January 10, 2020

Comcast’s Potential Acquisition of Xumo

According to multiple media reports, and first reported by The Wall Street Journal, negotiations between Comcast and Xumo are in the “advanced stages.” Xumo is an ad-supported streaming video service currently owned jointly by Panasonic and Meredith.

The timing of the announcement is noteworthy because acquisition talks are occurring at a time when the NBCU division is preparing to launch its AVOD streaming service, Peacock, in April. But a few months ago, Comcast signed a deal with Xumo to include its free app on Comcast’s X1 STB platform, joining Pluto and Tubi.

So many questions…

Why would Comcast acquire an AVOD service, Xumo or any other? If acquired, what will it do with it? How will Xumo’s brand fit within the vast Comcast ecosystem? Will the acquisition adversely impact AVOD revenues for other companies like YouTube? Will this deal actually happen?

As to Peacock
In April 2020, NBCUniversal will launch Peacock, a free ad-supported streaming video service featuring content from the network’s vast entertainment, sports, news, and cable TV divisions, along with content from Lionsgate. The service will stream original, repeat, and live programming and, like many SVOD competitors, NBCU is pulling content from Netflix to help populate its own branded AVOD service (e.g, The Office and Parks and Recreation). At launch, it will have in excess of 15,000 hours of content.

The Peacock service will, of course, be free to Comcast pay-TV customers, but others will pay $5 per month for the AVOD service and $10 per month for the ad-free version.

As to XUMO
Over nine years, XUMO has built a free ad-supported live and on-demand streaming entertainment app accessible via download stores like Google Play and Apple TV as well as on a growing variety of smart TVs and operator set-top boxes. At the close of 2019, it featured more than 190 “channels”—that is, brand- or genre-driven mini-apps featuring clips, shows, and movies that can be favorited to suit individual tastes. Popular content includes Funny or Die, Movies of the Week, and full-length seasons of TV shows like Roseanne, Hell’s Kitchen, and Unsolved Mysteries. Xumo will also carry live PGA tournaments in 2020.

Does this Acquisition Make Sense?
The simple answer is “maybe,” and here’s why:

Horizontal Integration – POSITIVE
By acquiring Xumo, NBCU would add both quality content and more than seven million active users, thus expanding its portfolio of AVOD services and at the same time blocking its competitors from acquiring this content.

Global Reach – POSITIVE
While there is still room to launch a great platform in the United States (e.g., Disney+), most of the opportunities for growing streaming revenue are in the global marketplace.

Any additional reach that Comcast can acquire is likely a positive.

AVOD Marketplace – POSITIVE
Having Peacock enter the AVOD marketplace gives credibility to the space, especially to advertisers who may be on the fence about embracing AVOD as a viable medium for their brands. Anytime a strong media brand (NBCU) embraces a new medium, ad buyers will take a serious and thoughtful look into the justification of purchasing an ad unit. Thus, by reputation alone, Comcast purchasing Xumo should result in additional revenue and higher pricing for Xumo content.

Corporate Synergies – POSITIVE
Xumo is a small content services company of 30 employees exclusively dependent on ad revenue. Comcast has deep and long-term relationships with the advertising community. Xumo will benefit immensely.

Cost – UNKNOWN
Unlike many of its deep-pocketed competitors, Comcast’s balance sheet is not strong enough to overpay for an asset that may only be “nice to own” as opposed to a “must buy.”

Technology – UNKNOWN
The most significant rationale and the likely reason that the acquisition has not yet happened is Comcast’s ability to integrate Xumo technology and workflow. A complex integration may prove too costly and time consuming for Comcast. On the other hand, it may be that Comcast needs Xumo to backfill some of its own technical deficiencies, which makes the acquisition more necessary.

Impact on YouTube and Traditional TV – NEGATIVE (with some exceptions)
Much like the SVOD acquisition frenzy, many are concerned about the impact that TV-network acquisitions of AVOD services (ViacomCBS buying Pluto being the first) on the ad revenues of other AVOD services (e.g., YouTube) and traditional cable networks (other than Comcast, of course). As to the latter, there is no doubt it could impact XUMO’s neutrality. Keep in mind that news accounts for more than 25% of Xumo viewing, and the service recently added ABC News Live to its lineup of NBC News, CBS News, Cheddar, Newsy, and Newsmax. Once Comcast takes over, however, it would be surprising if it didn’t work to “favor” NBC News over its competitors. The same conflict of interest arose when Viacom’s Pluto was merged with CBS. Then again, perhaps it is in the interest of Comcast/Pluto and ViacomCBS/Pluto to support other news services equally.

While many analysts have concluded that this will negatively impact topline results of other AVOD providers like YouTube, I somewhat disagree. It is my feeling that having a few strong players in the fledgling AVOD market gives the medium credibility and will likely lessen or even negate the assumed revenue losses for companies like YouTube. The bigger risk for YouTube is on its content side, where loss of quality content to a Comcast/Xumo will certainly have a negative impact on its ability to grow subscribers. If there is a loss, it will come from the quantity and quality of content available for other AVOD services.

Conclusion
The probability of a Comcast acquisition of Xumo is high. The timing of the acquisition talks is evidence that Comcast lacks certain technology possessed by Xumo. I further believe that the asking price will not be too great because Xumo needs Comcast, as well. Xumo does not have a strong and experienced advertising sales team, and the synergies of the marriage make sense. The only factor that may stop this deal from happening is if Comcast feels that the integration of workflow, process, and technology is too complicated and time consuming.

Finally, a Comcast/Xumo deal will help the AVOD marketplace by giving it credibility, and for the short-term, YouTube need not worry too much about lost revenues. The likely outcome would be that YouTube will end up with a smaller share of a bigger market. Longer term, it too will have to grow.

A 20-year veteran media executive, Rob Silvershein’s success in today’s competitive media environment is a direct result of his unique experiences spanning traditional, emerging, and startup media platforms. He is an accomplished strategist and spends most of his time advising media companies on how to structure themselves for long term success. He currently lives in Manhattan Beach, CA.

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