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It’s a case of a partly cloudy Sky for Comcast as Wall Street wonders if the benefits of acquiring the European pay TV giant in late 2018 were worth the $40 billion price tag. That’s pretty hefty, considering that Sky, run by CEO Jeremy Darroch, is not expected to grow profits in 2020.
Skepticism has been a prevailing investor sentiment since the deal was closed in late 2018, but some analysts voiced it again after the company’s fourth-quarter earnings report, especially because Comcast’s core cable systems financials have grown strongly, driven by broadband.
Without Sky or NBCUniversal, “its price chart would look much more like that of [pure-play cable giant] Charter,” Bernstein analyst Peter Supino says. Charter shares are up 165 percent in the past 52 weeks; Comcast’s are up 23 percent. Benchmark analyst Matthew Harrigan also notes that for Comcast proving the benefit of owning Sky is “still a marathon and not a sprint.”
“The outlook for NBCU and Sky has begun to deteriorate more rapidly,” says Supino, who also fears Comcast may acquire yet more showbiz assets to buttress the ones it has already.
In its first full year under Comcast ownership, Sky did manage to grow earnings 12 percent, though only after interest, taxes, depreciation and amortization are stripped away. Sky, which offers traditional pay TV and streaming services in the U.K., Ireland, Italy, Germany and Austria and streaming services in Spain and Switzerland, said Jan. 23 that its total customer relationships increased by 394,000 to end 2019 with nearly 24 million.
But Comcast said it will increase investments in the rollout of pay TV features, broadband services and more original content — it intends to double its annual spending on Sky originals, which have included the HBO co-production Chernobyl and Julia Stiles drama Riviera — over five years to about $1.3 billion, an expenditure that will leave Sky earnings unchanged in 2020 compared with 2019.
“Unfortunately — for investors, at least — cable is only half of Comcast,” echoes MoffettNathanson analyst Craig Moffett. “The most vexing question here remains: How does Sky fit in Comcast’s portfolio?”
Comcast chairman and CEO Brian Roberts addressed the question of Sky’s value to Comcast on the Jan. 23 earnings call in general, saying: “Sky has been a great addition to Comcast and positions us to better compete in a world where global scale matters.” He said that the U.S. and Sky’s biggest markets of the U.K., Germany and Italy represent 50 percent of the world’s broadband and video revenues.“That’s pretty extraordinary,” he said.
Company insiders express hope that the global NBC/Sky News venture, expected to launch this summer, is an opportunity to showcase the synergy between Sky and the rest of the company. Sky and NBCU’s collaboration on advanced advertising, executive moves from Sky to other parts of the company and vice versa, and the upcoming streamer Peacock, which will run on Sky technology, also could allow investors to better appreciate how the different parts of the company can learn from and lean on each other.
In addition, the planned Sky Studios Elstree near London is backed by Sky, NBCU and Comcast and will, for example, also provide U.K. studio space for NBCU productions.
Offering a more bullish outlook is Wells Fargo analyst Jennifer Fritzsche. While acknowledging the caveat that “media assets keep Comcast from being a fully ‘clean’ story,” she adds, “We expect the company to continue to show the synergies of these assets and how it will allow it a distinct advantage in the changing competitive environment.”
This story first appeared in the Jan. 29 issue of The Hollywood Reporter magazine. Click here to subscribe.