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Comcast Still Has Big Streaming Dreams

Alan Breznick
5/15/2019
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Even though it's giving up operational control of Hulu to The Walt Disney Company and potentially selling its sizable Hulu stake, that doesn't mean Comcast has lost any of its newfound enthusiasm for streaming video.

Far from it, in fact, as Comcast Senior Executive VP and CFO Michael Cavanagh made clear yesterday. Speaking at the J.P. Morgan Global Technology, Media & Communications Conference in Boston on Tuesday morning, Cavanagh said he and other Comcast senior executives view OTT video as a key part of the company's future as broadband and mobile connectivity continue to take center stage.

Cavanagh said Comcast struck the complex "put/call" agreement with Disney -- which gives Disney full operational control of Hulu and could lead to the sale of the 33% ownership stake that Comcast's NBCUniversal unit holds in the popular OTT video service by 2024 -- for two basic reasons. First, he said, Comcast sought to protect the value of the TV programming it now licenses to Hulu until it's ready to shift that content exclusively to its own OTT offerings. Second, he said, Comcast wanted to make sure that it receives fair market value for its minority stake in Hulu if and when it does unload it.

"We don't want to be sellers of our stake at today's prices," he said. "So we negotiated for fair value after five years. That gives us great upside and limits our minimum equity vulnerability."

Under the put/call agreement, Comcast can force Disney to buy NBCU's interest in Hulu; and Disney, in turn, can force NBCU to sell that stake to Disney for its fair market value as early as 2024. While Hulu's fair market value will be assessed by independent experts, Disney has guaranteed a sales price for Comcast based on a minimum total equity value for Hulu of $27.5 billion. Disney also agreed that Comcast's stake in Hulu will never fall below 21%, meaning that Comcast is guaranteed to receive at least $5.8 billion when the sale occurs.

"It's a deal that's good for both parties," Cavanagh claimed. "We each get the things important to us."

Just as notably, Cavanagh said, the Disney deal allows Comcast to start running NBCU content that's now exclusive to Hulu on its own OTT service as early as Sept. 2020, in return for a reduced licensing fee from Hulu. That lines up well with NBCU's plans to launch a full-fledged direct-to-consumer (DTC) entertainment service sometime next year. NBCU can then terminate most of its other content license agreements with Hulu by sometime in 2022.

"Everything that matters will be available to us (by Sept. 2020) for our own DTC platform," he said, noting that Comcast officials are "optimistic" about their OTT market prospects. He declined to reveal more about NBCU's OTT plans, which call for a multi-pronged approach entailing both advertising-supported and subscription-fee options.

Turning to Comcast's $39 billion purchase of Sky last fall, Cavanagh said company officials are "proud and happy" about acquiring the large European satellite TV and OTT provider because it greatly broadens the company's reach and enables it to expand its "deepening relationships with some of the best customers in the world." With Sky serving the UK, Germany and Italy, and Comcast serving the US, he noted that the company now enjoys scale in four of the world's top 10 pay-TV markets in the world, with a collective total of 54 million paying customers. He also noted that, between Comcast and Sky, the company generates about $110 a month in average revenue per unit (ARPU) from those 54 million customers.

With Netflix, Apple, Disney, Amazon and other media giants all boasting about how much money they are, or will soon be, pouring into video programming, Cavanagh pointed out that Comcast, NBCU and Sky now combine to spend about $24 billion a year on buying and creating content, making them top players as well.

"It's up there with anybody and far ahead of many," he said. "We're No. 1 or 2 in the world."

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— Alan Breznick, Cable/Video Practice Leader, Light Reading

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