Comcast left standing alone by Cablevision spinoff

November 18, 2010

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The courage of Comcast’s conviction will now be on full display. Even the most idiosyncratic American cable television owners, the Dolan family, have decided that separating content from distribution is an idea worth exploring for Cablevision. That makes the decision by Comcast boss Brian Roberts to move in the other direction by acquiring NBC Universal stand out even more. Though it struck a good deal, Comcast will need to execute impeccably to satisfy investors.

Cablevision considered the idea of spinning off networks like AMC and Sundance Channel five years ago as part of a more sweeping proposal for the company. Though the plan flopped and James and Charles Dolan could easily be dismissed as industry wildcards, Cablevision turned out to be ahead of its time.

Since then, Time Warner disconnected cable from its media operations, Cox Communications unloaded the Travel Channel and Rupert Murdoch invested billions to buy more content but parted with his controlling stake in the DirecTV satellite broadcaster to reclaim News Corp shares from John Malone. Now Cablevision is following the pack, hoping to structure a detachment of Rainbow Media as a tax-free pro rata distribution to shareholders.

On the same day as Cablevision announced its fragmentation analysis, Comcast laid the groundwork for taking control of NBCU, with its TV channels and movie studio, from General Electric. The deal still awaits regulatory approval but Comcast unveiled a new executive lineup for NBC’s divisions under Steve Burke, the cable operator’s chief operating officer. They’ll be under pressure to deliver on what will now be a unique business model with cable and programming housed under one roof.

Other companies have unwound the structure for a variety of reasons. Yet all of them, at one time or another, met with unhappy investors who found value trapped inside the mixed media. Comcast’s shareholders will have no easy comparison to make, meaning managers, however good they may be, will struggle each quarter to showcase how and why it all works together.

The battle already looks uphill. Comcast, at 16 times estimated earnings, trades at a slight discount to Time Warner Cable, according to Thomson Reuters data — and a long way from the 22 times multiple at which Cablevision trades.

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