Mike Cavanagh, President of Comcast, told investors on last Thursday’s earnings call that “while we remain most focused on driving our growth businesses, we also look to maximize the significant legacy value in our portfolio of more mature businesses.” It was an admission that the competitive advantages of its NBCUniversal media conglomerate model are disappearing.
He added, first, “[W]e would consider partnerships in streaming despite their complexities.” In other words, Peacock can no longer exist on its own. It lost $436 million in Adjusted EBITDA and gained only 3 million net new subscribers despite an “exceptional quarter” with the Paris Olympics, an exclusive NFL game from Brazil, the return of the Big Ten, and “several entertainment hits during the quarter including Love Island, Bel Air and Fight Night.”
Second, Comcast is exploring whether a new well-capitalized “spin-off” company—owned by its shareholders and composed of its “strong portfolio of cable networks”—would be in a better position “to take advantage of opportunities in the changing media landscape.”
If the business logic sounds familiar, Disney CEO Robert Iger floated the same idea in Sun Valley in July 2023 to CNBC’s David Faber: “The creativity and content [Disney’s cable networks] create is core to Disney, but the distribution model, the business model that forms the underpinning of that business, and that has delivered great profits over the years, is definitely broken.”
The interesting difference between the two proposals is a single word: “complexities”. Cavanagh used it to describe Peacock’s challenges within and without the NBCUniversal “flywheel”. However, Iger only hinted at it in his framing of Disney’s inextricably intertwined content and cable distribution businesses.
Both raise two important questions. Given these "complexities":
Can media conglomerates disrupt their flywheels? And,
What will happen if they can’t?
Key Takeaway
Comcast seems to be telling Wall Street that "flywheel" models within a "walled garden" have become self-defeating in the streaming era. This presents some difficult questions for Disney.
Total words: 1,400
Total time reading: 5 minutes
Can Media Conglomerates Disrupt Their Flywheels?
A “flywheel” is a connected ecosystem of businesses where improvements in one business segment can help to boost the performance of other business segments. The flywheel is a growth model popularized by Walt Disney’s famous 1957 multispoke diagram. Disney and NBCUniversal bought cable networks to boost cash flow for the flywheel and enable individual businesses to take financial risks they otherwise would not have been able to take advantage of.
The “flywheel” model suffers as cash flow from cable declines. Also, audience demand for the content fragments: It is hard to aggregate audiences at scale both in cable and streaming when competing against technology platforms with enormous global scale like Amazon, Netflix and YouTube. It is even harder to aggregate those audiences when asking for a monthly or annual subscription fee.
Notably, Iger seems to believe the cable business has been “broken” by streaming and that streaming is Disney’s best solution for aggregating those audiences. Cavanagh also seems to believe that streaming is the future as a “growth business” but refuses to call the cable model “broken”.
He is implying that NBCUniversal will be able to spin out its cable channels because the decline of its linear businesses will be slower. That may be because MSNBC and USA Network are in the top 11 most-watched networks, and Bravo is 30th. Also, top titles from NBCUniversal’s libraries of content from Bravo and USA Network have performed well when licensed to Hulu and Netflix, respectively.
A potential spin-out has a better business rationale for Comcast than it does for Disney. Excluding ESPN channels and ABC, Disney's channels all rank below 60th and their Nielsen audiences averaged around or below 100,000 households last week. Disney tends not to license its titles but is making exceptions in the streaming era.
This means Comcast may be better positioned to generate cash flow for its "flywheel "while Disney struggles to find new sources to replace its lost cable profits.
And What Will Happen If They Can’t?
It is important to note that Disney and Comcast are the only two media conglomerates with a theme parks business. In this light, NBCUniversal has one advantage over Disney in the scenario of a spin-out: Neither the reality content of Bravo nor the dramas of NBCUniversal are the stuff of theme park rides. In comparison, everything Disney produces is intended to become either be a ride, an attraction or simply merchandise for sale.
Whatever may remain of NBCUniversal after a spinout of its cable businesses will look like a smaller Disney. In its fiscal Q2 2024, it generated 1.98 billion in revenues and $632 million in Adjusted EBITDA. Disney is almost 4x the Universal theme parks business: It generated $8.4 billion in revenues and $2.2 billion in operating income.
In some ways, NBCUniversal’s flywheel may be better positioned for a future without cable channels. On its earnings call, Comcast announced the grand opening of Universal Epic Universe in May 2025 and sold it as “the most ambitious and technologically sophisticated theme park ever created.” The park will offer “worlds” from IP it does not own, like “The Wizarding World of Harry Potter – Ministry of Magic” and “Super Nintendo World”. The only IP that it owns for that new park are “How to Train Your Dragon – Isle of Berk” and “Dark Universe”.
The implication is that Comcast’s theme parks are less vulnerable to whatever NBCUniversal chooses to do with its cable assets because the latter do not produce IP for the “flywheel”. Meaning, Comcast and Disney face the same challenges with their linear businesses but Comcast has more flexibility in evolving its flywheel without some of its cable networks.
This reads counterintuitive given the financial heft of Disney’s theme parks business: $26 billion in revenues through FY Q3 2024 and $7.6 billion in operating income (64% of total operating income). But, Disney seems constrained by the strengths of its “flywheel” and “walled garden” model whereas Comcast is unconstrained by the weaknesses of its “walled garden” model.
As For Streaming…
The difficult question for both companies is whether streaming belongs within the “flywheel” model. Both companies are arguing streaming is a growth business despite growing evidence to the contrary. But, they also both have a unique mix of libraries of intellectual property and expensive sports distribution deals that do not seem to be able to compete at scale.
In the cable model, sports distribution has been a lucrative source of additional cash flow for the “flywheel” model. Every household paid for those channels, the channels were the most expensive in the bundle but a minority watched them. Both Peacock’s data from the Paris Olympics and ESPN+ consumption in Nielsen’s The Gauge (0.16% of all viewing) suggest that streaming is unlikely to replace that lucrative model.
Comcast’s willingness to partner around Peacock seems to acknowledge this reality. Cavanagh’s concession of “complexities” reflects an understanding that Peacock may be part of a flywheel without needing to be a “walled garden” anymore. He is specifically referring to the complexities around ad delivery and consumer data, both of which are optimal in a single, centralized solution.
More broadly, he is saying streaming may not power a “flywheel” within a “walled garden” but “flywheel” models may still benefit from streaming. That presents some difficult questions for Disney, which has persisted with its “walled garden” approach to streaming and is doubling down with the launch of a “flagship” ESPN streaming product next year.
It needs the latter to succeed. That said, its attempt to participate in the Venu Sports joint venture with Warner Bros. Discovery and Fox was a similar acknowledgement.
If we assume Peacock is a “stalking horse” for ESPN, it already has proved that sports no longer has the same value to the “flywheel” model in the streaming era. In believing both sports and streaming can replace cable in its “flywheel” model, its need for scale will be greater and more existentially risky than NBCUniversal’s.
The Flywheel Is Dead, Long Live The Flywheel
If Comcast is able to spin out its cable channels after Disney failed to, that will be a strong signal that Disney’s bet on streaming is far more wrong-headed than it has been letting investors know. That may read counterintuitive because Disney has a streaming business that is generating $20 billion in revenue per year and is “profitable”.
But, Disney’s “flywheel” within its "walled garden" has long been its secret sauce. Iger’s vision was that streaming could be a logical replacement for cable and at a global scale.
Comcast seems to be telling Wall Street with both data and its proposed spin-out that "flywheel" models within a "walled garden" have become self-defeating in the streaming era.
They require a different calculus. Agility matters most.