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May 15, 2012
Comcast is selling its minority stake of 15.7 per cent of A&E Networks to partners Walt Disney Co and Hearst, in a move which will net the company a windfall. Disney and Hearst currently own 42.1 per cent and 42.2 per cent of the company, respectively. Valued at $2.0bn by industry analysts, the deal implies a $12.7bn total value of A&E Networks, or 14.3x its estimated 2011 EBITDA of $891m (according to IHS Screen Digest's US Cable Networks Intelligence).
This isn't the first time Comcast has floated the idea of selling off a key property. In 2009 the company attempted to sell G4 Tech TV for a sum near $600m, or 12.3x its estimated 2011 EBTDA of $48m.
Following the merger of the two companies, and the folding of Comcast's existing programming assets into the new NBC Universal unit in the beginning of 2011, Comcast has begun a serious evaluation of the business unit. Comcast is betting that NBC Sports Network, which changed its name from Versus in January, will shed its lack-of-compelling-sports-deals stigma.
In July 2011, Comcast purchased the rights for the next four Olympic events in 2014-2020 for nearly $1.1bn apiece or $4.38bn in total. The company plans to spread Olympic coverage across its portfolio of networks, and is betting that it can compensate for prior year losses by selling ads.
The combination of Comcast and NBC Universal created a potent media conglomerate. Given the company's significant interests as an operator and as a programmer, IHS Screen Digest expects that it will continue to be profitable in these tough economic times. While IHS Screen Digest believes that the threat from OTT competition is overblown, the fact of the matter is that growth in carriage fees and the subsequent pay TV ARPU growth continues to put pressure on the industry.
The newly-combined Comcast NBC Universal is treading lightly as it renews carriage agreements for its networks. Prior to regulatory approval for the merger, there were fears that the company would use its new influence to extort exorbitant licence fees from its operator competition while giving its pay TV unit a steep discount. IHS Screen Digest believes that the perceived 'inevitable' discount is unlikely as the company must maintain its existing relationship between operating segments.
By divesting itself of its A&E interest, Comcast will gain an infusion of cash which it can directly apply to its significant post-merger debt, but more likely will apply it to program/sports rights acquisitions. IHS Screen Digest believes that the company will likely seek to bid on significant sports rights when they become available, a boon for its national NBC Sports Network, as well as its stable of regional sports networks.
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