In a 47-page report out today, influential Wall Street analyst Craig Mofett deems Comcast’s presumed bid for pay-TV giant Sky TV as a gambit with “tremendous risks” that nonetheless could yield an OTT service with Netflix-style advantages.

The near-term upside of Comcast’s overture for Sky has been nil, notes Moffett, a partner in MoffettNathanson. Comcast’s stock has been under water since CEO Brian Roberts formally expressed interest in snatching Sky away from 21st Century Fox for $31 billion. Even looking back over a five-year time span, despite stellar results from the cable side and NBCUniversal, the company’s share price has performed no better than the broader market. Fox has noted the absence of a formal offer, and Moffett’s partner, Michael Nathanson, is among those predicting Disney (which is in the process of acquiring most of Fox) will sweeten the Fox offer to keep Comcast at bay.


Even so, the prospect of Comcast swallowing Sky is a fascinating one, and Moffett ruminates at great length on the many pros and many cons of a transaction. (Moffett’s report largely dismisses the theory that the Sky move is a way to pry loose the Fox studio assets from Disney.)

“One can assume that Comcast believes that the combination of Sky’s and NBCU proprietary content will be enough of a deterrent to ensure that the margins available to an OTT provider don’t simply get competed away,” Moffett writes.

Still, there are two main hurdles to overcome in terms of executing a streaming strategy – for starters, Sky’s main business is traditional one-way satellite delivery. Roughly $70% of its total revenue, Moffett estimates, comes from linear TV subscriptions in the UK and Ireland. While it has been moving aggressively to build out its OTT offerings, those margins are significantly lower than the ones Comcast currently enjoys in its traditional domestic cable business.

“There are a great many assumptions required if Comcast’s presumed strategy is to succeed,” Moffett concludes. “Running the table on all of them is a rather uncertain outcome, and demands what some might read as rather accommodating business decisions from some rather deep-pocketed competitors. … What is at issue here isn’t just whether the global or pan-European OTT war is a war that Comcast can win. It is also whether it is a war worth winning.”

Moffett nevertheless maintains his buy rating on Comcast, with a price target of $52. It could take some time for that target to be achieved, he acknowledges, given the significant uncertainty shrouding the marketplace as the industry awaits the outcome of the government’s lawsuit aiming to block the AT&T-Time Warner deal.