Is Comcast’s plan to become more of a media player by merging its cable networks with NBC Universal a distraction to its core cable business? Will adding NBC actually return less value to investors? And can lack of vision actually be a good thing?
These are questions that come to mind when one reads through two research notes written by BTIG financial analyst Richard Greenfield on Friday as he initiated coverage on and considered the future of two cable giants: Comcast and Time Warner Cable. The two companies are a study in contrasts, given Comcast’s forward-thinking initiatives and Time Warner Cable’s anything-but-innovative strategy. And while Greenfield gave one of the cablecos a “buy” rating and the other a “neutral” rating, those ratings might not break down the way you think.
Comcast has been one of the most innovative companies in the cable industry, pushing the boundaries with video on demand and launching the first-of-its-kind TV Everywhere portal, Fancast Xfinity TV. It looks like its record of innovation will continue, with its iPad remote app and its Tunerfish social recommendations project. That said, Comcast is set to become a media giant with a majority share of the new company that will be formed by merging its cable channels with NBC Universal. And the complexity that springs from that kind of deal could throttle innovation and cause Comcast to lose out to some of its competitors.
“While Comcast is likely undervalued at current levels, we have lived through enough major media mergers to realize that companies with this level of complexity usually trade at meaningful discounts to their peers and that their size usually causes operating performance to underperform their smaller, more nimble peers,” Greenfield wrote. In fact, by doing the NBC Universal deal, Greenfield says that Comcast is “essentially recreating Time Warner, which has just finished the process of simplifying/freeing itself from the ‘prison of media industry complexity.'”
At the same time Greenfield warns of Comcast’s overarching ambition, he praises rival Time Warner Cable for not really having a vision. “We know this does not sound like a positive attribute, but in the media industry, where empire building is the historic norm, lack of strategic vision is a positive in our view,” Greenfield wrote. But here’s the money quote: “TWC Chairman and CEO, Glenn Britt, appears to have no desire to be a media mogul –- preferring to relax in Hawaii than hang out in Hollywood and expand into the movie business.”
In Greenfield’s view that’s a good thing, as it will keep Time Warner Cable a pure-play cable operator, instead of a cable operator that is mixed up with nefarious businesses like movie studios and theme parks, which he calls “the Comcast Complex.” Instead, cable companies should continue to do what they do best — deliver pay-per-view porn to their subscribers.
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