It looks like that the merger deal between Comcast (
) and NBC Universal owned by General Electric (
) will finally go through. However it may face net-neutrality terms
for several years in order to prevent any anti-competitive behavior
as Comcast would command a significant amount of
content. Comcast competes with satellite pay-TV providers like
Dish Network (
) and DirecTV (
), cable companies like Time Warner Cable (
), and telecom operators like AT&T (T) and Verizon (VZ).
Our price estimate for Comcast stands at
which is about 12% above the market price.
The deal is significant since it amounts to almost half of our
value estimate for Comcast. So what does this deal mean for the
Numbers on the deal
The joint-venture between GE and Comcast will combine 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.
Possible strategic thinking
Let us start by pointing out that there are very little if any
cost synergies. Comcast has stated earlier that 99.9% of NBC
Universal's employees are in businesses that don't overlap with
that of Comcast, and thus the potential of existing cost synergies
is very low.
- One of the obvious reasons that Comcast sees is control of the
content that it delivers. The company tried to takeover Disney
(DIS) many years back but failed and this joint venture looks like
a more cautious and softer move. The control of media content can
possibly allow the company to gain distribution advantage over
other pay-TV providers in terms of bolstering its own on-demand
content and by earning income on content it allows others to carry.
Disney has spoken up regarding its concerns on the deal and some
are concerned Comcast will favor its own content in its
Threat from online platforms
- The threat from online platforms like Netflix (NFLX), Apple's
iTunes (AAPL) and others is also visible and Comcast wants to put
brakes on some of the customer losses it has experienced. Comcast
will look to target customers who might potentially "cut the cord"
who are attracted to are the improvements in online content. It can
do this by establishing a better online presence through NBC, which
carries its shows online and has a stake in Hulu.
Cable rich network
- We should note that NBC's cable networks like USA, Bravo, SyFy,
CNBC and MSNBC along with Comcast's cable networks are estimate to
constitute close to 82% of the joint-venture's cash flows. Thus,
less reliance on broadcast network and more reliance on stable cash
flows from cable networks is a lucrative opportunity. Cable
networks have thrived during economic downturn due to heavy
reliance on subscription based revenues.
… but there are net neutrality checks
Comcast will be banned from engaging in anti-competitive
practices like blocking the competitor content or prioritizing its
own services like Hulu. Additionally, the company can not use its
set-top boxes or other hardware to intentionally channel its
customers towards its own content at the cost of competitor
These checks are likely to limit the advantage that Comcast can
take. Additionally we think that there are other broader issues of
high cable bills and bad customer service that might need to take
Do you think that the customers might view Comcast's deal
positively? Do you think Comcast can halt its declining
pay-TV market share
with the deal? You can modify the forecast below to see how change
in market share impacts the company's price estimate.
You can see
the complete $25.24 Trefis price estimate for
Comcast's stock here
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