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TAKING A CLOSER LOOK AT: Comcast & Canal+ · The Media Odyssey

• Evan Shapiro: [00:00:00] When you look at these numbers in particular, what I would say if they were ask me for strategic help, which they're not. Yep. 'cause they're French and I'm not. I would say, Marion Ranchet: And they would ask me, not you. Evan Shapiro: Right, exactly. Then you should tell them, go hard in Asia and Africa. Welcome back to the Media Odyssey podcast. That is Marion Ranchet. Marion Ranchet: And this is Evan Shapiro. Evan Shapiro: And this week we brought case studies to talk about, we each brought a company that we wanted to study on the pod that we were fascinated by. And I think it's obvious in Mairon's case, it is from her home country. And in my case it comes from my work history. So Marion, let's go with, let's go with young age before beauty. Marion Ranchet: Okay, cool. Evan Shapiro: Does that make sense? That's a cheat. I called myself beautiful. And you young, so Marion Ranchet: Yeah, [00:01:00] I'll take it. Evan Shapiro: So we each brought our own company to do a case study on one that we're fascinated and that we study. And with Marion, it is from your home country. It is. Let me see if I can say this correctly. Canal plus. Marion Ranchet: Nice. Very cute. Very cute. So this is the first plus. Let me say this because this company Evan Shapiro: First, don't you like our QR code here that you can use to subscribe to the podcast? Marion Ranchet: Oh yeah. Nice. That looks nice. Yeah, do use it guys. Canal Plus is the first plus, the first plus ever. The company was started 40 years ago. They actually like to say they're the first plus, and they actually sued a few folks, including Disney, when they launched in France with a plus. Evan Shapiro: That's right. I remember that. Marion Ranchet: Yeah. They really don't like that. They are the first plus. So the reason why I wanted to talk about Canal Plus is a lot happened for them in 2024. At a high level, if we look at subs. I think it's very interesting to see in this day and [00:02:00] age a company that is available, not just in France. Also, it's a French company. It's a French group. But these guys operate in 52 markets directly. Evan Shapiro: Wow. Marion Ranchet: And then they have business as part of the wider canal produce group in close to 200 markets. Wow. Wow. It's a French company. It's not just, Evan Shapiro: It's truly global. Yeah. Marion Ranchet: Exactly. It's a French global player. And so what I think is interesting is that it's tiny, but there's still a bit of growth, right? So if you look at the subscriber number versus the US where, you know, last year alone, last year wasn't as bad. But I think you guys dropped by 6.3 million subs, if I'm not mistaken. Evan Shapiro: So what you're saying is, this actually is a growth in pay TV when at the same time in the United States Pay TV. You're right. Dropped by, what'd you say? Seven or 8 million subs? Six or 7 million subs. Marion Ranchet: 6.3 million. [00:03:00] Evan Shapiro: Yeah. Marion Ranchet: And minus 7%, right? Which is taking you guys in terms of the penetration below 40. I think that's a big plus, already for Canal Evan Shapiro: compared to the us. Yeah. When you consider that the pay TV ecosystem, you're right, in the US is around 40% penetration. This is a, to have a positive number year over year is just astronomical. Marion Ranchet: Yeah, exactly. What's interesting and we'll dig a bit deeper, but you are seeing that it's tougher in Europe, so it's a mature region for them and that the growth is mostly coming from a new region that is, Asia and and Africa. Evan Shapiro: Which makes all the sense in the world. When I talk to people about where the opportunity lies on the planet Earth, you look at the territories where there are more younger consumers making more and more money every year. That is Asia and Africa. Yeah, it is definitely not Europe. Marion Ranchet: Yeah, exactly. They're keeping the boat afloat, I would see in Europe, and they're seeing growth outside. Now if you look at revenues, so again, [00:04:00] revenue's growing. I only took those two numbers, there's a third that I'll add at the end because I wanted to focus on the revenues from their direct to consumer and wholesale business as a pay TV platform in Europe and Africa. If you add those numbers, it doesn't add up and the last portion is around 800 million and it's very much coming from the content side of their business. And so they have Studio Canal, which is a major content powerhouse. They have a massive pan-European footprint and international, but, and they have a very, Evan Shapiro: So about $1 billion of this is from that? Marion Ranchet: There's an additional Evan Shapiro: 1 billion, sorry, 1 billion Euros is from that. Marion Ranchet: Yes, exactly. Evan Shapiro: Note by the way, note the Euro mark, not the dollar mark. Marion Ranchet: Yeah, it looks weird. But I noticed how you put everything in dollars and had to switch it up for me. So thank you for that. You're welcome. No, but so again here, revenue's growing across across the board. Very positive signs. Evan Shapiro: I, what is interesting though is, when you, it is not proportionate [00:05:00] to where the subs are. So the subs that are coming from Europe seem to be a higher average revenue per user just based on Marion Ranchet: Well of course. Evan Shapiro: On the, these proportions. And then to take this a step further though, that's what's fascinating about this is so you have way more subs from Europe, right? You have a higher revenue per sub in Europe. But then when you look at this number, this is what just took me off guard, is Asia is generated, Asia and Africa are generating basically the same amount of profit for Canal as Europe is. Marion Ranchet: Yeah. Yeah. Yeah. And as you can see, there's, a modest improvement in terms of profitability for these guys. So I think this is something they'll have to to work on. One of the biggest challenge that they have is, these guys rely heavily on content. They produce it, they acquire it, they have very high end productions. They have a lot of output deals for first pay TV, windows. They buy a lot of, Evan Shapiro: They have a lot Oscar nominations and wins over the years. Marion Ranchet: Yeah. Yeah, exactly. And tier one, they [00:06:00] have F1 exclusively, in France they have the Premier League, et cetera. So the challenge of course is, it is not decreasing. Everything is positive, but it's tiny, Evan Shapiro: Incremental. Marion Ranchet: It feels, yeah, it a very tricky balance. Evan Shapiro: How is their evolution to digital? You talked about it a little bit. It sounds like they do somewhere around, they're direct to consumer and sales, content sales business, you said is somewhere around a billion euros, between 800 and a billion euros. Marion Ranchet: The content business, I will put it aside because in here what's important is, the portion of D to C subs and the portion of wall cell subs, right? And what we've seen is that them going D to C, they grew by almost 2%. Year on year, wool sale went down 2.4%. Why does that matter? I think it means that, the way I read this is that they've gone through, a massive push on connected TVs because historically it's a bit like Sky. They [00:07:00] had their own devices, they had their own ecosystem, but they were also available within other pay TV platforms from Orange, all of the big guys on on the French market and beyond. And they've been making that push to, streaming and digital for years. So much so that there's a bit of a question mark legally speaking in France as to their status. And it has an impact because depending on if you are one or the other you're, you are paying, 10% of VAT or 20% of of VAT and more and more. My Canal is such a big super aggregator. You have their channels, but you have Netflix and you have HBO, or you have so much going on in there that their status is very much in, in between the, between anti, Evan Shapiro: As seen as anti-competitive is what you're saying. Marion Ranchet: Well, t's not so much that, but the rules are the rules, right? You are supposed to be this one thing, but because everything now Evan Shapiro: You're this new thing. So they have to basically redefine legally who they are. Marion Ranchet: Exactly. You are very hybrid, et cetera. So there's a [00:08:00] lot of work to redefine. But, so just to finish on that point, they've made a lot of moves to make sure that their, My Canal app was available, as widely as possible. So, part of those last few months on new Samsung TV models, you didn't have Canal Plus. So we were all wondering what was going on. They just finalized the deal. They signed a deal with Hisense, they got a button. So they've invested a lot to make sure that their, device agnostic, platform agnostic as much as possible. Evan Shapiro: So you feel like they have a track to transform? Is that, was that. Was part of the design to transform for this new age, was that the impetus behind them spinning out of Vivendi and becoming their own publicly traded company to get more access to public capital? Was that the, was that the reason for that? Marion Ranchet: So that's super interesting about the spinoff because it's not going as planned. Essentially Vivendi splits in four companies. You have Vivendi, you have Canal Plus, Havas, which is advertising, and then you have Hachette, which is [00:09:00] publishing. And there you have Prisma, which is the French Conde Nast. And essentially everyone is training way down to the numbers that were Evan Shapiro: Below the initial value. If you look at, Yeah, everybody is now way and it's, and you could, I track it for my map to a certain extent, especially for Canal Plus and for you've, for Vivendi? Yeah. They the total aggregate is down. So I guess that does throw a monkey wrench into their plans to really put money and invest into transforming. Yeah? Marion Ranchet: Yeah. So I think what it says, and that's interesting when you look at those numbers is that the market is not sold on their business on the concept. Yeah. On the plans. I think it's also we're in Q, we're finishing Q1. There's a bit of a question mark of what's gonna happen next, and so it's a bit of an a wait and see, but they did say in the latest earnings that they were expecting, limited growth this year. And we're seeing content costs Evan Shapiro: so these are very mature. These are very mature companies that decided to. Yeah, this is a very [00:10:00] mature company, but all of the companies inside Vivendi are very mature businesses that decided to split. And that's actually ties to the, my Choice of case study, which is Marion Ranchet: Yeah, exactly. Evan Shapiro: Which is Comcast. That's, I didn't choose it on purpose. I know. We do this to each. Yeah, we both decided to choose a company and they really do seg incredibly well. Comcast is a very mature company. They're a lot like Canal Plus in that they have a film studio, they have networks, they have distribution, and they rely very heavily on the subscription business. I think a little differently from Canal Plus is a big part of their business is broadband distribution. Marion Ranchet: Yeah. No, Canal, it's it's an MVPD if I need to look for a term that is consistent with the US markets. Evan Shapiro: Yeah. It's a multi-video programming distributor, Comcast. Their broadband business is the kind of, it's the lion's share of their business. And it is the backbone of what fueled all of their growth. NBC has been doing well, but the growth of Comcast and the ability to run that business at a very high margin is one of the reasons why they've been able to be so successful over the years. And what [00:11:00] you look at their fourth quarter earnings, what is their revenue and their profit are flat, basically. Under 2%, I always categorize as yellow. To basically flatlining. Yeah. More troubling for them. And this is something that is facing the entire US ecosystem. Their total relationships dropped by 1%. You're talking about a company with 30 million plus relationships, so that's meaningful. Their broadband customers dropped even greater. That's the real troubling thing for Comcast. They lost 1.3% of their broadband customers, which is their biggest chunk of customers. So they have plateaued for broadband distribution. Their video homes, as you said, famously are dropping like a hot knife through warm butter. Wireless for them and for charter, their brethren in MVPD and and in broadband distribution, that is the bright spot for them. But it is not necessarily, counteracting all this negative growth in these other areas. When you look at their media business, which is in particular NBC universal Pictures, their cable operation and [00:12:00] peacock first of all, you can see that the profit in connectivity, which is broadband, and television and phone went up by almost 3%. Media revenue went up by 3.5%, again against ver overall revenue, that's a good story. Their studio's revenue and their studio's profit were up really big. The media enterprises had a huge growth in profit in fourth quarter, but that is the law of small numbers. They're barely profitable and so they just a little bit of growth created all the momentum for them there. But here's where I really wanna concentrate on what's gonna happen to Comcast post Spin. So this is how everything breaks down. Yes, media had some nice growth, but it's still less than a quarter of the overall revenue connectivity is close to 60% of their overall revenue. You can see where Parks and Studio lie when you look at where Spinco, so they're about to spin out MSNBC and CNBC and USA and a bunch of other small cable networks [00:13:00] into this Spinco, non-sporting Spinco. And you can see they represent around 7.4% of overall revenues. But when you look at their profit, it's around 1% of their profit. And this is, it has a decent amount of revenue because it generates advertising revenue, it generates affiliate revenue from the other mvpd that distribute the cable companies and the broadcast network. But we're now, remember, you're now separating the teeny little cable networks from the major broadcast network and their biggest cable network Bravo and Peacock. Yes, the revenues are kinda there, but the margins on that business are not great. And to be honest with you, that really does trouble me. When you think about the future of Spinco or as unfortunately some people in the business are calling "Shitco." When you look at this slide in particular this is why. They're not only are they just [00:14:00] a fraction of the profit, so the margins are very thin, but what are their prospects. Where is the growth gonna come from for this business? Because they're, you're severing off the most popular of all of their programming brands in cable. You're severing off sports, the Olympics, you're severing off the studio business, and you're severing off the ability to plug into their pay, their new version of pay TV. Meanwhile, by the way, on the cable side of the business, broadband is plateaued and the growth isn't coming there. So what if I worry about both pieces and I feel like this split is a tactic in search of a strategy. Marion Ranchet: Yeah, my question, because when I look at this, I I don't see how these guys will be better off. So what did they say they would be doing with this thing? When you mean they spin it off? It's a standalone company, that company won't be publicly traded or it's gonna [00:15:00] be? Evan Shapiro: It will be, it's gonna be its own public. They're gonna have the Canal Plus. Marion Ranchet: Okay, so just like Canal Plus? Yeah, it will be Okay. Do we know how much it is valued? Because going back to what we said at the top when you know. Evan Shapiro: Yeah, last I heard it was in the six to $8 billion range. Marion Ranchet: Okay, so we can take bets, right? That it's gonna be half that. No, I'm, but honestly. When you look at Vivendi, it's a perfect example. And we'll put it in the, in our, different newsletters because I have the actual numbers of how much Vivendi expected and where the valuation is today for those four companies, and actually what people are saying. And so I don't know if this could relate to Comcast here, but behind Vivendi there's a family. Yeah, maybe it's the Murdochs, the French Murdochs. Yeah. I don't know. I would have to dig a bit deeper, but essentially people are also saying that it's a move from that family, which is the biggest shareholder of, the group [00:16:00] and all of those different pieces. Yeah. And it's a way for them to actually buy at a lower price, more share, and therefore, be done to the detriment of the minority shareholders. So I dunno if that you, Evan Shapiro: You think that's the case with the so it's a very similar situation, which is, this is the Philadelphia version of this, the Roberts. Okay. Which controls a size, sizeable chunk of this. Okay. Of this company. Not, I think as large as the family does in Canal Plus but a reasonably large, Brian Roberts, Ralph Roberts' son is now running it very famous Nepo baby. It could be that, I just see this split. I believe you're right. I believe it will hamper both. So right now, Comcast is worth around, let's call it $140 billion. Spinco will be worth, let's say, around, let's just call it for round numbers, 10 billion. It won't be worth that, but let's call it 10 billion, which leaves Comcast proper should be worth around, let's call it 120.[00:17:00] You're right. I think as a result, this will lay bare some of the major issues at the center of both halves of this company, or it's not halves, but both sections of this company, which is broadband ain't what it used to be. That major profit center that Comcast has been relying on to build the second tower in Philadelphia called the Innovation Tower, which has produced almost no innovation since it was built, is in real trouble. This business is in real trouble, and the conversion to digital with Peacock is not at the rate of even its competitors in the field. When you look at Disco Brothers and they're at a hundred plus million subscribers, and you look at Paramount, who is I think very close to a hundred million subscribers, and then you look at Peacock, I don't know, they're in the forties, right? Ish. It, it doesn't look like their transformation is going and Xumo, while I understand the thesis behind it, it has not yet hit the stride that I think they thought it would by [00:18:00] this point. So I don't see the growth coming from the biggest part of the mother the company and then the Spinco, again, you're divorcing it from the very things it needs to grow. Which is the streaming business and in most particular fashion, sports and news, which it needs, I think, to thrive. Marion Ranchet: I did not understand that. I thought it was just cable and I thought that they would keep Peacock. So Peacock is in that Spinco. Evan Shapiro: Peacock is in the mothership, is in Comcast. Spinco is, as I understand it. Okay. USA, MSNBC, CNBC. All the collection of those, Marion Ranchet: Just the cable networks. Okay. And so Sky, Sky I'm assuming Sky, which is Evan Shapiro: I believe Sky is in, is it remains the with the mothership. Yeah, but Sky, just reported not great numbers itself very recently. This is not there, I don't know. Peacock would be considered the growth part of the business. Actually, if you look at the numbers in particular over the last [00:19:00] couple of years, you can see actually media, but that is primarily this number here in media is Peacock going profitable, and sports, the Olympics. This was an Olympics year. Yep. So your Spinco doesn't get any of that. Spinco doesn't touch the studio. Spinco doesn't touch parks, which had a bad quarter in fourth quarter, but has also been a growth sector for them. Doesn't get to touch connectivity. So it's divorced from all the things that are truly growing. But then even when you look at, mama ship, look at their total relationships and broadband customers. And then look at what percent of revenues and profits that part of the business generate. It's not growing. Marion Ranchet: Yeah. You don't wanna put all your eggs in that connectivity basket, is what you're saying. And, so I've been thinking about Peacock, last year, those numbers out of, can you go back to the revenue slide? [00:20:00] Evan Shapiro: Yeah, hold on one second. Marion Ranchet: How much are we talking about on the media piece? How much does Peacock represent in there? Do you know? Evan Shapiro: It's a good question. I think peacock is in the four to $5 billion on total revenues. So I think there, it's a sizable chunk. But of the EBITDA they're, they're, they have been a drain on the media EBITDA. So peacock has been unprofitable, and I don't think it's reported profitable in fourth quarter. I could be wrong about that. Hold on one second. In fourth quarter, peacock still lost money, but it lost a lot less money, which is why, yes, okay. The media profit grew as high as it did. It will. Okay. Peacock will probably turn profitable at some point in 2025, but it's still gonna be a relatively small contributing factor. Overall revenue. It's generating real revenue, but it is still not profitable. And then you think about the exclusive football games that they've put on Peacock. And it begins to explain why Peacock is not nearly, and by the way, how far behind Peacock is in this [00:21:00] total subscriber race? It all begins to add up. So ultimately I think, Canal Plus has some advantages in that they still are holding onto subscribers in a way that Comcast isn't across all of their businesses, except they're probably a little bit further out on their direct to consumer business. But I think in both cases, these are companies who I think 2025 is gonna be a pivotal year in their transformation, and I think the spin in both cases winds up becoming a very questionable Marion Ranchet: I agree. Evan Shapiro: Decision in the livelihood and thrive-lihood of these two companies in this new user-centric era. Marion Ranchet: What I will say, what is shocking and I will say that when Comcast bought Sky, that was their attempt at going outside. Why is Peacock not in the race? They're only in the US, so this is the size of the playground, right? Evan Shapiro: Comcast has historically come to streaming. They started, they dabbled in streaming with me and then fired my ass. And then they got to [00:22:00] streaming last of all the major players. And then they really have pussy footed around with the strategy in streaming itself. And it's very fragmented within the company of Xumo and Peacock and how do these things all work together? So it'll be, and by the way, here's my most frustrating thing for Comcast writ large. They've never really, until recently and even now, they're just barely testing it out, a virtual MVPD. Marion Ranchet: That's true. Evan Shapiro: Even compared to Charter and Spectrum and DirecTV and Sling, they're way behind on this and I don't understand it. Marion Ranchet: So that's where I'm super, I do I think it's gonna be a tough year for Canal, but I think they have more to themselves in that, one of the things with the Spinco is also, the world is their osters, so to say, and they can go and grow globally. Yeah. And they've grown through taking, shares in Viaplay in the Nordics, View in Asia. They have almost 50% of [00:23:00] multi-choice, and they've reached that moment where they actually need to buy the entire company, which would bring an additional 15 million subs. In Africa and multi-choice, it's both, French speaking, English speaking, and it's a massive player in the ecosystem. Evan Shapiro: And when you look at their numbers, when you look at these numbers in particular, what I would say, if they would ask me for strategic help, which they're not 'cause they're French and I'm not. I would say, Marion Ranchet: and they would ask me, not you, Evan Shapiro: Exactly. Then you should tell them, go hard in Asia and Africa. 'cause that, that, yeah. Marion Ranchet: This is what they're doing. Evan Shapiro: It is a higher revenue per user in Europe. It is equally profitable and that's where the growth will come from. And that's a good lesson for everybody out there is, look beyond the edge of your own desk of experience. Africa and Asia and Latin America are really good growth sectors, I believe over the next couple of years if you can manage to be there. Anyway, this was fascinating for me. Marion Ranchet: I love it. We gotta do that more. So this is the end of this, first quarter for the Media Odyssey in Q2, we'll have some more numbers to chew on. We'll do more of [00:24:00] these. So tell us, wherever, whenever you get to talk to us, tell us if you like those yes or no. Evan Shapiro: Yeah. And if there's a company you want us to dig into, tell us that too. Marion Ranchet: Ooh, that's a good idea actually. Yeah. Throw us a bone and and we'll happily dig into the data. That was awesome. Thank you, Evan. Thank you so much. I know how to say Canal Plus now. Evan Shapiro: Canal Plus. That is Marion Ranchet. Marion Ranchet: This is Evan Shapiro. Evan Shapiro: And thanks for listening to or watching the Media Odyssey. See you next time.