familiar with the company’s finances who was not authorized to comment

But it’s unclear how interested a global media company or tech titan like Apple is in paying for a movie and TV library when most companies are focused on building their Hollywood businesses through original productions, creating so-called walled gardens

LGF's Rachesky has the same idea about Lionsgate. He only wants to sell if he gets $ 40 a share which values LGF around 8.8 billion. The current enterprise value is around 6 billion. So also 40% more.
That is the same as Kevin Ulrich 36% plus on the enterprise value (marketcap and long debt)

Curious to see if MGM is sold and at what price.........

[Epicontact2]

@LONGBULLPLUS . I can't imagine Comcast as it exists today giving Rachesky his price . I do think they'll work together more and more. LGF is getting even better at creating content for smaller targeted audiences.

[LONGBULL+]

first we will see if MGM gets sold what the price will be this gives an indication about the valuation for LGF in a possible sale.

[nerd_rage]

@LONGBULLPLUS AAPL, AMZN etc would be interested in brands to use in creating their walled gardens. AAPL might be picky in the type of brands they go for - something compatible with their own brand (James Bond, Star Trek, not Godzilla vs King Kong).

[LONGBULL+]

The companies announced that NBCUniversal will license content from Lionsgate for Peacock, its streaming service launching in April 2020. Peacock will have access to hundreds of feature films and shows from the Lionsgate catalog to stream alongside the previously announced slate of original series, TV shows, and films from Universal and other major studios. NBCUniversal will also license content to Starz to be featured in the U.S. and on its international streaming service, STARZPLAY, now available in 55 countries worldwide

Comcast already owns around 5% of LGF.A stock.

1. Comcast first buys LGF and later

2. spin off Time Warner merge it with NBCU/Sky via a Reverse Morris Trust.

This way T and Comcast will be ready to take a no 3 position in streaming globally after Netflix and Disney

They already have that agreement why not integrate it (LGF/Comcast)

Comcast would benefit because Starzplay already is available in 55 countries globally.

It would give the new Universal streaming offering a global boost.

Starz will loose the Sony exclusive deal in 2021 so replace it with the full list of Universal/Sky titles.

Both companies would benefit if they MERGE.

Comcast and Disney reached an agreement in 2019 that gave Disney full operational control of Hulu but allows Comcast to exit the partnership in 2024 after an independent fair market valuation with a minimum full equity value of $27.5 billion for the streamer. According to LightShed Partners principal and media analyst Rich Greenfield, Hulu could be worth as much as $45 billion, making Comcast’s interest worth $15 billion

So buying LGF valued around 6 billion would be easy to for Comcast with that 15 billion.

The new Universal streaming merged with Starzplay/LGF will become a kind of premium offering like the one of VIAC's Showtime OTT.

This means more competitive pressure for VIAC.

Also Comcast buying LGF means less antitrust regulations compared to T or VIAC buying Starz.

So the two companies who could be interested in buying Starz/LGF the most will be:
VIAC
Comcast.

Comcast stated in their last CC that they have no gaps in their content port folio and will not do new buy outs until 2023.

So that could lead to VIAC making a deal with LGF for Starz or the whole company.

Curious to see if that happens or not now VIAC has returned to normal levels after that Archegos margin call and will Comcast allow VIAC to buy Starz/LGF or will they step in and do the deal because their position in the new Universal streaming offering will be better if they merge with Starz/LGF globally and against Showtime OTT ?

Disney ended 2020 with $17.1 billion in cash, cash equivalents and restricted cash, more than twice the $6.9 billion reported for the end of 2019; Comcast ended it with $11.8 billion, up from $5.6 billion#

[Steven Mallas]

@LONGBULLPLUS Very interesting read. Some of that could end up happening, although for some reason CMCSA/LGF isn't screaming out at me so much as, because of the recent NFLX deal, SNE/LGF. The latter, for inherently obvious reasons (i.e., would offer option of adding to arms-dealer model with LGF studio system, then spin-off STZ, or add STZ to SNE portfolio which lacks a streamer, then spin off LGF studio system; retain much of library in either case)

I do still see VIAC in the running, though, as one of the ideal candidates.

Nevertheless, what you outline as a benefit to CMCSA from that consolidation proposal does make sense...

[LONGBULL+]

@Steven Mallas

Sony as an independent arms dealer content company is making the most money in licensing deals with the highest bidder.

And after much debate internally, Hopkins and the Sony management team have concluded that it’s not worth plunging capital into the low-margin business of direct-to-consumer streaming, opting instead to “super-serve” niche markets with products like anime streamer Funimation.

Creating a holistic direct-to-consumer streaming platform to rival the likes of Netflix or Disney Plus would be “exactly the wrong direction for us,” says Vinciquerra. “Because if we did own Epix, for instance, or Starz or Showtime, we would be committed to producing product for them, and our libraries would have to be committed to those services. I don’t think that’s the highest and best values for our libraries

[Steven Mallas]

@LONGBULLPLUS That's definitely a good point/other side. I think as time goes on there will have to be a decision for all smaller companies on streaming vs. supplier.

[Jamjack]

I think their broadband might be in for real competitive trouble. Connection monoplistic practices by any of them is coming to an end @Basit Saliu is correct in my opinion. Media will play a larger role.

[nerd_rage]

@Jamjack In which case, CMCSA is in real trouble because they've launched their streaming effort too late. Broadband is all they have to fall back on.

[Steven Mallas]

@Jamjack That would be an issue. Content/storytelling assets would therefore be even more important, and exclusivity would need to be added to the mix more aggressively...

[Librarian Capital]

Peacock is a minor part of Comcast's financials.

Peacock is guided to lose about $1.3bn in 2021 (having lost $700m in 2020), but that's nothing next to the $25.3bn Comcast makes from its Cable business.

Peacock is smaller than Sky ($3.1bn EBITDA in 2019), and also smaller than the Theme Parks business ($1.9bn in 2019 and building lots of new projects).

If you are think your decision to invest in Comcast is all about Peacock, then you need to spend less time reading articles like this and actually start reading the company's financials.

[deadhead213]

@Librarian Capital peacock is brand new! I doubt ppl are running to buy cmcsa based on peacock

[Going Forward]

@Librarian Capital Exactly. Peacock ... poppycock. Comcast relinquished their opportunity for long term dominance when they dismissed wireless and OTT as marginal technologies. As a result they are steadily losing cable tv, telephone and broadcast network subscribers and are left with a more commoditized and vulnerable wireline internet service provider business. As an oligopoly, they were too comfortable to provide a continuously innovative customer experience and efficient customer service.

[nerd_rage]

@Librarian Capital Their content part of the business is headed towards streaming and theatrical revenue, while cable/broadcast heads for oblivion.

[Basit Saliu]

Comcast is fortunate to own NBCUniversal (same with AT&T owning WarnerMedia) and the business was running on all cylinders pre Covid 19. Comcast through it cable division also owns Xumo so that a growth area, Peacock will take time to be a huge platform. Comcast ownership of distribution and content (vertical integration) is a great strategy now and in the future.

[Steven Mallas]

@Basit Saliu Agreed, thanks for the comment. Vertical integration can work wonders if properly managed, and if talent contracts can be carefully written with rational compensation practices and to avoid sweetheart-deal stuff...

[deadhead213]

Considering I have seen the good the bad and the ugly of cmcsa I have much love these last few years and view Comcast as a winner now, and next ten years. Great management and ambitious approach keeps investors stating long. 12 month target 60-65

[Steven Mallas]

@deadhead213 I like that thinking! That is a key point: I think management is hungry to capture some subscriber-share in the streaming universe...