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Cable Tech

Where AT&T and Verizon failed, Comcast is now quietly poised to win

AT&T and Verizon have been widely mocked for their mostly unsuccessful forays into the media and content industry.

Specifically, AT&T splurged $85 billion on Time Warner in 2018 only to offload it to Discovery this year. Similarly, Verizon acquired AOL in 2015 for $4.4 billion and Yahoo in 2017 for $4.5 billion only to sell them to Apollo Global Management this year for $5 billion.

In the wake of their retreat, both companies have pledged to double down on their connectivity businesses.

"Good to see more telcos exiting ill-conceived content and media businesses," analyst Dean Bubley of Disruptive Analysis wrote in a post on LinkedIn. "Instead of chasing Netflix et al, they should have invested $$$ in R&D, systems integration capabilities or partnerships, B2B specialism in specific sectors as well as software and AI skills."

The situation certainly has not been lost on the executives involved in the transactions, some of whom have expressed a surprising amount of regret.

"If you had a flux capacitor and a DeLorean and you could go back to the future, would you tell yourself [to do] something different? Yeah," admitted AT&T's network chief Jeff McElfresh in comments to The Financial Times. McElfresh was discussing AT&T's lack of recent investment into fiber, a situation that partly stems from the company's focus on content.

McElfresh's comments were also noteworthy in that they referenced the film Back to the Future, which features a DeLorean powered by a fictional flux capacitor that could travel through time in order to right wrongs. The film is owned by NBCUniversal, which is owned by Comcast.

And Comcast – one of the nation's biggest Internet service providers – has no regrets about owning a sprawling content and media business.

A unique position

"We are a media and technology company," Comcast CEO Brian Roberts said in May, according to Multichannel News. "Those two go together. It's not really vertically integrated, it's delivering to customers and viewers experiences and memories and things like our theme parks. It relates to the characters and intellectual property that they're in love with and their kids love."

Roberts continued: "We see the two working together and we're growing our ability and technology with one platform working together as one company, content, distribution, now aggregation and streaming, in a way that puts us in a very unique and different position than some of those other companies."

Comcast, of course, purchased a controlling stake in NBCUniversal in 2009. In 2013, it purchased the remainder of the company. The transaction made the ISP the owner of such well-known franchises as Back to the Future and Jurassic Park. Today Comcast's media business stretches across TV shows, movies, streaming video services and theme parks.

For every investor baffled by the CEO of AT&T talking about the Godzilla vs. Kong film, there's another who's completely comfortable with the CEO of Comcast talking about the Minions 2 movie.

Perhaps more importantly, Comcast's investments in content and connectivity appear poised to begin paying off handsomely – just as AT&T and Verizon cement their exit from the content space.

Pandemic pick-up

"While we continue to believe that cable and media would be better off separate, and that NBCU's seeming inability to pursue WarnerMedia further validates that thesis, Comcast the conglomerate has begun to rebuild its standing with investors," wrote the financial analysts at Sanford C. Bernstein in a recent note to investors.

Others agree.

"Comcast's Cable business is performing extremely well," wrote the financial analysts at New Street Research. "NBCU is also doing well. The [pandemic] reopening theme is well understood, with companies in general commenting on a strong recovery in advertising and Comcast in particular speaking to improving trends in theme parks and theatrical [movies]."

Comcast "is emerging from COVID-19 with a wide variety of growing businesses: broadband Internet, enterprise services, mobile, NBCUniversal and theme parks," wrote analyst Jim Patterson of Patterson Advisory Group in his weekly newsletter. "Perhaps the only weaknesses in the Comcast portfolio are their video and home phone products, and the unusually poor performance of the Philadelphia Flyers (who failed to make the NHL playoffs this year)."

Fast and cautious

Indeed, Comcast just scored a big win with its F9 movie, which raked in $70 million during its opening weekend, the most of any movie released in the wake of the coronavirus pandemic. That figure clearly represents a willingness by Americans to return to leisure activities, including potentially visiting theme parks like Comcast's Universal Parks & Resorts.

But some analysts are also starting to warm to Comcast's streaming video efforts, centered on its new Peacock service. That's noteworthy considering Comcast's aging pay-TV business has taken a pounding due to the broader cord-cutting trend sparked by streaming video.

"We see material long-term revenue potential at Peacock," wrote the Sanford C. Bernstein analysts. "While we agree that Peacock, as it stands, is a third-tier streaming service, we see a growth opportunity and urge investors not to judge Peacock based on its adherence to the SVOD [subscription video on demand] 'playbook' executed by Netflix and Disney."

They continued: "In the SVOD playbook, a service must offer a compelling menu of programming to entice consumers to commit to a monthly subscription. This strategy requires enormous upfront cost for success and, if executed successfully, offers longer-term efficiency opportunities associated with audience size and frequency. NBC, without Disney's brands or Netflix's first mover advantage, has organized Peacock around an AVOD [advertising-based video-on-demand], and premium (hybrid AVOD/SVOD) model. Asking nothing of consumers for sampling, Peacock can gradually move content into the Peacock ecosystem as rights deals mature, as the linear opportunity cost shrinks, and as Peacock's monetization engine strengthens."

Also looming on the horizon for Comcast: The Tokyo Olympics.

A mobile Trojan Horse

Perhaps more importantly, Comcast may also be enjoying some tailwinds in its core connectivity businesses. After all, thanks to the pandemic, Internet access has moved from a nice-to-have to a must-have. Moreover, billions of dollars of government funding appear poised to rush into the broadband industry in ways that some investors believe could buoy ISPs like Comcast.

"Over the past few months, regulatory risk has certainly been 'better than feared' following Biden's initial harsh tones against big ISPs, and likely partially responsible for the recent stock recovery for cable names," argued the financial analysts at Cowen. They explained that President Biden's initial broadband spending proposal appeared geared to create competition for providers like Comcast, but recent Washington negotiations appear to have tampered those fears among investors.

And then there's Comcast's Xfinity Mobile wireless business, which has been more successful than most in the industry expected. "Cable wireless is now ready for its star turn," wrote the financial analysts at MoffettNathanson in a recent note to investors. They argued that "it's time to take cable's wireless business seriously."

Indeed, Comcast recently said its Xfinity Mobile business, which had about 3.1 million mobile lines in service at the end of the first quarter of 2021, recently achieved break-even status.

The timing of Comcast's upswing – particularly in content and wireless – is particularly rich given that both AT&T and Verizon are pivoting away from content to focus more carefully on their connectivity businesses, businesses that are in some cases threatened by Xfinity Mobile.

Nonetheless, most investors viewed the decisions by AT&T and Verizon to exit the media and content industry as wise moves.

Comcast CEO Roberts might disagree. The executive, who was named president of Comcast in 1990 at 31 years old, attempted to purchase Fox in 2018 only to lose it to Disney. Now he's reportedly pursuing a tie-up with ViacomCBS or acquisition of Roku.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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