It may have just been a coincidence, the gods trying to tell me something, a search engine recognizing that I’ve been searching a lot of Comcast stories lately, or given today’s political climate a dark, foreboding conspiracy, but for some reason a Morgan Stanley ad from way back in May (Exceptional Leaders, Exceptional Ideas) popped into the front of my Twitter feed this morning. Featured was a month-old interview between the investment bank’s top media analyst Ben Swinburne and Comcast chairman and CEO Brian Roberts. And though it was obviously somewhat self-serving -- it was an advertisement, for criminy sake -- it nevertheless showed a bit of an insight into the mind of the guy who runs the largest cable operator in the country.
Roberts and Comcast have been at the center of a bit of a firestorm in the wake of a June 23 Wall Street Journal article that hinted that the Comcast chief is looking for ways to jump start its streaming business, and considered purchasing Roku or ViacomCBS. The article stated that Roberts, who declined to be interviewed for the story, has been telling people close to him that he does not see a need for a deal but is looking at all of his options. One of those options, the article stated, is a “potential tie-up” with ViacomCBS or an outright acquisition of Roku.
So, on the surface, it looks like Comcast doesn’t really see a need to buy something big, but that it’s keeping its options open, and a couple of people who asked not to be named think that it would be a good idea if they bought something. Gee, I wonder who they might be?
Comcast stock dropped about 5% ($2.72 each) to $54.91 per share in early trading June 23 as a result of the fear that it would again spend too much money for an asset -- the other time was its $40 billion purchase of Sky PLC in 2018, according to some analysts.
The stock has rebounded slightly -- it closed at $56.06 on June 24, $56.42 on June 25 and slipped to $56.10 on June 28. Today, (June 29) it was trading at $56.97 this afternoon.
Despite the speculation that Comcast would pursue another big transaction, the company has been pretty straightforward in saying that major deals are not top of mind. At the J.P. Morgan virtual Technology Media & Communications conference in May, Comcast chief financial officer Mike Cavanagh said that “M&A is not an answer.”
“We like the hand we have without M&A, but we'll obviously do what's right for shareholders as time passes,” Cavanagh continued.
Look, I’m no ingenue here. I know that companies sometimes say they don’t want something and then a week later seemingly can’t live without it. It has happened countless times in the history of the media business. And I know that any CEO who hasn’t been at least considering potential pairings to improve their lot in the new streaming paradigm is not doing his or her job.
I also know that the standard response to “What are you going to buy?” is almost always “We’re looking at everything, but we don’t feel the need to do anything.” Saying anything more or less would run the risk of appearing to act in ways not beneficial to shareholder interests. Show me a company that says we definitely don’t want to buy or sell anything and I’ll show you a class action suit just waiting to happen.
But sometimes, in the immortal words of Sigmund Freud, a cigar is just a cigar.
Analysts have pointed to three items that they believe will keep Comcast out of the deal market, at least for the time being: regulatory concerns; its aggressive share buyback plan and the seeming failure for any of those potential deals to move the needle that much.
In Q1, Comcast said it would restart its share repurchase program after a three-year hiatus as it tried to deleverage in the wake of the Sky acquisition. In a research note, Bernstein media analyst Peter Supino wrote that attempting a major acquisition at the same time would be “borderline psychotic.”
Others have noted the prohibitive size of a potential Roku deal because, with a market cap of $55 billion, any potential bid would have to come in around $75 billion. Most believe that Comcast is probably better off just giving its 29 million broadband-only customers a free Xfinity Flex box, at the much, much lower cost of about $1.5 billion.
They further pointed out that a deal to buy ViacomCBS would face regulatory problems because both own broadcast networks (CBS and NBC). And while Comcast could buy Viacom’s Paramount studio and/or its cable networks, many analysts aren’t sure how far that deal would move the needle for either company.
Comcast has a history of earth-shaking deals from AT&T Broadband in 2001, to NBCUniversal in 2009 and 2013. But Comcast also has known when it was time to back off -- abandoning its 2004 takeover attempt of Disney, giving up its pursuit of MediaOne in 1999, and more recently abandoning efforts to purchase 21st Century Fox assets in 2018 and Time Warner Cable in 2015. According to cable legend John Malone, Comcast also took a peek at WarnerMedia content assets, opting against a bid because of regulatory fears. WarnerMedia agreed in May to combine with Discovery Inc. in a deal valued at about $43 billion.
Roberts spent a lot of time during the Swinburne interview talking about the past, how he based his management style on his father Ralph’s, how he looked to other executives for inspiration like Malone, former Comcast CFO Julian Brodsky and even media mogul Barry Diller, with whom he has had a complicated past relationship.
“I’ve been lucky because I’ve tried to learn from those who came before me,” Roberts said in the Morgan Stanley interview.
He mentioned how in 1997, he managed to convince Microsoft founder Bill Gates to invest $1 billion in Comcast, a move that gave the cable business instant credibility and injected new life into the at-the-time absurd notion that spending billions of dollars to build fiber networks for something called “broadband.” We all know how that turned out.
And though Comcast has been under pressure for months to spin off its content assets -- a move many analysts believe would unlock value -- Roberts said he believes content and distribution can work side-by-side, even as other companies are taking a different tack.
In the interview, Roberts said that throughout cable’s history, from Community Antenna TV to today’s mixture of broadband, streaming and linear programming, content has been the constant.
“Content has powered that all along the way,” Roberts said. “We see the two working together and we’re growing our ability and technology with one platform working together as one company, content, distribution, now aggregation and streaming, in a way that puts us in a very unique and different position than some of those other companies.”
“We believe in media and technology,” he continued. “The current Comcast, that’s how I would define us. We are a media and technology company. Those two go together. It’s not really vertically integrated, it’s delivering to customers and viewers experiences and memories and things like our theme parks. It relates to the characters and intellectual property that they’re in love with and their kids love.”
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Roberts picked two moments as turning points for Comcast: the 2008 launch of Project Infinity at the Consumer Electronics Show in Las Vegas, which paved the way for the current on-demand, streaming environment, and the 2014 decision to incorporate Netflix into its X1 platform.
Project Infinity, Roberts said, was Comcast’s effort to give customers what they wanted in an elegant way, allowing “consumers to have infinite choices of any content that has ever existed or might exist and leave it up to the IP rightsholder to determine whether it was free, advertising supported, subscription, pay-per-view, whatever model fit their business." He added the 2010 effort to rebrand its products under the Xfinity name had its roots in that CES presentation.
The Netflix integration came after a bit of a spat concerning peering of the service on Comcast’s broadband platform, which raised some hackles across the board.
“I give [Netflix CEO] Reed Hastings a lot of credit,” Roberts said about how the two companies managed to bury the hatchet. “We both reached out to each other and said we didn’t want to have any more disputes, we wanted to figure out how to go forward. He came to Philadelphia and I went out to visit him and we took long hikes and one day we, with the help of many other people in our companies, broke new ground.”
That included making the Netflix app available on Comcast X1 set-tops, and today Roberts said that in the cable company’s markets, Netflix is the No. 1 streaming app.
“Today we have Amazon and Apple -- we hope -- and we have Disney Plus and HBO and we have Peacock,” Roberts continued. “Some are our own, some are long term partners, some are new relationships. We want to say to these companies we are trying to find win-win outcomes. That can be hard at times. And you can have tension in relationships. The key is to try to navigate that and have a company that when you finally agree on something, you deliver. In fact, you overdeliver. I think that is what happened with Netflix and I think Reed has gone out of his way to acknowledge that.”
Roberts admitted that at first he was reluctant to go full bore into the new strategy, adding that it took some time for him to digest. But it wasn’t long before he was on board.
”It goes back to culture. Do you have people sitting around a table challenging each other, or is it hierarchical,” he said. “We had to prove that we could evolve our company.”
That evolution, he said, requires not only listening to its own executives, but those outside the company walls as well. He remembered a conversation he had several years ago with late Apple founder Steve Jobs, where Jobs suggested that Comcast incorporate WiFi into all its set-top boxes.
“I honestly wasn’t sure exactly what he meant,” Roberts said. “But I can tell you, we were pretty quick. We now have more WiFi than any company in America, and we put it in all our cable boxes. So sometimes you get ideas from all over the place, friends, competitors, other outside influences. I think it's important that you have a culture where you really try to rip up your playbook every day and make sure you have the right playbook tomorrow.”
So, will Comcast go on a buying spree, or will it not? For now, the smart money seems to be on the latter. But then, again, that all depends on the playbook.
