I'm writing this in the middle of an interesting and busy morning for the cable industry. As number-three MSO Charter Communications announced it was scooping up Bright House in a $10.4 billion transaction, Comcast announced it was spinning off Michael Angelakis, its chief financial officer, into a new venture, the exact nature of which has not yet been disclosed.
OK, I'm being a bit facetious with the second bit of news. Angelakis is taking over the unnamed spinoff of his own accord, putting $40 million of his own money into the venture.
Today is April Fool's Day, but there is no fooling regarding these two major pieces of news. Still, Comcast's planned spinoff is a bit of a mystery. It's an investment company with capital commitments of $4.1 billion, pooled from the personal fortunes of Angelakis and the new company's management team, with Comcast as the sole investor. It will invest in "growth-oriented" companies, according to a terse Reuters report, which is sort of like saying that water is wet.
My feeling is that Comcast will be exploring a way to dominate the nascent market for virtual MVPDs--OTT services that deliver linear channels. Dish Network's Sling TV and Sony's PlayStation Vue are the early entrants to this new segment. With Apple rumored to be developing its own service, it's safe to say that, as early as the second half of 2015, I can start using the word "fray" to describe the competition happening in this space.
"This is a time of tremendous change and opportunity in our core technology and media industries, as well as in adjacent business areas," Brian Roberts, Comcast's chairman and CEO, said in the operator's official news release. "We believe the ability to establish entrepreneurial ventures that partner with and participate in the growth of innovative companies can be an important driver of strategic and financial value creation for our company."
Nothing to read between the lines on there. Nope.
Why would Comcast take this tack? I have a couple of theories.
Comcast is desperate to prove to regulators that its merger with TWC will not make it a monopoly. But as analysts score the potential transaction's chances downward--BTIG analyst Richard Greenfield stated firmly that the merger "will be blocked"--it may be looking for a way to spin out more subscribers, perhaps by creating a virtual MVPD.
While this theory is pretty unlikely in the current climate--and may depend on the FCC actually approving new rules around defining MVPDs, among other things--it's not impossible, either. Like its GreatLand Connections spinoff, it's possibly a way of saying, see? We can't possibly be a monopoly, because consumers in our combined region have this linear OTT option right here that we just happen to be an investor in.
That's something I wouldn't have imagined a cable operator saying just two years ago. But the video climate is changing.
Another possibility is that Comcast is shoring up its financial barricades should the Time Warner Cable merger fall through. As the new spinoff's sole investor, the operator stands to profit from any bets that pay off for Angelakis' venture.
From an OTT perspective, it's well within the realm of possibility that Comcast is looking for game-changing startups specifically in the online video space.
Look at Twitter's latest big acquisition, for example. Periscope, a startup that, like its competitor Meerkat, was preparing to launch a live-streaming app that allowed users to stream video on Twitter, was picked up by the social media juggernaut. In its first week, Periscope demonstrated its effectiveness in bringing live events directly to the Twitter feed as they happened. Users of the new app live-streamed a dramatic and tragic fire in New York City.
It was an instant payoff for Twitter on a technology investment. Granted, Twitter snatching up either Periscope or Meerkat would likely have been a sure thing regardless of which startup it ultimately went with.
With a $4 billion investment pot to draw from, Comcast could be positioning itself to leap upon OTT's next big technology, in a bid to dominate, if not rule, the online video world.--Sam