What Happens to NBC Universal if the 2020 Tokyo Olympics Are Cancelled Due to Coronavirus?

2020 will be a big year for Comcast (CMCSA 0.15%). Having lost traditional cable customers by the millions the last few years, the company will be testing the internet-streamed TV waters with streaming service Peacock via its NBC Universal subsidiary. The service is due out April 15 for Comcast Xfinity internet customers and July 15 nationwide -- just in time for the 2020 Summer Olympics in Tokyo, to which NBCU owns the U.S. broadcasting rights.

Unless, of course, those Summer Games don't take place.

In the wake of the COVID-19 coronavirus outbreak, Japanese officials continue to prepare for the event and to say all will proceed as planned, and Comcast, for its part, is still "full steam ahead," according to CEO Brian Roberts at a recent investor conference. Nevertheless, that hasn't quelled worry that the world's largest sporting event could get canceled, rescheduled, or disrupted in some other way due to the pandemic. If it does, here's what Comcast investors need to know.

Image source: Getty Images.

1. NBCU is small-ish potatoes

Most importantly, remember that Comcast is an internet and cable provider first and a media producer and broadcaster second. As I discuss every quarter, and as Roberts recently pointed out, nearly three-quarters of Comcast's revenue comes from broadband internet and cable services. More importantly, NBCU made up just 25% of the company's adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 2019.

Put simply, Comcast's core business is unaffected by the novel coronavirus outbreak. This is still very much a story about converting households to high-speed broadband internet.

2. Breaking down the NBCU pieces

That isn't to say Comcast isn't going totally unscathed. Of the $34 billion in revenue NBCU hauled in last year (out of $109 billion for the whole company), a fair portion is going to be hit negatively by the spread of coronavirus.

YOY = year over year. *Excluding 2018 Olympic and NFL Super Bowl coverage. Data source: Comcast.

It's important to point out that in 2019, NBCU was lapping results in 2018 that included cable and broadcast revenue generated from an NFL Super Bowl and 2018 Winter Olympics coverage. The film segment also had an off-year, so the upside is that the media and entertainment segment gets to lap a weak period. Thus, even with coronavirus, things are unlikely to look dismal. According to Roberts:

I think the main place where we're seeing effect from coronavirus would be in theme park in Osaka, Japan, where we've closed it for two weeks, along with other theme park operators, and that's probably going to mean about a 7% to 9% decline at the NBCUniversal level for the quarter based on how long that park is closed. That -- probably in the scale of Comcast -- theme park, that park represents about 2% of our EBITDA.

Put another way, it's the small theme parks division that is getting hit the hardest. In addition to NBCU's resort in Japan closing for a couple of weeks, construction on the Beijing, China, park (slated to open in 2021) was also put on pause for a few weeks. Construction workers are back on the job, though, and the grand opening remains on schedule.

Back to the Olympics, Roberts added that his company has already sold most of the ad space for the sporting event; but should the event be canceled, it has insurance policies in place to cover any losses. So, worst-case scenario, cable and broadcasting see no ill effects -- nor any positive effects -- and are left with other live TV headliners (like 2020 presidential election debates) to try and return to growth.

3. What it means for streaming

And finally, there's Peacock, NBCU's streaming service, which has the goal of at least replacing some of the slowly diminishing cable TV business and eventually creating a new growth segment. Comcast's purchase of European broadcasting and entertainment company Sky at the end of 2018 has been key to getting the company's proper internet-based service up and running, but it could get off to a slow start.

That's because, in an increasingly crowded streaming industry, Peacock is differentiating itself by including live TV online. Headlining programs this year include none other than the Olympic Games in Tokyo. If the Games are canceled, Peacock could have a more difficult time getting new customers to subscribe.

However, here's the upshot: Peacock is starting from a base of zero, so any new subscribers would be a good thing. And then again, the Olympics -- on or not -- could be a non-issue. Peacock will have a free ad-supported tier, a $4.99 ad-supported tier with access to more video, and a premium ad-free tier for $9.99 (or $4.99 for Comcast customers). That pricing could be good enough that losing the Olympics has little effect on new sign-ups.

It remains to be seen how the event in Tokyo plays into Peacock growth this year, but this is a long-term play anyway. Management has previously stated it is eyeing 30 million to 35 million subscribers by 2024, so coronavirus disruption is likely to be a mere bump in the road.

It will be worth monitoring Comcast and the coronavirus in the months ahead, but at this point, it appears that the negative impact is going to be minimal. Now trading for just 14.2 times 2019 free cash flow after the contagion-fueled market sell-off, this consumer discretionary stock actually looks like a buy rather than a reason for serious worry.