In New ‘Flexibility’ Change, Comcast Spinoffs Will Be Targets for Mergers

Comcast’s announcement that it will split into two companies, one focused on video distribution and the other on entertainment, will provide “flexibility,” CEO Brian Roberts said Monday.

Okay, what does flexibility do?

Apparently, the flexibility to make deals, even if Roberts, whose family will continue to hold controlling shares in both spinoffs and Versant that was previously thrown, said during the same press conference that the company is not looking to sell any part of it.

But at a time when sales are more concentrated in distribution and marketing (see also, Charter and Cox, Fox and Roku, Walmart and Vibe.co), this direct flow may be the greatest effect of all, stopping two different companies in the future for cooperation, acquisitions or other corporate structures.

That prospect sent Comcast shares up 25 percent at the pre-market open, before retreating to about 7 percent. A little ironic: the biggest immediate beneficiary of the day’s announcement was the country’s other largest cable provider, Charter.

Charter, which spun off Cox Communication from a previous deal, saw shares rise 31% on Friday over a possible partnership with SpaceX, which could launch its own space service and would need access to a traditional 5G network to better reach urban areas not well served by Starlink’s satellite and broadband service.

Comcast’s announcement on Monday sent Charter shares even higher, because while the companies are best known for their traditional television broadcasts, they don’t compete directly in many individual retail markets.

In fact, the merger between the two has long been promoted as the rolls of cable subscribers dramatically turned off. The two companies are now partners in Xumo, a free, ad-supported streaming service and technology company powered by Comcast X1 next-generation streaming devices.

Obtaining such an agreement will not be easy, given the federal officials, states and local regulators that will have to sign off, although stripping the entertainment divisions, including the broadcast operations of NBC, means that the politically sensitive Federal Communications Commission will not have a legal basis to review the agreement.

But it’s far from a deal in place to make Comcast’s parts suddenly hit the market.

Is, for example, Netflix eyeing NBCU’s entertainment assets after briefly closing the deal for Warner Bros. Discovery, then loses Paramount Skydance’s $111 billion bid?

Shares of the streaming giant have settled back into the mid-$70s range after running around $133 a year ago, even as it avoided the heavy debt burden of $PSKY.

But Netflix Co-CEO Ted Sarandos also said during the WBD process that the company has appreciated Warner’s theatrical distribution and marketing. It’s safe to say that Donna Langley can handle the same distribution job at Universal Studios.

Netflix has also aggressively moved into entertainment-related sectors, such as video games and live experiences. Universal has the second theme park operation after Disney, marked by last year’s Orlando opening of the repeating names Universal Epic Universe.

The Versant deal has already unseated many of Comcast’s waning cable channels, leaving only Bravo, thanks to massive fan engagement, to bring its unscripted program Bravoverse to the money-losing Peacock streaming service.

NBCU also has many attractive sports rights, another area where Netflix has invested over the past few years. That includes more NFL games, the NBA’s new contract and Big 10 college games.

Of less interest will be the NBC broadcast network and the local TV stations owned and operated in the NBCU portfolio, mainly because they give FCC Chairman Brendan Carr an opportunity to inflict more regulatory pain on Roberts or any acquirer.

All of Comcast has a market value that’s roughly a quarter of Netflix’s $311 billion size, so a deal for part of the company, shedding distribution and possibly streaming operations, would certainly be financially sustainable.

Any such potential trade is still on hold for much of next year, while the separation process continues. But broadly speaking, at a time of rapid consolidation and restructuring of traditional media companies in broadcasting (again, that Fox-Roku deal), it’s impossible to interpret Roberts’ plea for “flexibility” as anything other than a green light for more deals to emerge in a chaotic sector.