CEO of Comcast Brian Roberts arrives for the Allen & Firm Solar Valley Convention on July 06, 2021 in Solar Valley, Idaho.
Kevin Dietsch | Getty Photographs
The prisoner’s dilemma is a normal sport idea state of affairs typically taught in enterprise faculty. Comcast Chief Govt Brian Roberts and ViacomCBS chairman Shari Redstone live it in real-time as they take into account working collectively.
Comcast’s NBCUniversal and ViacomCBS are struggling to maintain up with the most important gamers in streaming video. Whereas Netflix, Amazon and Disney all have greater than 100 million subscribers to their flagship video providers, NBCUniversal’s Peacock has 42 million U.S. signups — most of which do not pay for the service — and ViacomCBS’s Paramount+ has fewer than 36 million subscribers. ViacomCBS would not reveal the particular quantity of paying Paramount+ clients, however it stated earlier this 12 months it had 36 million whole streaming subscribers, together with Showtime and different area of interest merchandise.
AT&T’s WarnerMedia and Discovery even have subscale streaming merchandise. They introduced plans to merge earlier this 12 months. That left NBCUniversal and ViacomCBS as the most important leftover streaming gamers.
Roberts and Redstone have held conversations to discover methods the businesses can work collectively, in line with folks acquainted with the matter. Funding bankers are pumping each corporations with concepts in hopes of getting what is perhaps the final giant conventional media merger charge for fairly a while, stated the folks, who requested to not be named as a result of the discussions are non-public. Spokespeople for Comcast, Nationwide Amusements and ViacomCBS declined to remark.
One of many choices into consideration is to bundle Peacock and Paramount+ collectively in worldwide markets, as The Info reported earlier this 12 months. Each corporations are planning international expansions, and partnering is comparatively frictionless.
An alternative choice is a merger or acquisition, however there are a litany of problems on that path. Neither ViacomCBS nor NBCUniversal are actively searching for a merger presently, in line with folks acquainted with the matter.
Whereas there could also be no rush to merge, each corporations will in the end want extra scale to compete in opposition to bigger gamers. They may accomplice or merge, or they may try and merge with Warner Bros. Discovery when/if that deal closes in the midst of 2022. A merger with Warner Bros. Discovery could also be a cleaner match for each ViacomCBS and NBCUniversal.
However solely one of many two might be part of Warner Bros. Discovery. That would depart the opposite firm out within the chilly — presumably for years.
That is the essence of the prisoner’s dilemma.
Working collectively might guarantee each corporations are higher off than they began, however holding out in opposition to one another will be the best-case situation for one firm and the worst-case situation for the opposite. (This is not an ideal prisoner’s dilemma instance as a result of the businesses cannot actually betray one another, ending up in a state of affairs the place each are worse off).
Regulators in all probability will not enable a mixed NBCUniversal-ViacomCBS to personal each broadcast stations, NBC and CBS. It is probably any merger must embrace a divestiture of one of many broadcast networks together with all native NBC or CBS TV associates that overlap in the identical markets.
That instantly diminishes the worth of each corporations. If CBS is divested, NBCUniversal would get Paramount+ with out CBS programming, together with stay Nationwide Soccer League video games and NCAA’s March Insanity. If the businesses determine to divest NBC, ViacomCBS would not get “Sunday Evening Soccer” and different standard NBC broadcast exhibits.
Whereas it is attainable the businesses might try and argue broadcast networks are like cable networks and do not want separate possession, regulators might not view that as an inexpensive argument. About 40% of Americans own a digital antenna to get free over-the-air programming along with streaming video, according to Horowitz Research. Broadcast networks have historically battled each other for valuable programming. Putting two under one roof would stifle those competitive bidding situations.
The second obstacle is structure. Comcast could simply acquire ViacomCBS, buying out Shari Redstone’s voting shares in a deal. But ViacomCBS has an enterprise value of about $40 billion and would ask for a decent-sized premium to sell, two of the people said. Even with major divestitures, a deal would be pricey.
Shari Redstone, president of National Amusements and Vice Chairman, CBS and Viacom speaks at the WSJTECH live conference in Laguna Beach, California, October 21, 2019.
Mike Blake | Reuters
Comcast shareholders, who are more likely to cheer a separation between NBCUniversal and Comcast, according to MoffettNathanson analyst Craig Moffett, may not like a decision to buy ViacomCBS and divest one of the networks.
Roberts could spin out NBCUniversal and merge with it ViacomCBS — similar to the WarnerMedia-Discovery deal. That might require him to give up control of NBCUniversal. If Redstone ends up owning more economic control of a merged NBCUniversal-ViacomCBS, she may want to run the company or choose who’s in charge, for at least a number of years. Roberts and Redstone will have to reach an agreement on economic and voting control if this option is pursued.
A bundled offering through a commercial partnership skirts the merger and acquisition issues — and is ultimately the most likely ‘step one’ scenario — but it gives less flexibility to the companies on offerings than a merger would. It also might not move the needle enough for either firm.
Wait for Warner Bros. Discovery
Either NBCUniversal or ViacomCBS could theoretically fit with Warner Bros. Discovery because David Zaslav’s future company won’t own a broadcast network. That would eliminate the need for divestiture. Combining with HBO Max and Discovery+ would also arguably be a more robust streaming offering, in terms of content, than simply pushing together the assets of NBCUniversal and ViacomCBS.
But the size of Warner Bros. Discovery combined with either ViacomCBS or NBCUniversal could potentially pose regulatory issues, depending on how the Biden administration regulators view the entertainment market. Even WarnerMedia’s deal with Discovery isn’t assured approval.
A choice to hold for a deal with Warner Bros. Discovery forces both NBCUniversal and ViacomCBS to wait two or three more years, given the length of time it would take to merge to gain regulatory approval — first for WarnerMedia and Discovery and then for the second merger. There would also be integration costs and issues from two large deals happening so quickly.
For the company that didn’t merge with Warner Bros. Discovery, the likely path forward would be rolling up some of the smaller streaming players. like Lionsgate and AMC Networks, or pushing for an acquisition of Sony Pictures.
Merging or waiting both present headaches. This is why investment bankers get paid the big bucks.
Disclosure: NBCUniversal is the parent company of CNBC.