Expected Improvement In NBC’s Performance Will Reduce Comcast’s Risk

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The 2014-15 season was bittersweet for Comcast‘s (NASDAQ:CMCSA) broadcasting network, NBC. The network managed to best rival CBS and retain its number one ranking in the 18-49 adult demo. However, the lack of any freshman hits was disappointing for the network. We believe that NBC can rectify this situation next season, as it has lined up an impressive roster of new shows with a balanced mix of action, comedy and drama. Taking a long-term perspective, we forecast that EBITDA from NBC broadcasting will more than double from $725 million in 2014 to $1.88 billion by 2021. Additionally, NBCUniversal’s filmed entertainment segment has been firing on all cylinders. We believe that sustained growth in broadcasting and filmed entertainment segments will be instrumental in pushing NBCUniversal’s contribution to Comcast’s total EBITDA from below 24% currently to around 30% by the end of our forecast period. NBCUniversal’s importance is growing as the segment is becoming an important growth driver for Comcast in the wake of the company’s saturating pay-TV business.

Our price target for Comcast stands at $64.80, implying a premium of around 7% to the market.

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NBC’s Season In Review

NBC experienced a resurgence in ratings in the 2013-14 prime-time season, and the network finished as #1 broadcasting network in the coveted 18-49 demographic for the first time in 10 years. [1] The network has managed to repeat its feat and finished number one in the same demographic for the 2014-15 season as well. [2] The network’s success was led by last season’s breakout hit The Blacklist and Christina Aguilera starrer reality show, The VoiceChicago Fire, Grimm, Chicago P.D. and Law & Order: Special Victims Unit are some other shows that performed well. Consequently, NBC renewed all these shows for the 2015-16 season. NBC’s 18-49 demo win was also helped by the network’s broadcast of this year’s Super Bowl, which was watched by a record 114.4 million viewers. [3] Along with helping NBC in the ratings race, the Super Bowl also generated $376 million in revenues. [4]

However, NBC’s biggest failure of the 2014-15 season would be the fact that it could not find a breakout hit along the lines of last season’s The Blacklist in this year’s crop of TV shows. The network invested heavily in promoting its new offering Allegiance but had to cancel the show after just five episodes due to low viewership. [5] Other shows such as A to Z, Bad Judge, State of Affairs, Constantine, One Big Happy, About a Boy and Marry Me also failed to generate audience interest and were discarded after singular seasons. The network did renew The Mysteries of Laura for a second season but the audience response to the show was tepid at best.

What The Future Holds For NBC

Even though NBC managed to top the 18-49 demo for the 2014-15 season, CBS ran a close second with a hair-thin 120,000 viewers separating the two networks. [2] CBS also finished as the most watched network for a seventh straight season with 11.3 million viewers, up 6% from the 2013-14 season. NBC finished second with 8.6 million viewers, down 8% from the previous season’s Sochi Olympics-boosted numbers. NBC’s 2014-15 numbers also received a boost from the Super Bowl, which will not be the case next season. NBC desperately needs a breakout hit next season in order to maintain its ratings and keep advertisers interested. With that in mind, the network has lined up an impressive roster of shows for the 2015-16 season, including Wesley Snipes-starrer The Player, Chicago Fire spin-off Chicago Med, Heroes spin-off Heroes Reborn, Best Time Ever with Neil Patrick Harris, Blindspot and Game of Silence. The roster unveiled by NBC has a very balanced mix of action, comedy and drama which gives the audience plenty of options. The network has roped in many fan-favorite actors which improve the odds of finding success for the shows. Spinning-off shows from previous hits such as Heroes, Chicago Fire and Chicago P.D. is a good move as these spin-offs will tap into a dedicated fan-base. NBC will also be broadcasting the 2016 Rio Olympics, which will undoubtedly bring in plenty of viewers. We believe that NBC will be in with a good chance to its ratings crown next season. Taking a  long-term perspective, we believe that NBC’s revenues will grow from $8.4 billion in 2014 to around $13.4 billion by the end of our forecast period (to 2021).

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Notes:
  1. NBC Finishes No. 1 In 18-49 Demo For 2013-14 Primetime Season, September 16, 2014, Deadline []
  2. Ratings: NBC Wins 2014-15 TV Season; CBS Is Still Most Watched Network, May 20, 2015, TVLine [] []
  3. SUPER BOWL XLIX ON NBC IS MOST-WATCHED SHOW IN U.S. TELEVISION HISTORY, February 2nd, 2015, NBC Sports Group Press Box []
  4. Comcast’s SEC Filings []
  5. NBC Cancels Freshman Drama ‘Allegiance’ After Five Episodes, March 6, 2015, Variety []