Comcast and At&T Both Have a Portfolio Approach to Media and Connectivity

AT&T and Verizon are not the only U.S. connectivity firms facing calls to divest content assets. Some observers want Comcast to get out of the content business to focus on connectivity. Note Comcast’s response. 

“We believe in media and technology,” Brian Roberts, Comcast CEO, has said. Those two go together, Roberts said. 

But note a subtle qualification. “It’s not really vertically integrated, it’s delivering to customers and viewers experiences and memories and things like our theme parks.”

“We see the two working together,” he added.

Though virtually all observers describe AT&T’s spinning out its DirecTV and Warner Media assets as getting out of the business, that actually is incorrect. AT&T retains a 70-percent ownership stake in both businesses. 

It removes the assets from its books, and monetizes up to 30 percent of the assets. But make no mistake, AT&T still owns 70 percent of both businesses, but now does not have to manage those assets. 

Think of it this way, as Comcast does: the connectivity and content businesses are not vertically integrated, as some might have described the former arrangement with DirecTV and Warner Media. But both aspects of the ownership model provide value. 

But both the Comcast and AT&T content ownership strategies allow both firms to diversify assets, revenue streams and markets. Both derive the benefits of ownership, cash flow and profits. 

Though Comcast consolidates the results, AT&T does not. 

Still, essentially, both firms have a business footprint that extends beyond connectivity services, “up the stack.” Most believe AT&T benefits by allowing its management to focus on its connectivity business. But AT&T still owns 70 percent of DirecTV and Warner Media (which will be merged with Discovery and managed by Discovery). 

Keep in mind that many expected or touted growth areas--internet of things, edge computing, private networks, control of unmanned aerial or autonomous vehicles--also, to one extent or another--move connectivity firms beyond connections, and towards platforms and apps. 

A portfolio approach arguably allows participation in a wider swath of revenue and value upside, while still allowing a focus on the core connectivity business. It is a defensible approach, if not always a popular tack for financial engineers who profit from transactions.