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US media giant Comcast’s decision to separate its content and broadcasting division from its cable and broadband business is the latest in a series of recent transactions and restructures within the industry designed to reflect changing consumption habits and the disruption caused by streaming.
The split will take a year to complete, after which NBCUniversal and Comcast operate as legally separate, publicly listed companies with independent management teams and strategies.
Ostensibly, it will be business as usual after this latest boardroom maneuver. But given both NBC Sports and Sky Sports will both be part of the new NBCUniversal unit, there will likely be long-term implications for sports broadcasting on both sides of the Atlantic at a time when the sector is experiencing unprecedented change.
NBC has just completed the first season of a new deal with the NBA (Image credit: Getty Images)
What will Comcast and NBCUniversal control?
Following the split, the entity known as Comcast will continue to operate its cable and broadband networks, which currently connects more than 65 million customers across the US.
Consumers are served by its Xfinity brand, while Comcast Business is its enterprise division. Former Comcast chief financial officer Michael Angelakis will serve as chief executive.
Meanwhile, the new NBCUniversal will control the eponymous NBC broadcast network, Spanish language Telemundo network, Universal film studios and theme parks, Peacock streaming service and NBC Sports division.
Significantly, Sky will be part of the business, giving NBCUniversal access to a foothold in the UK.
The combined unit will be overseen by current Comcast co-chief executive Michael Cavanagh. His fellow co-chief executive Brian Roberts will work in partnership with the leaders of both of the new companies.
NBC has the NFL’s coveted Sunday Night Football package (Image credit: Getty Images)
Why has the split happened?
The motivations for the split are myriad but the main reason is that the world of broadcasting is becoming less integrated as more households ditch traditional pay-TV services in favour of more flexible and affordable streaming subscriptions. The relationship between content and distribution is now much more casual.
At a business level, fewer pay-TV households means lower subscription revenue for providers like Comcast and reduced carriage fees for channels such as NBC.
Cord cutting has also intensified competition among direct-to-consumer (DTC) streaming services seeking to fill the void, increasing the need to spend significant sums on content, marketing and technology to drive customer acquisition and retention.
To futureproof their businesses, traditional media giants have spun-off, merged or sold entire parts of their organisation. This gives a narrower focus, provides clarity for shareholders, and achieves economies of scale.
Paramount’s proposed purchase of Warner Bros. Discovery (WBD) is a consolidation play that combines the scale of two competing streaming services and creates a vast content library backed by two of the largest studios in Hollywood.
Disney’s acquisition of 21st Century Fox at the turn of the decade was designed to bolster its future DTC service – and it found a willing seller in Fox, which had no desire to get involved in the streaming wars.
Comcast has already spun-off its cable television assets into Versant, a separate unit, and now it is going one step further by fully dividing its content and distribution arms.
The new NBCUniversal will have freedom to pursue an independent strategy tailored to the new world of media. It could invest more in content, acquire smaller studios to bolster its catalogue, or expand into new markets.
Meanwhile Comcast is free to invest in its infrastructure and ensure it is well-positioned to cater for demand for more advanced connectivity to support current and future entertainment services. It will also still benefit from declining but still substantial cable revenues and can expand into other areas of technology.
And although takeover talk is some way off, it will be easier for investors to value each business and simplify the process for any future merger or acquisition – delighting shareholders.
What does this mean for NBC Sports?
In the short term, very little. Sport is a key generator of audiences for NBC and a key driver of subscriptions for Peacock, arguably more so than any of its multi-genre streaming rivals, and will continue to be so.
NBC Sports has long term contracts with the National Football League (NFL), National Basketball Association (NBA), Major League Baseball MLB), and the Premier League, among others.
Longer term, this portfolio of premium rights, coupled with the intellectual property supplied by Universal Studios, would make NBCUniversal attractive target for a potential suitor eager to bolster their own offering.
An independent NBCUniversal would be much easier to acquire than the whole of Comcast. After all, a pure-play streamer isn’t going to want to run a communications network.
Netflix, which was beaten in the race to acquire WBD by Paramount, would be an obvious candidate – especially given it has been linked with a move for the NFL Sunday Night Football package currently held by NBC.
However, whether Netflix would want to get involved with the business of operating legacy broadcast networks is a matter for debate. Indeed, its bid for WBD did not include its television business and, as one of the big four US networks, NBC would come with certain regulatory obligations that might also put off other streamers.
Sky Sports will be part of the NBCUniversal company moving forward (Image credit: Getty Images)
What does this mean for Sky Sports?
Comcast bought Sky for UK£30.6 billion (US$40.6 billion) in September 2018 after a protracted bidding war with Disney. The perception at the time was that Comcast overpaid, an argument strengthened by a US$8.6 billion write down in the value of the business last year. The sale of Sky Deutschland to RTL earlier this year also suggests European expansion has not met its expectations.
Nonetheless, Sky remains the leading player in both pay-TV and sports broadcasting in the UK – even though its dominance in both sectors has been eroded by competition from rival telcos and global media companies.
As in the US, many households have switched to streaming and therefore only need a broadband connection, Sky no longer has a monopoly on premium sport, and it no longer has exclusive rights to WBD content after the launch of HBO Max.
However, Sky has had some success in future proofing its business through network investment, the launch of the Now TV DTC platform and by positioning its pay-TV service as an aggregator of key services.
Direct ownership of premium sports rights remains integral, as evidenced by the billions it spends on Premier League soccer, Formula One, international cricket and other needle-moving properties.
But whereas NBCUniversal and Comcast represent a split between content and network services, Sky’s satellite, broadband, technology, streaming and broadcast units remain unified.
This deeper integration coupled with a lack of international scale and more modest content creation capabilities would, in theory, make it less attractive to a global streamer.
Instead, Sky could pursue a different path – either as part of NBCUniversal or alone. It has reportedly agreed terms to acquire ITV, the UK’s biggest commercial broadcaster, and the ITVX streaming service for UK£1.6 billion (US$2.12 billion).
The combination of Sky’s existing pay-TV business with ITV’s reach would potentially create a UK streaming champion better equipped to compete with the likes of Netflix, Amazon and Disney, whilst also giving Sky significant control over the UK advertising market, allowing to achieve economies of scale.
This could potentially increase the budget it has for live sports rights, while it would be able to offer rights holders a combination of pay-TV and free-to-air (FTA) distribution that can more easily balance the need for reach and revenue.
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