UPDATE: Comcast Sees Opportunities at NBCU But NBC Has “A Long Way To Go”
UPDATE, 7 AM: NBC can generate “hundreds of millions” of dollars just by reaching parity with other networks, NBCUniversal chief Steve Burke told analysts this morning. “We’re underperforming our peers….We’re starting to make some progress, but there’s a long way to go.” He has a similar message regarding NBCU’s cable networks that include USA, MSNBC and Syfy. Pay TV operators and advertisers pay more for competitors’ networks than they do for NBCU’s. “We have a real opportunity over the next few years” to change that. They aren’t doing badly, though: Burke says that cable network results in Q1 were hurt by the NBA lockout, although he declined to say how much of a hit the company took. Burke returned to the O-word, ”opportunity,” to describe prospects for Universal Studios. He says that this year’s slate of movies is stronger than last year’s. “We’re hopeful.” Comcast CEO Brian Roberts adds that he’s optimistic the content businesses will benefit from their association with the company’s cable operations. “I think we’re sitting on one of the great brands and libraries.” The growth campaign could be helped by Comcast’s efforts to offer TV Everywhere: Cable systems chief Neil Smit says he wants to provide “the broadest selection of content” to subscribers who want to watch TV shows on mobile devices. Burke adds that “most of the big content companies realize that TV Everywhere is important.” For example, he says the company plans to stream events from the Olympics. How will NBCU get paid? That “doesn’t matter too much,” he says. If the company provides additional value to viewers “that’s where a lot of the (operating cash flow) comes from.”
Analysts were eager to hear more about Comcast’s new technology plans — including the X1 digital video service that provides a program guide and other content from remote servers. Comcast has been testing it in Augusta, Ga., and plans to introduce it in a major market by the end of June, Smit says. It could reach hundreds of thousands of customers by year end, depending on whether Comcast can secure enough equipment. “It enables us to innovate more quickly,” he says. For example, Comcast was able to roll out its VOD service to Xbox users fairly easily because “we had so much (content) in the cloud.” Roberts says the service shows that “the two-way network has advantages over the one-way network, particularly satellite….Long term that’s going to be a differentiator.” Meanwhile there’ve been 5M downloads of Comcast’s Xfinity app for the iPad. So far, though, users have been more interested in using it to search for program information and to turn the tablet into a remote control than they have been in watching programming. Some people fear that consumers who spend so much of their lives in cyberspace will be in for a shock one day if companies like Comcast cap broadband usage or charge people based on how much they download. There are no plans to make such a change “right now,” Smit says. But he adds that “we put the instrumentation in place” in case the company wants to change. Comcast execs sidestepped questions about what might happen if the FCC or Justice Department block the company’s planned deal to sell wireless spectrum to Verizon and cross-market each other’s products. “We’re very optimistic that we’ll get (it) closed in the later half of the year,” Smit says.
PREVIOUS, 4:51 AM: Shares are down slightly in pre-market trading as investors digest a Q1 report that tells a mixed story. Comcast had net income of $1.4B, up 39% vs last year, on revenues of $14.9B, up 22.7%. Analysts expected the revenue figure to be closer to $14.4B. Earnings at 45 cents a share also beat forecasts of 42 cents. Investors may be startled to see how well NBCUniversal performed: revenues were up 18% to $5.5B while operating cash flow improved 34.3% to $813M. The broadcast network helped to lead the charge, at least on the top line. Its revenues were +36.9% to $1.9B with the inclusion of $259M from the Super Bowl and higher prime time ratings. But that came at a cost. The broadcast operation’s higher expenses resulted in an operating cash flow loss of $10M, down from +$20M in the period last year. Filmed entertainment fared somewhat better, with help from Dr. Suess’ The Lorax and home video sales for Hop and Tower Heist. The unit generated nearly $1.2B in revenue, up 22.3%, with operating cash flow of $6M, an improvement from last year’s $146M loss. Theme parks also tell an upbeat story with revenues of $412M, up 5.7%, and operating cash flow of $157M, up 17.1%. Cable networks remained the largest contributor to NBCU, but had mixed results. Revenues grew 5.8% to $2.1B, but operating cash flow fell 1.4% to $805M as channels grappled with higher programming and production costs.
Comcast’s biggest business, cable distribution, also performed unevenly. The company lost 37,000 video customers, ending up with 22.3M. Some analysts expected to see Comcast pick up more than 164,000 phone customers, which brought the total to 9.5M. But the broadband Internet business is still on a tear, adding 439,000 subscribers for a total of 18.6M. All together, the cable operation saw revenues increase 5.7% to $9.6B while operating cash flow was up 5.5% to about $4B. The cable and NBCU businesses are “working well together to launch new programs and offer innovative products,” CEO Brian Roberts says. “We are looking forward to events like the Olympics that will bring together all of our company’s unique abilities to deliver compelling stories and new digital experiences across every screen, in and out of the home.”
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