Comcast takes hit as prospects darken for Sky

Comcast’s acquisition of Sky four years ago was not greeted warmly by analysts, with many taking the view that the US cable giant had overpaid for an asset that, with its large base of satellite pay TV customers, looked like a fading star.

The fact that Comcast’s latest Q3 numbers include a US$8.6 billion write-down on Sky, pushing it to a US$4.6 billion loss, will make many feel that view is being vindicated.

Without Sky, Comcast would have posted a profit and beaten analysts’ expectations. That is not to say the garden is entirely rosy beyond Europe. Revenue at NBCUniversal also fell, although that was partly impacted by the comparison impact of the Olympics. Streaming service Peacock provided a bright spot in the shape of strong subscriber growth, but operating losses widened as costs increased.

Comcast blamed current macroeconomic conditions for the Sky write-down. Sky has been hit by the storm of higher energy costs, interest rates and inflation that have been fuelled by the war in Ukraine and, in the case of the UK, chaotic government mis-steps. Comcast has now reduced its estimates of future cash flows from Sky as a result of the economic conditions it faces. Some of the negative impact of Sky this quarter related to the strengthening dollar and weakening pound.

Still, Bloomberg reported today that Comcast is considering the sale of Sky Deutschland, a move that would represent a significant scaling back of the expansion into Europe that underpinned and justified the Sky acquisition in the first place. The German business is smaller than the UK one and lacks the multi-play dimension that pay TV now largely relies on to fuel growth. Nevertheless, it remains the only dedicated pay TV provider in the German market.

Brian Roberts

There was no mention of that during the analyst call that followed Comcast’s publication of its quarterly results. CEO Brian Roberts said that the “Sky team is working hard amidst this changing economic backdrop that’s putting pressure on the average customer in the region”.

He nevertheless pointed to “the highest quarterly growth since we’ve owned Sky” – growth that has been fuelled by the company’s switch to a focus on streaming, as well as what Roberts characterised as “nice momentum in our broadband and wireless business”.

In pay TV and media, much depends on whether Comcast can stay ahead of game as streaming takes prime position with consumers.

Sky’s addition of 320,000 customer relationships over the quarter was largely driven by streaming, helped by the early start of the English Premier League season to accommodate the Qatar World Cup. CFO Mike Cavanagh admitted that Comcast does “not expect a similar level of additions in the fourth quarter” as a result.

Peacock’s advertising revenue meanwhile helped push ad revenue as a whole into positive territory for Comcast, despite a decline in linear advertising.

Elsewhere, Comcast is expanding its international streaming presence via a range of branids including JV SkyShowtime and, most recently, Universal+.

That move into streaming comes at a cost. Peacock’s US$614 million EBITDA loss contributed to an overall decline in Comcast EBITDA of 41.5% for the quarter. The company expects the streamer to deliver a US$2.5 billion EBITDA loss for the full year.

Sky meanwhile must factor in the costs of the crucial sports content that continue to differentiate its offering from that of competitive streaming services.

Speaking on the analyst call, NBCU chief Jeff Shell reiterated that Comcast sees streaming as “part of our business” rather than its totality or as something to be considered in isolation. Unlike Disney, Comcast is not taking an all or nothing approach, but sees Peacock for example as an integrated element in its overall programming and advertising strategy and proposition.

Comcast ultimately retains a strong US connectivity business that rests on its cable network and roadmap to upgrade that, leaning on DOCSIS 4.0 to compete with fibre and ultimately keep capex under control. The cable business helped offset some of the misfortunes of international pay TV and the media business in the third quarter.

The weakness in those businesses nevertheless raises a set of questions that the company still must find convincing answers to. For all the talk of synergy and the benefits of common media technology platforms, does Comcast’s large and diverse portfolio of pay TV and media amount to more than the sum of its parts?