Comcast announced yesterday the creation of a new joint-venture with GE that combines Comcast’s cable networks (like E!, Golf Channel and Versus) and its regional sports networks with GE’s NBC Universal which owns cable channels such USA, CNBC, MSNBC and Bravo.
The new joint-venture company is valued at $37.25 billion and Comcast will have a 51% stake with GE holding the remaining 49%. NBC Universal is valued at $30 billion and Comcast’s contributed programming segments are valued at a total of $7.25 billion
Impact on Comcast’s Existing Businesses
1. Comcast will have more leverage in negotiating better subscriber fees from other programming providers such as Disney, Time Warner and News Corp thereby reducing Comcast’s costs
- Comcast pays cable channels fees for each Comcast subscriber that receives those channel. For example, Disney’s ESPN charges cable companies about $3.20 per subscriber per month for access to ESPN. Similarly, News Corp’s Fox Sports charges cable companies about $2 per subscriber per month for acccess
- By controlling more content, Comcast will be better positioned to negotiate more favorable fees from other content providers such as Disney, Time Warner and News Corp which will reduce the costs for Comcast’s digital cable business (and improve margins)
- We currently expect Comcast’s Digital Cable Gross Profit Margin to decrease from about 52% in 2008 to under 50% over the Trefis forecast period. Improvements in fees paid to cable channels could lead to gross profit decreasing slower than the Trefis forecast
- The Digital Cable business constitutes about 30% of the Trefis price estimate for Comcast. You can see here how the stock would be impacted if Digital Cable Gross Profit Margin
were higher than the Trefis forecast
2. Comcast’s control of more programming will benefit its On Demand business
- Comcast will have access to new popular content that it can offer on demand to subscribers which gives it an edge over other on demand services
- Online competitors like Hulu (partially owned by NBC) may find it harder to compete against Comcast’s On Demand
- We estimate that Comcast will have more than 4 billion On Demand views in 2009 of which 6% are paid with an average price of about $4 per view
- Comcast’s On Demand business constitutes about 3% of the Trefis estimate for Comcast. See here how Comcast’s stock would be impacted due to an increase in the number of On Demand Views
You can see our full analysis of Comcast here.
