When Comcast (NASDAQ:CMCSA) completed the acquisition of GE’s (NYSE:GE) NBCUniversal last year, it had a certain strategy in mind. That strategy was to leverage the content to create a better overall service for customers and to enjoy the profits from the lucrative content business, which is in high demand given the growing competition among service providers. In line with this, Comcast is going to re-launch its Versus Network as NBC Sports Network.  It looks like Comcast wants a share of sports programming market which has made Disney’s (NYSE:DIS) ESPN a huge and profitable business.
There has been an uproar in the media industry over rising sports programming costs as evident from the recent move by the National Football League (NFL) to hike broadcast licensing fee by 60%. This means that the service providers may explore options to exclude sports programming from low-end packages.
- Comcast Q4 Earnings: Best Pay-TV Subscriber Performance In Last Nine Years, NBCUniversal And High-Speed Internet Continue To Grow
- Comcast’s High-Speed Internet Business: Subscriber Base, ARPU Growth Likely
- Comcast Q3 Earnings: NBCUniversal, High Speed Internet Drive Growth
- Comcast Q3 Earnings Preview: NBCUniversal, Subscriber Trends In Focus
- Comcast’s Pay-TV Business: Our Long-Term Projections Suggest Growth In ARPU Will Offset Declining Subscriber Base
- Comcast Q2 Earnings: High Speed Internet Segment And NBCUniversal Lead Revenue Growth
In this situation, investing in a sports network could give a content company a reason to doubt this move. However, on the other hand, high fees usually imply healthy profits and sports programming is coveted for this reason. This is a big commitment and the cable operator will need to significantly improve the programming of its new sports network to attract the audience that commands higher fees.
In terms of near term drivers to Comcast’s stock, NBCUniversal constitutes about 16% to Comcast’s value by our estimates and most of the value comes from its cable networks. As such, the NBC Sports Network will likely be a small portion for the foreseeable future and so does not move the needle.
Our price estimate of $26.60 for Comcast, implies a premium of about 15% to the market price.Notes:
- NBC Rings in New Year With A New Cable Sports Network, Fox Business, Dec 29 2011 [↩]