Comcast’s CEO is considering his next big move in the transforming media landscape

Comcast chairman and chief executive officer Brian Roberts has a penchant for lining up a huge deal around every five years or so. It was 2018 the last time he made a big acquisition, and Wall Street is ready for his next dramatic move.

The stakes have arguably never been higher for the media and communications giant: Comcast is losing cable TV subscribers at record rates. Growth in its broadband internet business has dried up amid fierce competition from the likes of Verizon Communications and T-Mobile US. The NBCUniversal division has been shaken by the departures of CEO Jeff Shell, who was ousted last month amid sexual harassment allegations, and ad chief Linda Yaccarino, who jumped ship to run Twitter. The likely sale of streaming service Hulu looms large and Hollywood writers are on strike. Comcast’s shares are down about 32% since peaking nearly two years ago.

As the largest cable TV and broadband provider in the United States, Comcast has gotten too big to acquire any more cable companies. But Roberts has embraced the idea of owning more of the content his cable system can deliver. His next big move will most likely involve Comcast’s media division, an entertainment business that includes the NBC broadcast network, a stable of cable channels, the Universal and DreamWorks movie studios, streaming platforms including Peacock and a stake in Hulu, and theme parks. And yet, Comcast lacks the breadth and depth of content to rival Disney and Netflix.

If Comcast has a “missing piece, it’s in media,” said Geetha Ranganathan, media analyst with Bloomberg Intelligence. And there’s one obvious fit. Like many companies, Comcast is probably “taking a closer look at gaming for the next leg of growth and customer engagement,” she said.

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Roberts may have tipped his hand last year when he briefly explored a deal involving video game company Electronic Arts, home of popular titles such as Madden NFL and Star Wars. Comcast followers suspect he would still like to add that kind of highly lucrative content to his empire, possibly in deals with companies such as Nintendo, Take-Two Interactive Software, or even Activision Blizzard if Microsoft’s planned takeover fails.

“When you heard they were willing to merge with EA, it makes you think anything could happen,” said Bank of America media analyst Jessica Reif Ehrlich. “Gaming is a business with property rights that adapt well with film, television, and even theme parks,” she said.

Whether it's in gaming or media, Roberts faces pressure to acquire or combine media assets that would help create a larger entity, particularly in streaming.

One widely anticipated solution is to combine NBCUniversal and Warner Bros. Discovery, the home of CNN, the Food Network, and HBO’s Succession. The new venture would offer a wealth of content from sports to shows and movies on a scale that could catapult it to the big leagues.

"That would create a truly indispensable streaming product for any household," said Wolfe Research analyst Peter Supino.

But a tie-up with Warner Bros. could also face antitrust hurdles in attempting to merge the parent of CNN with MSNBC, and regulators in the Biden administration have had trouble with many even smaller deals. In any case, such a move would have to wait until April 2024, when certain tax advantages that benefited the Warner Bros. and AT&T Inc. are out of the way.

An easier path would be gaming, where Comcast would be a new entrant and present very few antitrust concerns. Plus, the company has already enjoyed blockbuster success with NBCUniversal Pictures’ adaptation of the popular Super Mario Bros. game into the biggest box office hit of the year.

“Gaming allows deeper engagement with audiences and builds better experiences,” Ranganathan said. “Comcast can potentially mine these characters. Super Mario is a great example of a game, movie, and theme park attraction.”

The timing of any major move by Roberts could be tied to a likely decision to sell Comcast’s Hulu stake early next year. Comcast and Disney have an agreement for Disney to purchase Comcast’s one-third stake in a deal that values Hulu at a minimum of $27.5 billion. Comcast, meanwhile, also has the option to buy out Disney’s majority stake. If Roberts sells, he gets at least $9 billion to pump back into the business, fund a deal, or pay off investors in a share buyback.

Even if Roberts gives up Hulu, he’s leaning into streaming platforms such as Peacock, which he sees as the future of TV.

Comcast is in a late and slow transition toward an online consumer video offering that can be a landing place for fleeing traditional TV customers. Peacock is Comcast’s video salvation, but right now it’s relatively puny with 22 million subscribers — compared with Disney+’s nearly 160 million — and poised to lose $3 billion this year. At a recent investor conference, Roberts said Comcast would take steps to reduce the losses at Peacock, by charging pay-TV customers for access, instead of automatically including it in their cable service.

Roberts has spent his career at the company his father, Ralph Roberts, cofounded and controls a third of the stock voting rights, a possible complication for activist investors. Nelson Peltz’s Trian Partners bought a stake in Comcast in 2020 saying it was undervalued and held discussions with management. A year ago Trian announced that it sold its Comcast stake.

Roberts is advised by his close No. 2, president Michael Cavanagh, who spent most of his career in banking. While Cavanagh has been at the company for almost eight years, the fact that Roberts added the media unit to his duties after Shell was ousted, rather than tap an industry vet or any of the several qualified candidates at NBCUniversal, suggests there is a plan for action.

Roberts has been leaning more on Cavanagh lately. He told investors that Cavanagh has a take-charge calming influence that "reminds me a little bit of my dad." As for leadership direction, Roberts said, "there's an opportunity for the right kind of leader to step in and say, 'How do we get the benefit of all these businesses working together?' "

He added: Cavanagh is "helping us drive in a way that I think will be better than we've done historically."

Analysts have been fishing for clues as to what the next step may be. On an earnings call last month, the word strategy came up 20 times. The last time that word was used as frequently was on an earnings call five years ago, right after Comcast announced it’s last big deal — the cross-border takeover of UK TV broadcaster and broadband provider Sky.

Cavanagh took most of the strategy questions and suggested nothing is afoot. "There is no reason for anyone to think that we're going to be revisiting strategy," he said.

While deal speculation swirls around the company, on the inside Comcast is running at “peak investment capacity,” putting money into transformative efforts such as the pivot to streaming and a complete overhaul of its cable network to boost capacity, Chief Financial Officer Jason Armstrong said in an interview.

“There’s a lot of things we’re doing internally, so to the extent there’s something we’re looking to do inorganically to add to the portfolio — the bar is set pretty darn high,” Armstrong said.

Philadelphia-based Comcast still makes the bulk of its $121 billion in annual revenue from cable and broadband subscribers, but investors describe that side of the business as a slowly melting ice cube. TV subscribers are cutting the cord in record numbers, and broadband growth has nearly vanished in the face of rival fiber and wireless internet offerings from phone companies. Recently, Comcast has stemmed some of the losses by bundling low-cost mobile-phone service with broadband. Even if Roberts goes for a flashy Hollywood deal with Warner Bros., Comcast will still be the U.S.’s biggest cable and broadband company.

That's why not everyone thinks the media division should be the focus of attention right now.

Roberts has been opportunistic on deals, “creating great value for shareholders, particularly with NBCUniversal,” said Duff & Phelps managing director Ben Bielawski, whose firm has been a longtime Comcast investor. But “media doesn’t move the stock and is more of a distraction,” he said.

If anything, the most recent financial results, which showed better-than-expected broadband and wireless customer gains, "take the pressure off" any need to do a deal right away. Eventually, Bielawski said, the company will find some way to "monetize" the media business.

To Comcast’s loyal core investors, showbiz isn’t just a distraction, it’s a burden. The company’s cable TV and broadband business brings in twice as much revenue as the media unit but isn’t growing. And while cable subscriptions and ads generate more than four times the adjusted earnings before interest, tax, depreciation, and amortization that NBCUniversal does, a big portion of that money is spent on the media side.

When the core business is funding another business you get what MoffettNathanson analyst Craig Moffett calls the “conglomerate discount.” And media isn’t exactly a safe haven. Comcast has placed a big bet on entertainment at a time of falling profits and a production halt due to what could be a lengthy writers’ strike, and its streaming service is just a minnow swimming in a rough sea of sharks such as Netflix.

Despite the obstacles, Roberts may have an opening now that media assets have fallen from sky-high valuations.

“This is a jump ball moment for the industry,” said Todd Lowenstein, chief equity strategist at HighMark Capital Management. “We’re in a reset, after a period of chasing growth and overinvestment when money was free.”