Amazon (NASDAQ:AMZN) recently inked a deal with NBCUniversal to add about 1,000 titles from its movie library. We recently examined how Amazon’s efforts in streaming can impact Netflix (NASDAQ:NFLX) in a note titled Amazon Beefs Up Streaming, How Much of a Threat for Netflix? Here we take a look at NBCUniversal’s filmed entertainment division and how much this contributes to Comcast (NASDAQ:CMCSA). Comcast’s acquisition of NBCUniversal at the beginning of 2011 made it a unique pay-TV and broadband service provider as it has control over the network and the content, though the filmed entertainment division makes up a very small portion of this.
Our price estimate for Comcast stands at $27.50 implying a premium of more than 30% to the market price.
According to The New York Times article Amazon has access to Universal Pictures’ movie library. Since the terms of the deals are not available, it is useful to look at how the filmed entertainment (Universal Pictures) division impacts Comcast’s value.
We estimate that NBCUniversal constitutes close to 16% to Comcast’s stock. Within NBCUniversal division a quick glance at Q2 2011 results indicates that filmed entertainment constitutes about 24% of overall NBCUniversal revenues. Given this information, we can approximate that the filmed entertainment constitutes just around 4% to Comcast’s stock.
However, if we dig deeper into profits, we note that for the first 6 months of 2011 the filmed entertainment business was operating at a loss. In fact almost all of the profits for NBCUniversal comes from cable networks and broadcasting.This implies that the real contribution of filmed entertainment business to Comcast’s value could be much less than 4%! This answers our question. The film business primarily gets revenues from box office and DVD sales, and so while the Amazon deal might open up another channel of revenue for NBCUniversal, we don’t expect it to move the needle much.
