No one can agree on what’s about to happen with NBC

The future of NBCUniversal is firmly up in the air after parent company Comcast announced its intention to spin off its media arm in about a year’s time. And 48 hours after the announcement, there’s no expert consensus on what’s about to happen. In fact, there’s probably more disagreement about the future of Comcast’s and NBCUniversal’s businesses than about the outcome of any media transaction in recent memory.

Some analysts view NBCUniversal as a buyer, a company that will look to scale up beyond the bounds of a megacorp like Comcast, potentially scooping up assets like Sony Entertainment to bolster its library and compete with modern media giants, or looking outside of film and television to diversify its portfolio. Others see NBCUniversal as a seller, with Comcast’s announcement to spin the company simply a means of telling prospective buyers they’re open for business, similar to how Warner Bros. Discovery went public with its intentions to split its studio and streaming assets from its linear cable networks, only to inspire a bidding war that saw Paramount eventually buy the whole company for $111 billion before a spin could ever take place.

Comcast has its own set of possibilities as well. Some see the distributor, absent its bloated media arm, as a prime acquisition target for Charter, which would combine the two largest internet service providers in the country. Charter shares traded up 14 percent the day of Comcast’s announcement, indicating that Wall Street sees such a transaction as likely, despite the near-certain regulatory headache it would face.

In this column, however, we’ll primarily focus on the future of NBCUniversal, which comprises the NBC broadcast network, Peacock, Universal movie studio and theme parks, European media arm Sky, NBC News, and Bravo. There seem to be endless possibilities, with compelling arguments for and against each one. First, we’ll run through what NBCUniversal, the buyer, might do as a separate vehicle from Comcast. Then, we’ll run through the various forms an NBCUniversal sale could take. Throughout, we’ll touch on the company’s comprehensive live sports portfolio when relevant.

NBCUniversal, the buyer

Perhaps the most prominent voices arguing that NBCUniversal should be a buyer, rather than a seller, in this proposed spinoff are the analysts at LightShed Partners. The group cites Comcast’s recent attempts to scale NBCUniversal into a larger business, including its bid for Warner Bros. Discovery’s streaming and studios assets, as key evidence that the company is not interested in selling.

As many have pointed out, Comcast co-CEO Mike Cavanagh said in January, amid the Warner Bros. Discovery process, that the business “doesn’t get stronger by being smaller as a standalone entity.” Monday’s announcement offered a stark departure from that line of thinking, with Cavanagh saying, “Where we previously believed that scale and the diversification benefits warranted operating these businesses as one company, we’ve now simply changed our mind about that. We’ve now concluded that future success for each of our businesses will depend on focus, speed, and strategic flexibility that this separation will unlock.”

Some analysts don’t buy the flip-flop and instead point to this announcement as a form of financial engineering. Comcast stock has remained stagnant for over a decade, largely due to the decline of the linear television business and the failure of subscription streaming services to replicate that level of revenue. Splitting NBCUniversal grants Comcast flexibility should it want to engage in transactions that would require issuing new stock, which is now trading approximately 7 percent higher than pre-announcement levels.

If that’s the case, the point of announcing the spinoff was not to sell NBCUniversal, but simply to unlock M&A possibilities for Comcast. After all, Comcast chairman and CEO Brian Roberts is maintaining a controlling stake in NBCUniversal post-spin, indicating he still sees upside in the company. If the move was purely to find a buyer for NBCUniversal, it’s far less likely that Roberts would’ve wanted to retain a controlling stake.

LightShed highlights a few potential acquisition targets for NBCUniversal. The analysts float Sony Entertainment as a strong possibility, as the studio looks to scale up, particularly as other movie studios, like Paramount and Warner Bros. Discovery, consolidate. Outside of film, LightShed suggests the popular online game platform Roblox would be an interesting target for NBCUniversal, citing the entity as a strong acquisition in the user-generated content space, which NBCUniversal lacks.

The analysts point to assets like AMC Networks, Starz, and Comcast’s recent spinoff, Versant, as less likely to be purchased, considering NBCUniversal has already divested most of its cable assets.

Should NBCUniversal, absent Comcast, truly be a buyer, the company’s live sports rights portfolio would become a crucial element of its overall business. Whereas the financial backing of Comcast and its large connectivity business had previously provided the capital necessary to secure multi-billion-dollar rights deals with the likes of the NFL and NBA, a standalone NBCUniversal would need to fund these deals purely off revenue generated from its linear television assets, movie studio, and theme parks.

NBCUniversal already has some of the most expensive sports-rights obligations of any media company, shelling out $2 billion annually for Sunday Night Football, a price that could increase by over a billion dollars sooner rather than later, $2.45 billion per year for the NBA, $1.4 billion in every Olympic year, undisclosed nine-figure sums for college football, PGA Tour, and NASCAR, $450 million for Premier League, $200 million for MLB, and other ancillary properties in the eight-figure range. Conservatively, NBCUniversal is spending over $6 billion per year on live sports alone, a figure that will grow quickly as the NFL renegotiates its deals.

The standalone company will need to capitalize on the still-lucrative retransmission fees NBC commands to quickly diversify into new revenue streams before its live sports portfolio becomes too expensive to afford.

NBCUniversal, the seller

If LightShed is the voice of NBCUniversal, the buyer, Wolfe Research’s Peter Supino is the voice of NBCUniversal, the seller. Supino asserts that the split won’t occur at all, and Comcast’s announcement is simply a means of sparking a bidding war for NBCUniversal, similar to what happened after Warner Bros. Discovery announced its split.

How that would ultimately look depends on the buyer. Disney, for instance, would be a sensible pair if the company wanted to expand its theme parks business by adding Universal. Rolling NBC into ABC would also make sense from a business standpoint, but would likely prove quite the hurdle from a regulatory perspective, with a combination of broadcast networks sure to face intense scrutiny from the FCC.

Netflix is another possibility that has been floated frequently since Monday’s announcement. The streamer made an aggressive play for Warner Bros. Discovery, even reaching a formal agreement before Paramount came over the top to scoop the company. NBCUniversal offers a similar profile: a subscale streamer with Peacock and a movie studio with valuable intellectual property (though a step down in quality from Warner’s studio). In addition, Netflix would be well positioned to leverage the Universal theme parks with its own vast library of intellectual property. If Netflix wanted to enter the experiential business, Universal would be a great way to do so.

The argument for Netflix starts to break down with the NBC broadcast network. Netflix is not interested in the linear television business, and certainly isn’t interested in dealing with local affiliates or broadcast licenses, not to mention NBC News. It’s unclear how Netflix would manage to secure NBC’s sports portfolio, which it may very well want, without purchasing the whole linear operation. After all, live sports are the only reason these networks have value, and without NFL and NBA inventory, NBC’s linear operation would look more similar to The CW than any of its big-four peers.

If NBCUniversal sells itself for parts, it’s difficult to imagine it would do so while separating its live sports rights from its broadcast network. Should the company find a buyer for its other assets, like the movie studio and theme parks, some sort of private equity firm would seem to be the odds-on favorite to manage the decline of its linear businesses. Such a scenario would likely be the worst-case scenario for NBC’s chances of maintaining a robust live sports portfolio in the future.

Supino floats Amazon and Apple as companies that could also make a case for purchasing NBCUniversal, though neither has shown interest in Warner Bros. Discovery, which holds a similar mix of assets.

Prediction

So what’s about to happen to NBCUniversal? Well, it’s anyone’s guess at this point. It seems that, at the very least, Comcast’s decision to announce a spin presents various paths forward for the media company. If, for whatever reason, a buyer emerges willing to pay a premium comparable to Paramount’s purchase of Warner Bros. Discovery, then Comcast can seriously consider a sale. If such an offer doesn’t present itself, NBCUniversal has options to scale up and become a pure-play content business in its own right.

There’s also a third path forward. The split can happen, NBCUniversal can operate independently for some time, and then a buyer can come along a few years down the line, perhaps after NBC extends its NFL deals.

While co-CEO Mike Cavanagh did a complete 180 on his comments from January, he is right about one thing: this move opens up some options for both Comcast and NBC. Soon, we’ll find out whether those options present themselves in a way that leads NBCUniversal to join with another media company, or if the company will go it alone.

For now, nobody knows.