Retrans and network turnaround shift sentiment
After years tucked into GE and an inauspicious start under Comcast, NBCUniversal can finally strut as investors sit up and take notice, and not in bad way. They’re starting to like Comcast for the Peacock, not in spite of it.A burgeoning turnaround at the broadcast network is the highest-profile shift, but there’s also huge upside in retransmission revenue and potential for affiliate fee hikes at some cable nets. “For investors in Comcast, NBCU has gone from an albatross to a key part of the bull case. Wall Street loves a turnaround story. Investors now routinely differentiate between Comcast and other cable stocks by pointing to NBCU…as a benefit,” wrote Todd Juenger of Bernstein Research. In a comprehensive report on Comcast on Thursday, Juenger predicted $1.5 billion in annual upside for NBCU cash flow by 2016 with $800 million from retransmission and reverse compensation. If each of the four major broadcast nets shared revenue equally, he said, NBC’s would be $450 million more than it is today. The flip side of a newly cash-rich NBCU is that Comcast may have to pay more to buy out minority partner GE. Comcast owns 51% of NBCU, GE 49%. In 2014, GE will have the right to “put” half of its stake, or 24.5%, to Comcast and if it does, Comcast has to buy it. Comcast would then have the option to acquire GE’s entire 49% stake or it could wait until 2018 to buy the remainder. The pricetag would reflect NBC’s performance at the time. Buying all of NBC in 2014 would give Comcast investors the benefit of NBCU’s upside sooner rather than later, Juenger pointed out, lock in a price that could otherwise rise if the division continues to improve and take advantage of cheap financing. But he and others think the giant cabler is more likely to do the deal in pieces given attractive terms, with a pricetag calculated at somewhere between market value and the relatively low initial purchase price. He figures the first piece would cost $8.8 billion and the second $10.2 billion. Under the terms of the complex NBCU deal, announced in late 2009 and closed in early 2011, if GE doesn’t put the stake to Comcast in 2014, Comcast can “call” it, or insist on a sale, in 2016. The partners also have various options for an outside sale or IPO after right of first refusal. NBC’s rebound has been swift and sudden. It is No. 1 this season for the first time in nine years, winning or tying eight of the first nine weeks. While you can’t assume the net will continue to improve, you also can’t assume the opposite, Juenger said, especially given its clear commitment to new programming like “Revolution,” “Go On” and “Grimm.” “The Voice” and “Sunday Night Football” are big winners too. He sees upside on cable, if not as much. Flagship USA Network gets lower fees than its peers largely because it lacks major sports programming. Fees for TNT, which has NBA basketball, golf and NASCAR, are double USA’s despite lower ratings, he noted. He sees some upside if Comcast can leverage NBC Sports and allocate what it has more effectively to get higher affiliate fees. MSNBC could get a potential bump of $140 million a year in fees if it can rise to what would be a 10% discount to Fox’s rate, or 29¢ per sub. Bringing Oxygen to parity with rival femme nets Lifetime and WE could bring in an additional $50 million a year. Syfy already collects a healthy fee, and the other nets seem fairly valued, Juenger said.
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