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Can you imagine a world in which the next Fast and the Furious film is released theatrically, but it isn’t actually on any movie screens?
That’s the scenario the entertainment press reported recently as AMC Theaters announced it would be “banning” Universal films from its theaters. This move was in retaliation of Universal’s decision to release Trolls World Tour straight to “premium video-on-demand” during the coronavirus and subsequently announcing they would continue releasing films simultaneously in theaters and on VOD.
The theater chains are desperate to protect their exclusive windows, so AMC and Regal Theater chains then responded that no Universal films would be allowed in their theaters. No more Minions films. No Fast and the Furious. No Jurassic World Part Whatever We’re At Now. Of course, this is likely just posturing. Sometimes particularly contentious negotiations spill out into the open, especially if a company thinks it can get the public on its side.
For Comcast—which owns Universal Studios—I think the recent battle actually is about more than just where their films premiere first. Comcast has larger dreams than being just the biggest cable company. It wants to be the next tech titan. Like Amazon, Google, or Apple. Their recent acquisitions show the scope of their desires.
The Tech Titans Want to Own Digital Media. Comcast Wants In
Comcast has always wanted to get bigger. It got to its current dominant place in cable by snatching up and merging regional cable providers. It used this size—and lucrative local monopolies—to negotiate better deals with other studios and channels. (And raise prices on subscribers.) Unfortunately for them, they’ve likely hit the maximum size they can reach in America. Even friendly antitrust regulators will likely preempt further mergers in cable.
Still, Comcast makes lots and lots of money from its cable business. Like $13 billion in cash every year. If they can’t buy more cable companies, what will they do with all that cash?
Well, expand. That’s what the big tech giants have done. Google uses its digital advertising duopoly with Facebook to expand. Amazon uses its cloud computing to launch new businesses. And Apple used its iPhone sales to launch a TV business.
That last point is key. All the big tech giants—Apple, Amazon, Google, Facebook and maybe Microsoft—want to make TV. And Comcast wants in on the game.
And one line of business isn’t enough. Comcast wants to be in every part of the value chain, from advertising to subscriptions to transactions:
So how will Comcast get there? By buying multiple companies.
How Comcast Plans To Take Over Entertainment
Step 1: Own a Movie/Television Studio
Purchase: NBCUniversal
see also
Comcast beat everyone to the punch back in 2009 when it purchased a controlling stake in NBCUniversal from GE, a deal that was heavily scrutinized by the Department of Justice. It was the first—but not the last—telecom giant to buy a movie studio. The worry was they would give preference to their own content in negotiations with other studios and cable distributors.
Step 2: Launch a Streamer
Purchase: Sky TV
Clearly, subscription video is the most lucrative part of digital media. So Comcast wants in—albeit a little late to the game—by launching Peacock. To launch a subscription streamer, content isn’t enough. You need hordes of engineers to manage and code everything.
To help build out their own technology, they acquired Sky TV in Europe in 2018. That was the year that AT&T’s merger with Warner Bros. was finally approved. Which sent Comcast on a bidding spree. They tried to wrest 21st Century Fox from Disney, and failed. (Though they increased the price to Disney by nearly $20 billion.) When that failed, they bid on Sky TV in the UK and Italy, ultimately wresting it from Disney.
Mostly, this deal meant that Comcast is now a global Pay-TV provider (albeit in the shrinking satellite TV business). But Sky has also invested heavily in streaming technology for its own streaming platform, Now TV. Comcast is reportedly using Now TV’s technology as the basis for Peacock, which arguably wouldn’t exist without Sky TV’s help.
Step 3: Add an Ad-Supported Streamer
Purchase: Xumo TV
As that chart above shows, the future of digital media will make almost as much in advertising as subscriptions. And since Comcast already makes a lot from advertising they want that money, too.
Ad-supporting, live streaming TV is the hot new growth industry in streaming. Called either AVOD (ad-supported, video on demand) or FASTs (Free, Ad-Supported, Streaming TV), if you’ve seen an ad for Pluto TV or Tubi or Xumo or IMDb TV, you’ve heard of these streamers. And the entertainment companies are buying them up. Viacom purchased Pluto TV and Tubi was acquired by Fox Entertainment (owner of Fox broadcast channel and Fox News).
So of course Comcast had to buy one, settling on Xumo. (This sale is in progress.) Xumo will help Comcast expand the number of ads it can sell and may also be providing some technology support to help with the future live streams on Peacock.
Step 4: Finish with a "Transactional" Video Service
Purchase: Vudu
But Comcast wasn’t done buying! Just this April—in the midst of a global pandemic—Comcast announced a deal to have its subsidiary Fandango buy Vudu from Walmart. Vudu sells movies and TV series to customers directly, and makes up that last piece of the digital pie: transactions.
With Vudu, like Amazon and Apple, Comcast can offer customers every part of the value chain, from buying to renting to subscribing to offering for free, with advertising. Comcast has enough assets to offer a holistic experience, meaning you can use a Comcast device to subscribe to channels through Comcast to use Comcast streamers to watch Comcast movies. A true digital titan.
So Why Does Comcast Want to Be a Tech Company?
While it may be “cool” to own a movie studio, that’s not why Comcast is buying everything it sees. Really, the answer boils down to this: they want a higher stock price.
To see, just compare Amazon to Walmart. Both are retail outlets. Both sell lots of stuff. In fact, Walmart sells more than Amazon every year. But when it comes to earnings, Amazon has about three times the market capitalization of Walmart. In price-to-earnings terms, Amazon is valued at a multiple of 80-100 times earnings whereas Walmart is at a measly 22 times earnings.
That’s the power of being a tech company on Wall Street.
Comcast suffers from the same fate. It’s earnings are only valued at 11-13 times earnings. If it can get valued like a tech company, it could double its stock price or more. Netflix, for example, has a price to earnings ratio of 87. While Comcast won’t likely reach the same heights, it definitely has room to grow if it can convince investors it’s more of a trendy tech company than a staid cable company.
Will it work? It’s tough to say. Amazon and Apple are valued as highly as they are because they make even more money each year than Comcast and have room to grow. And are seen as growth fields. Cable TV is the opposite, as pay-TV shrinks each year. Comcast’s goal is to pivot into digital media, and buy what or whoever it has to to get there.
The Entertainment Strategy Guy writes under this pseudonym at his eponymous website. A former exec at a streaming company, he prefers writing to sending emails/attending meetings, so he launched his own website. Sign up for his newsletter at Substack for regular thoughts and analysis on the business, strategy and economics of the media and entertainment industry.
