Streaming Wars And The Future Of CMCSA

Streaming Wars And The Future Of CMCSA
mohamed_hassan / Pixabay

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Streaming Wars And The Future Of CMCSA. Here’s an excerpt from the episode:

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Streaming Wars And The Future Of CMCSA

Tobias: What’s your topic segue onto the– Who does this hurt? So, if Netflix and Disney both win, who gets bloodied in this?

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Bill: I don’t know. I think Comcast Corporation (NASDAQ:CMCSA) is really stuck in the middle here. As a shareholder, it makes me not thrilled about the choices that I think they may face and how they may respond. I don’t really know whether or not that’s a fair thing to say. I had tweeted something out like imagine what Netflix would pay for DreamWorks and Illumination. And I now realize that was pretty stupid, just given Netflix’s culture. I thought about it a little bit more, and I can understand why DreamWorks may not work in Netflix. I would like for Comcast call up Apple and offer them DreamWorks or AT&T or something like that. I think that you’re going to have a lot of people that are going to try to spend a lot of money, and there’s only going to be a couple that can do it.

To me, I look at CMCSA and it’s interesting because I like the cable business. I think NBCU was a really good acquisition when they made it. But the future is definitely harder than the last 10 years have been. So, then what are you really getting into? Are you getting into a scenario where the free cash from the cable business is used to invest a shit ton of money in Peacock which I think it’s sort of a so-so experience as it is? And then like, they’ve got a bunch of different strategies– where I watch Xfinity on my Roku, but that kind of sucks. But their cable box experience, I think, is actually kind of awesome. But no one wants to hear about it anymore because you have to rent a box and people are pissed off at that. I just think that they’ve got a lot of problems.

So, I don’t know. Some of CMCSA content could make a lot of sense with AT&T, or AT&T’s with Comcast or something like that. And then Apple just has so much money, they’ll just spray it everywhere.

Tobias: That’s what you want to hear [laughs] as an Apple shareholder.

Jake: Yeah, as an Apple shareholder.

Bill: The thing is, Apple shareholders are just going to be like, “Who cares?”

Jake: Are they?

Bill: Well, yeah, dude. Let’s say Apple blows $20 billion on content, that’s like two-quarters of cash flow. It doesn’t even fucking matter, man. [crosstalk] That’s crazy but it’s true.

Jake: For what end though? What are they getting with that $20 billion, Apple TV stuff?

Bill: Part of the ecosystem, I guess. Yeah.

Distributors vs Content Creators

Tobias: The old rule used to be– [crosstalk] When the technology changes, there’s this sort of short period where the value accrues to the distributors, like the pipes get the value. But then, it always returns to the content creators because the content creators, they’re the ones who have the unique offering. I get that they need distribution too. But, in this day and age, distribution is the easy part. Worst case scenario, you Cobra Kai and you stick it up on YouTube. Or if you got a little bit more kind of infrastructure behind, you do what that Masterclass, is that what they’re called?

Bill: Yeah.

Tobias: They build their own app. And then basically, they just go and interview interesting people and charge you a couple hundred bucks for a year to learn something maybe while you’re watching Masterclass. I see there are lots and lots of models out there that mean that it’s going to be very easy for someone to get into the game.

I think if you’re a content producer now, aside from getting some fina– assuming that you can finance yourself, you’ve got enough finance there. So, someone like the Harry Potter lady, she owns basically– she’s got a franchise that is the scale of any other– that’s a Star Wars scale franchise. She’s a billionaire as a result, but she could turn herself into a mini Disney if she wanted. She could make little television shows for all of those characters, write another book, create spin-offs. She could do that if she wanted to. She could create her own app where you just sign up for Harry Potter World, or whatever she wants to call it. The challenge isn’t distribution anymore. The challenge is having a good idea that lots of people will buy into.

Bill: Yeah, Harry Potter has got the– what? The Wizarding World of Harry Potter at Universal.

Tobias: Right. She’s doing lot of it.

Bill: I don’t know. I guess– [crosstalk]

Jake: Although paying $12 for a Butterbeer chapped my ass. [laughs]

Tobias: What’s in a Butterbeer?

Jake: There’s no beer but it’s like butterscotch syrup drink.

Tobias: Why you not call it a butterscotch? Feel like you missed out there.

Bill: The other reason that I kind of wanted CMCSA to sell some assets to Netflix is, I think the park business– I think there’s a shot that Netflix could actually sort of recreate some of what Disney has with–

Tobias: Action figures.

Bill: –enough money. Yeah. Animation is, from what I can tell, by far the best place to play in content from a business standpoint. I don’t see why if you’re Netflix, why you don’t have Disney’s playbook of that wheel that feeds itself. And then, you have the figurines, and then you have all this shit. So, just seems to me– and I guess, like Reid doesn’t want to have anybody else’s culture, and I sort of get that. But the other side of it is you have an engine that’s actually currently working in the amount that Netflix could spend and still justify, it’s kind of interesting

Tobias: Would you say that the engine is currently working?

Bill: Within CMCSA?

Tobias: No, Netflix, sorry.

Bill: Oh, well, I think that they have some economic questions that they could help to solve. I think that if you had some, like– if you could actually acquire a parks business and you could start to bring out–

Tobias: Do they make money?

Bill: What? CMCSA parks business? Yes, great business. So, then you get if you start to get– I mean it’s not a great business now.

Jake: What are they going to have? Like Stranger Things?

Tobias: Yeah, there you go. That’s what they should be doing.

Jake: House of Cards. 

Bill: Well, dude, this is what they’re investing. It’s not about today, it’s about 10 years from now. So, if you can really spend as much as they’re spending on animation, I don’t think it’s unfathomable that they can make one or two franchises out of that, and then you invest in parks and then you start to get the flywheel going. I mean it takes a while. But we all claim to be long-term oriented. If I was long-term oriented for Netflix, it’s 100% where I drive that company. Now, maybe they won’t, maybe they just want to be a media company. But that’s not as good of a business in my opinion.

Jake: Let me ask you this. Do you think there’s any fatigue to franchises in general? I’m just tired of superhero movies. I’m a little tired of– [crosstalk]

Bill: No, bro. They fucking crush when they drop. People go to the theaters like crack fiends.

Tobias: [laughs] Yeah, I’m with you there.

Bill: Look at Endgame.

Tobias: I can’t watch another Star Wars. I can’t watch another superhero.


Jake: Well, let me ask you this, how many more are there that we could plug in? Is there room for 10 more Star Wars level franchises to go around? Or is that like, “Well, that was sort of a window of nostalgia based–” I don’t know, man, I’m not sure there’s enough. I’m not sure that pie is that big on the franchise slots.

Bill: Well, I don’t know that you have to be that sure. Let’s see, top-grossing lifetime movies, Star Wars Episode Seven: The Force Awakens, that’s 2015. Avengers Endgame, 2019. Avatar is three. Black Panther was number four. Avengers Infinity War is number five. So, what? Three of the top five are Avengers and came out in the last two years.

Jake: Call of Duty, more money than all of those combined, the last drop. Maybe they’re missing the real obvious thing, which is video games.

Bill: Well, I don’t know that Disney is a video game company. But you asked a movie franchise issue and what I’m telling you is three of the top five grossing films of all time belong to Avengers and came out in the last– I mean, really two years that theaters were open. So, it’s hard for me to say that there’s consumer fatigue. Data, bro, data.

Jake: Fair enough.

Tobias: I think it’s funny how few watchable movies there are. Maybe it’s because there’s been a huge investment in TV. Everybody’s worked out that you don’t want to get– don’t spend $200 million making a movie that people are going to watch once. If you’re going to spend the $200 million, make a season of something and give people 10 or 13 chances to watch something and get into it and have their friends talk about it and tell you about it. And then, you’ve proved over the course of a season that there’s demand for it. And now, you’ve got something very valuable because you can– Game of Thrones, and every week we’re going to bring out– like the thing that everybody wants to watch this week is the final episode of Game of Thrones or the episode, whatever it happens to be.

Bill: Yeah, I don’t know. It’s interesting how Game of Thrones didn’t drop the whole season at once and that benefited it.

Tobias: That’s an HBO thing, right?

Bill: Yeah. HBO could have pivoted, I guess, in theory, but probably not. But it was nice to have an event and watch the end of the season together.

Tobias: Yeah, I agree.

Bill: Part of the things that sucks about streaming is it drops, and it’s already gone before I even find out about it.

Tobias: Yeah.

Bill: Can’t have any water cooler talk. It’s like, “Oh, no, I didn’t watch that.” I got into Cobra Kai and people are like, “Yeah, dude, two years, too late, loser.”

Tobias: Yeah, well, I got into it this week.

Bill: “Yeah, whatever, I fuckin’ like it. Shut up.”

Tobias: I found it this week, so that’s how– [crosstalk]

Bill: Right. Yeah, I didn’t know.

Jake: Late adopter.

Tobias: I’m a very late adopter of the TV. Yeah.

Jake: How’s that Pixel phone working out for you? [laughs]

Tobias: It’s a different matter. It’s just my little kids and other things going on.

Bill: It’ll be interesting to see– Discovery just partnered with Qurate, my beloved Hi, Barry Schwartz. You’re welcome for the mansion of Qurate again. And they want to do food network with QVC, that’s kind of interesting. I don’t know if it’s possible to scale up these legacy companies and then release this version of Zaslav’s love skinny bundle that he always wants to see. But, man, my wife, she is addicted to Bravo. She’s like a fiend. So, the idea that there’s not something there–

Jake: My condolences.

Bill: I actually kind of like it. You ever watch Below Deck? It’s not that bad.

Jake: No, I haven’t seen that one.

Bill: Oh, it’s not bad. I mean I’m not going to sit here and go tell people like, “Oh, yeah, Below Deck is the best thing ever,” but I’ll watch that shit for sure. MTV, The Challenge, you’ll find me watching that, putting up with the commercials. But I’m digressing. So, anyway, I don’t know if there’s some package of content that makes sense for those people, and I don’t know how you distribute it. I don’t know, these are hard questions. I don’t know where the world’s going.

Tobias: Throw your questions in, folks.

Bill: Well, that’s what makes me nervous about CMCSA because they used to be the distributor, what are they going to do? They’re going to invest in Peacock? Some shitty as technology if you ask me.

Tobias: Don’t you just need the content?

Bill: I legitimately– I know this really makes people mad on Twitter when I say this, but I use Roku. I don’t think Roku is that good of a product. I find if you want to buy a cheap TV and you want that software, I get it, it’s fine. But I actually think the Xfinity product is quite good. To your point, I don’t know how they– you need a distribution mechanism and then you need the content to distribute. So, how do they have that and how do the economics work? That’s the hard question.

Jake: You’re going to get Peacock-blocked now.

Tobias: What’s the Roku? I’ve seen it talked about a lot. I know that it’s a streaming thing. It’s a TV–

Jake: Well, it’s like TV, but for hobos.

Bill: No, it’s the software that basically they partnered with– It was TCL and maybe Hisense, and one other company. Their distribution strategy was to lead with hardware. So, if you look at their financials, you’ll see that the hardware gross margins are super tight. And in the beginning, people were like, “Oh, this is a shit business.” But what people didn’t see is they were just leading– It was like a razor blade model. So, then they got their software into enough homes, that at least in the US– I think this is globally, but they’re involved in the standard setting. So, if Netflix wants to come out with an app, like redesign, I’m pretty sure Roku is in the discussion. Maybe not against Netflix, but I think that they’re like some of the– the hurdle that you have to get through is that Roku says, “Yes, this looks good.” And then, they got a bunch of advertising. And you own a big screen.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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