Peacock party: Why it makes sense for Comcast to buy Seven
Welcome to an end-of-week update from Unmade. Today we share our theory on why Comcast, owner of NBCUniversal would make sense as Seven’s next owner. Plus, the Unmade Index drops even further into its new sub-500 low point.
If you’ve been thinking about upgrading to an Unmade membership, this is the perfect time. Your membership includes:
Member-only pricing for our conferences;
A complimentary invitation to Unmade’s Compass event (November);
Member-only content and our paywalled archives;
Your own copy of Media Unmade
Diverse, innovative, successful, wealthier and younger than ever. That would be the 9.8m regional Australians who not only challenge tired stereotypes, but also deliver the freshest opportunities for your brand to grow.
36% of Australia’s population lives in Boomtown. And with more clear air for your brand to shine in untapped and uncluttered ad markets, your investment works harder, faster and with maximum impact.
That’s why 93% of advertisers agree that regional media is effective in achieving ROI and 88% say they’re considering Boomtown for their next campaign.
Welcome To Boomtown. We look forward to seeing you here.
Deal logic: Comcast adds up as Seven’s future owner
The rumours that Seven West Media, or parts of it, are on the block are nothing new. The logical buyer of the Seven Network is NBCUniversal owner Comcast.
When former CEO James Warburton joined Seven West Media in 2019, he pledged that the company would be a hunter. That was before Covid interrupted. He never quite got there with a big deal.
Last November’s purchase of a 20% interest in ARN Media signalled SWM was still thinking as predator rather than prey. But the company’s declining market capitalisation - down by half over the last year - has removed many of its options.
The free-to-air TV market’s last hurrah came while audiences were stuck at home in lockdown. Since then, the prospects of broadcast television have faded thanks to an overall advertising slowdown, the audience turning away, and a structural shift in where marketers spend their dollars in consequence.
Yesterday I was at Dianomi’s Financial Services Marketing event at UTS Business School. Talking anonymously under the Chatham House Rule, one speaker predicted that the market might be only big enough for just two commercially funded networks to survive. “And one of them might be SBS,” he predicted.
That’s why Seven West Media’s market capitalisation has faded to below $300m. It was relegated from the ASX300 back in March. Factoring in net debt of $257m at the end of December, Seven West Media has an enterprise value of less than $600m.
For some time there have been rumours in the market that a US-based company has been looking at Seven West Media. The one that makes most sense is Comcast.
Comcast is a telco and media giant. The conglomerate’s market capitalisation is US$152bn. That’s $230bn Australian. The daily shifts up and down in Comcast’s market capitalisation - yesterday it rose by $5.6bn - are often the equivalent of SWM’s total valuation, ten times over.
The key factors
The most significant dynamic is the last advantage available to the local free-to-air players: the anti-siphoning laws. The law says that sporting codes must offer their broadcasting rights first of all to the free to air players.
The updated legislation, which protects 2,500 sporting events per year, is in the final stages of passage, due back in front of the Senate over the next few weeks.
Free TV Australia, the lobbying group funded by Seven, Nine and Ten, is furiously pushing for the networks to get first say not just on free to air rights, but streaming too. On Monday it claimed that consumers would otherwise end up paying $2000 a year to watch paywalled sport.
If there’s a last minute amendment to include streaming in the legislation too, that will increase the value of owning a local TV network. It would mean that the only way for a streamer to get big sporting rights would be in partnership with (or ownership of) a local player. Otherwise, as linear TV viewing disappears, so does the advantage. But that will take another decade to play out.
Paramount already has Ten locked down. Nine has Stan. Which leaves Seven.
Regardless of whether the anti-siphoning legislation covers streaming or not, that makes Seven a key asset for any of the global streamers wanting to win sports rights in Australia.
Comcast is serious about sport. Its US broadcast arm NBC was this week reportedly on the verge of signing a US$2.5bn a year deal for basketball.
Comcast also owns streaming service Peacock, one of the few subscription streaming services yet to launch in Australia. And Seven is the only one of the three main commercial players not to already have a subscription offering.
Another reason Comcast makes sense is that it is already in bed with Seven West Media. Eighteen months ago, SWM signed a long term, $50m+ per year deal with NBCUniversal to launch 7Bravo and carry the company’s content across the network.
It’s reminiscent of the deal Ten had in place with CBS International, which ultimately put ViacomCBS (since rebranded as Paramount) in the box seat to acquire the network when it went into administration in 2017.
Those obligations to NBCUniversal might also be a blockage for other global players acquiring Seven if so.
No deal seems imminent, by the way. To be clear, we are not reporting that anything is about to close, or even that talks are active. As far as I know, they are not. There would be little downside for Comcast in waiting a few more weeks to see where the anti-siphoning legislation lands.
If there would be a deal with Seven West Media, the acquisition of only the TV operation would make sense for Comcast.
My guess is we’d see an asset sale, with a dividend (finally!) to SWM shareholders. The rest of the business - most notably The West Australian and The Nightly - could end up being folded into Seven Group Holdings.
Like SWM, despite being on the ASX, SGH is dominated by Kerry Stokes.
Stokes owns 54% of SGH. And late last year SGH quietly increased its ownership of SWM by a percentage point to 40.2%.
Any deal will be decided by what Stokes wants.
Declaration of interest: Through my super fund, I own shares of most ASX-listed media and marketing stocks, including SWM.
Unmade Index losing streak goes on
Having dropped below the 500-point threshold on Tuesday which signalled a 50% loss in value since the Unmade Index began in 2022, our tracker of ASX-listed media and marketing companies lost a further 0.41% yesterday. It landed on 493 points.
Southern Cross Austereo lost 2.74% while Nine lost 1.4%.
Meanwhile, Sports Entertainment Group bounced by 15% on the news that the group - which also owns radio network SEN - has agreed to sell its stake in the Perth Wildcats basketball team for $36m+.
*Content update: The News Corp market capitalisation will now be shown on our table in AUD rather than USD. Our thanks to reader Chris J for sharing the Google Sheets code we were looking for.
Time to leave you to your Friday.
I’ll be back with Best of the Week tomorrow. Amongst other things, I’ll be spending today getting my head around the survival prospects of Nine CEO Mike Sneesby and trying to figure out whether the merging details of News Corp’s restructure have any implications for the advertising market.
Have a great day.
Toodlepip…
Tim Burrowes
Publisher - Unmade
tim@unmade.media