Summary
- After the company's latest earnings report, it's clear that streaming remains the big idea at Comcast.
- Investors should not discount the related premium-video-on-demand strategy, given the major deal Comcast struck with AMC.
- I would like to see more movies produced in light of the AMC deal, something an analyst touched upon during the conference call.
- The stock is not in deep-value territory and moves around in a stubborn 52-week range, but growth will occur over time.
Comcast (CMCSA) continues being Comcast: its linear model is under constant assault by the allegorical scissors-to-cord crowd, but its legacy businesses, driven by the much-needed, especially by Netflix (NFLX) et al., broadband services in which it is heavily invested, help to deliver cash flows that allow for reinvestment in content and new streaming platforms. During the pandemic, binge-watching has become a psychic panacea for a population that has no choice but to patiently wait for a vaccine solution. The company is clearly benefiting from that trend.
But, as theaters continue to find it difficult to attract crowds and gain approval to open in major markets, the other part of the equation comes into light: premium-video-on-demand offers mitigation for the company's suffering multiplex-distribution operations.
Put streaming and PVOD together, two interconnected digital strategies, and you've got a thesis for now, and, if the CEO wills it, the future. I will look at these two components in brief (in the context of the recent Q2 earnings call), and, putting them together, propose a bullish outlook for a cable giant that should find growth over the long term. The shares may not be trading at much of a discount, but the premium paid for them reflects a lot of potential value in the company's overall content/distribution strategy.
PVOD: A New Approach
I've been arguing for a long time that the movie industry needs to change its approach. Windows can protect value, but at some point, they need to become flexible instruments. But, given that movie houses such as AMC Entertainment Holdings (AMC) understandably want to vigorously protect their capital investments in exhibition, controversy has always surrounded the proposition of closing the three-month window between a film's silver-screen start and its digital-screen debut. Recently, though, there has been progress: AMC has agreed, according to an article from earlier in the summer by The Hollywood Reporter, to a deal with Comcast in which a movie from the company's film studio can be ported to ancillary markets after seventeen days of release. As has been highlighted in reports, that's three weekends of play at a multiplex, and that's an important point, because three weekends can offer, for certain blockbusters, ample chance to capture a majority of a box-office run, especially if the project turns out to be particularly frontloaded in terms of gross dollars. In other words, it seems to be fair to theaters and fair to studios. AMC reportedly will also receive a percentage from the premium-video transactions.
Another reason for shareholders to like this deal: it doesn't destroy the traditional model of physical/digital releases. As the linked article mentions, Comcast could, if it felt a particular project's emerging economics were signaling a specific strategy, go beyond the three weekends, and it can keep in place the usual lower-price-point digital release after the PVOD option is executed (i.e., the one that occurs after the usual ninety days have passed). Contrasting that with Disney (DIS), which decided to somewhat alter the characteristic of PVOD with the experiment of placing Mulan on D+, thus requiring a subscription to get the film and to subsequently keep it, Comcast is keeping previous windows intact, but is basically compressing one of them.
Comcast benefits in a couple of ways from this strategy. There is an opportunity for a higher margin via the digital release, which is an attractive prospect, especially when transactions are leveraged on the Xfinity ecosystem itself. The company also retains optionality during the pandemic, which allows it to manage risk: if a theatrical release that would have worked pre-crisis can't attract enough patrons to the multiplex, then the mistake can be corrected on an expedited basis. Bringing money in more quickly is of significant import to cash-flow statements these days. There also is the intangible marketing value possibly attached to a proximate day/date strategy: the shorter theatrical release could activate a higher amount of digital transactions, even ones after PVOD, in my opinion, by acting as what would essentially amount to an advertisement for the post-multiplex windows. As a balance to the decline in film revenue, PVOD is a must: as highlighted during the earnings call by CFO Michael Cavanagh, on-demand transactions from new films (e.g., the Trolls sequel) helped to generate a 20% expansion in content licensing.
