Comcast looking to diversify from stagnant U.S. pay TV market with Sky purchase

Comcast Center headquarters in Philadelphia. Image: Comcast
Around 65% of Comcast’s fourth-quarter earnings were tied to media. (Comcast)

Comcast’s $31 billion bid for European media and telecom giant Sky represents an attempt to diversify from a mature U.S. pay TV market, analysts say.

Martin Scott, principal analyst at Analysys Mason, noted that around 65% of Comcast’s fourth-quarter earnings were tied to media, either through its Xfinity-branded pay TV services or through NBCUniversal.

“Pay TV retail revenue hit $117.8 billion in North America in 2017, up $1 billion year over year, but now faces a 10% decline over the next five years,” Scott predicted in a note to investors this morning. “Cord cutting in North America has been disastrous for growth prospects in the region—pay TV connections per household will fall from 77% in 2017 to 70% in 2022. The Western European market remains buoyant, and cord cutting has had a much lower impact.”

Notably, while speaking to investors on Tuesday, Comcast CEO Brian Roberts called comparisons of Sky to the declining U.S. satellite TV market as “apples to oranges."

Not every analyst agrees with this notion.

RELATED: Comcast’s Roberts: Sky satellite is ‘apples and oranges’ compared to DirecTV and Dish

Amy Yong of Macquarie Capital, for example, said that while Comcast’s international revenue would jump to 25% from a current level of 9%, “the 12x price tag is high given the potential threats to satellite TV.”

Yong downgraded Comcast to neutral this morning. 

RELATED: Comcast tries to outbid Fox for Sky with $31B offer

“The potential to expand internationally, double its scale, and leverage cross-border IP is undoubtedly a great one. However, uncertainty around the M&A playbook and increased net leverage to 3x marks a shift in what would otherwise be a clean thesis,” Young said.