Why Wall Street is skeptical about Comcast’s proposal to ditch its cable networks and pair Peacock with a competitor

Comcast is considering shaking up its media assets in a major way.

Comcast said this week it might separate from its cable networks and marry off its streaming service. Several media analysts worry that those moves might only end in heartbreak.

Mike Cavanagh, Comcast’s president, floated the idea Thursday of spinning out cable networks like CNBC and MSNBC into a new firm while holding on to NBC. If this sounds familiar, it’s because rival Disney considered a similar move last summer — floating a sale of its broadcast network, ABC — before later backtracking.

Cavanagh also said Comcast “would consider partnerships in streaming, despite their complexities” — even after reporting that morning that its streaming service, Peacock, added an impressive 3 million subscribers in the most recent quarter.

These comments come after Bank of America media analyst Jessica Reif Ehrlich opined over the summer that fellow firm Warner Bros. Discovery should find a streaming partner or consider splitting up its business, given that the pay-TV business is severely challenged.

Why Wall Street isn’t sold on a network spinoff

At first, Wall Street seemed to celebrate Comcast’s potential strategic shift, as its stock spiked 6% in early trading after Cavanagh’s comments and its strong earnings report.

However, shares shed much of those gains within a few hours before ending the day up 2.4%. Investors may want Comcast to exit the challenging media business altogether.

Several industry analysts said that Comcast could increase its valuation by divorcing itself from its declining cable networks, as it would help emphasize its burgeoning streaming business.

“We believe a spin would help isolate the value of its growth areas,” UBS media analyst John Hodulik wrote in an October 31 note.

Craig Moffett of MoffettNathanson agreed, telling B-17 via email that “it would be a welcome development to shed an albatross business and leave in its wake a cleaner and simpler growth story.”

“Investors have yearned for exactly this, or at least something close to it, for years,” Moffett wrote in a note to clients.

While that move may make sense on paper, it could prove to be difficult in practice.

There’s an obvious issue with such a spin-off, as B-17 noted: Who would want to buy these less desirable assets, at least at a price that Comcast could stomach?

“Carving out the US cable networks, which include USA, CNBC, and E!, without Peacock or the NBC broadcast network would be odd,” wrote Michael Hodel, a media analyst at Morningstar. “The cable networks likely have little value on their own. A spinoff would have to be part of a larger strategic move, like merging with another firm.”

Macquarie’s Tim Nollen agreed, writing on Friday morning that “we question how valuable cable networks would be stand-alone, without ties to NBCU’s studio and streaming capability, and lacking advertising tie-ins.”

Rich Greenfield of Lightshed Partners went further, reasoning in his note to clients that there isn’t a logical partner out there. Starz is a minnow relative to its peers, and Greenfield said it’s “certainly not strong enough to protect a weak basic cable network portfolio.”

And while combining with WBD’s TV networks could lead to significant cost savings, Greenfield suspects David Zaslav and company actually have the upper hand on Comcast. Although many thought WBD would be toast without the NBA, Greenfield believes the company could come out ahead by saving money while maintaining their networks’ carriage fees.

“There would be no urgency to such a combination,” Greenfield wrote. “If we were in Zaslav’s shoes, you would wait for NBCU to suffer and be opportunistic versus rushing into a merger to help Comcast.”

The Peacock partnership puzzle

Comcast’s streamer has made steady progress, but it can’t truly compete with its larger rivals, analysts said.

“Even though Peacock has enjoyed some very consistent growth in recent years, it is still very clearly subscale,” said Brandon Katz, a senior entertainment industry strategist at Parrot Analytics, in an interview. “It doesn’t have the penetration needed to offset what has been back-to-back years of very significant losses.”

Joining forces with other subscale streamers like Max and Paramount+ may seem like a sound strategy, but Greenfield explained that the logistics would be tough.

Peacock only operates in the US, while Max and Paramount+ have global aspirations. Comcast could keep licensing out Peacock’s content abroad, though that may not be efficient.

Another concern would be subscriber cannibalization. Greenfield estimated that a substantial number of Max and Paramount+ customers already have Peacock. A combined service would cost more, though it may not offset the overlap from ensuing cancellations.

And then there’s the question of whether Peacock would absorb Max or Paramount+, or vice versa. One of the biggest benefits of building a direct-to-consumer business is owning the customer relationship, so it’s unclear which media giant would sacrifice that at this point.

Even still, Katz said a Peacock-Max combination could be potent, given that the two services would garner a formidable share of on-platform demand, according to Parrot Analytics.

But a Paramount+ tie-up could prove to be a safer option, given that its ownership structure seems more settled now that the Ellisons are backing it.

Either streaming partner would require Comcast to sort through a litany of logistics, though doing so may be their best option.

“Once you find the partnership you like, how do you distribute that most effectively to consumers, and what do you price it as?” Katz said. “It’s a lot of unknowns, but a very tantalizing possibility for the industry.”