Comcast Q3 Profit Declines 8% Amid NBC Uni Deal and Other Costs
Management argues there is 'almost no impact' from cord cutting despite more basic subscribers losses
NEW YORK -- Comcast Corp. on Wednesday reported a better-than-expected third-quarter profit, but the bottom line dropped 8% due to higher expenses, including costs for the cable giant's planned NBC Universal acquisition and more basic subscriber declines.
In a data point watched closely amid fears that cable subscribers may increasingly replace their TV subscriptions with free or cheaper online video offers in a phenomenon called "cord cutting," the largest U.S. cable operator said it lost 275,000 basic cable subscribers in the latest quarter.
That brought its year-to-date total to 622,000.
But management said customer momentum strengthened each month during the third quarter and into October. "There was real year-over-year improvement at the end of the third quarter and in October," Comcast CEO Brian Roberts said.
And cord cutting is minimal, management argued. Comcast Cable president Neil Smit in a conference call told analysts that exit interviews show that there is "almost no impact" from cord cutting. Most of the few users who don't run off to a competitor go to over-the-air TV instead of only consuming TV content online, he said.
Smit and Comcast CEO Brian Roberts both blamed a weak economy, high unemployment and fewer occupied housing units, as well as tough competition and the recent end of promotions during last year's digital TV transition as key reasons for cable subscriber losses. A large chunk of departures come from the cheapest TV service packages, they said.
Asked if the current strength at NBC Universal's cable networks could lead the cable giant to buy up the remaining 49% of the entertainment company from General Electric more quickly, Roberts said he expects no change to the planned process of a slow takeover of increasing stakes over years. "We haven't even thought about this question" as the current structure is "exactly right for both," he said.
Roberts reiterated that he expects regulators to rule on the deal by year's end, but an increasing number of analysts believe the final decision will move into early 2011.
He also lauded his long-time right-hand man Steve Burke who will become CEO of NBC Uni. "Over the past 11 months, Steve has been spending a lot of time planning so we can hit the ground running when the deal closes," Roberts said. "We are in a strong position to deliver a great entertainment experience to consumers and to really drive new value creation for our shareholders."
Asked about nasty retransmission consent and carriage deal battles between content firms and distributors, Roberts on Wednesday reiterated that the new Comcast-NBC Uni "can hopefully play a constructive role." He added: "Perhaps we can foster ideas, which will not have the consumer caught in the middle there."
He signaled though that he doesn't believe there is a need for government intervention as such negotiations should happen in the marketplace.
Analysts also asked Roberts if Netflix's streaming service is hurting Comcast's VOD or other business. In a sign of how much attention cable executives pay to the firm these days, Roberts highlighted that Netflix management on their recent earnings call had said they see their streaming offers as more complementary than anything else. "Our on-demand usage continues to be quite large and growing," and Comcast is "in a wonderful position to grow," Roberts added.
Comcast's quarterly revenue increased 7.3% to $9.5 billion. But higher operating, income tax and other expenses meant a third-quarter profit of $867 million, compared to $944 million in the year-ago quarter.
The cable giant said its NBC Uni deal-related legal, accounting and valuation expenses amounted to $21 million for the third quarter and $57 million for the first nine months of 2010. Financing and other expenses shared with GE amounted to $43 million and $91 million, respectively. Revenue in the core cable systems segment increased nearly 7% to $9 billion as the company once again added digital cable, broadband and telephony customers, but lost basic cable subscribers.
Comcast's cable networks unit boosted revenue 8.7% to $416 million driven by improved advertising trends.
Advertising growth for Comcast was driven by political and auto ads, which have been hitting record levels ahead of the mid-term elections.