Comcast's decision to spin off NBCUniversal cable networks has sparked a flurry of reactions in the business world. While some applaud the move, skeptics have also voiced their concerns. This article delves into the details of the spin-off and examines the various perspectives surrounding it.

Introduction and Initial Reactions

Updated with the closing price, Comcast's decision to spin off NBCUniversal cable networks has drawn attention. Shares in Comcast, which were slightly in the red for the year to date, remained mostly flat on Wednesday but saw a late rally, climbing 1.6% to finish at $42.99. The details of the planned spin first emerged on Tuesday night, and the company made it official early today. When the company announced it was exploring the scenario three weeks ago, on the day it also released third-quarter earnings, the reaction was generally positive. MoffettNathanson analyst Craig Moffett wrote in a note to clients that the spin was "a very welcome development. Investors have yearned for exactly this, or at least something close to it, for years." Jessica Reif Ehrlich of BofA Securities interpreted the news as a clear M&A signal, observing that it "may reduce the regulatory hurdles enough for Comcast to potentially attempt another large cable merger."

Applause in Some Parts

In certain sectors of the business world, Comcast's decision to spin off NBCUniversal cable networks has been met with applause. This move is seen as a strategic step that could potentially unlock value and create new opportunities. By separating the cable networks into a new publicly traded entity, Comcast aims to focus on its core broadband business and enhance its competitiveness in the digital age. The positive reactions suggest that many believe this move will lead to greater efficiency and innovation in the media and entertainment industry.

For example, some analysts argue that the spin-off will allow NBCUniversal cable networks to operate more independently and make decisions that are tailored to their specific markets. This could lead to the development of more targeted content and better marketing strategies, which in turn could attract more viewers and advertisers. Additionally, the separation could make it easier for Comcast to divest non-core assets and focus on its growth areas.

Skepticism from Others

However, not everyone is convinced that the spin-off is a good idea. Several Wall Streeters and industry observers have flagged concerns about the transaction. Brian Wieser, a former analyst and ad agency executive who now runs consulting and advisory firm Madison & Wall, said the move appears to be "dis-synergistic." In his assessment circulated to clients and subscribers to his newsletter, he wrote that advertising revenue could take a hit, at least in the near term, and that could lead to distribution issues.

Wieser pointed out that every aspect of the businesses Comcast wants to sell benefits from scale. In the present era, advertising budgets are allocated to the biggest sellers before they are allocated to smaller sellers because otherwise advertisers end up with more unintended audience duplication than they might otherwise want. He believes that in the future, scale will matter even more as marketers will increasingly prioritize the broadest reaching digital platforms over traditional sellers of advertising. This could pose a challenge for the newly spun-off cable networks, which may struggle to compete with larger digital players.

Impact on Valuation

Laurent Yoon, a media analyst with Bernstein, doesn't see the maneuver increasing the value of the entire Comcast-NBCU empire. The simple reason is cord-cutting. "Legacy Media is in perpetual decline," he wrote in a note to clients. "With traditional MVPD subscribers declining by high-single-digits per year, the valuation of the two entities is unlikely to provide a meaningful upside."

Yoon estimated the valuation of SpinCo at about $10 billion, a small fraction of Comcast's current level of about $250 billion. Most of the larger company's profit comes from the broadband business, not traditional linear TV. However, he does see the new stand-alone entity potentially becoming "a vehicle to further consolidate assets in similar situations that may not be appealing to public market investors but interesting enough to private market investors at an appropriate valuation." Warner Bros. Discovery and Paramount Global recently took a combined $15 billion in write-downs on the value of their cable networks, suggesting that there may be potential sellers looking to engage with SpinCo.

Yoon added that the move would've been value accretive a few years ago when both cable and media multiples were significantly higher, but better late than never. This highlights the changing dynamics of the media industry and the challenges faced by traditional cable networks in a digital age.