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NBCUniversal is planning to launch its upcoming streaming service in April, with The Office as one of its tentpole programs, CEO Steve Burke said Thursday. He said the service would initially mostly live off licensed content and only some original programming, making it “very different” from Netflix.
The exec made the comment on a call with Wall Street analysts after cable giant Comcast, which is led by chairman and CEO Brian Roberts, reported higher second-quarter earnings for entertainment unit NBCU and European pay TV giant Sky, which the company acquired late last year.
Burke said his team was “hard at work” on the advertising-based streaming service, targeting the launch for April. He said more than 500 people are working on it now, using Sky’s Now TV streaming platform. The exec said the company had a “very innovative way of coming into the market” and “very attractive financial aspects.”
Comcast recently said that NBC cult favorite The Office will leave Netflix when its current deal with the streamer expires at the end of 2020 to exclusively stream on the forthcoming NBCU direct-to-consumer platform. NBCU’s streaming platform will retain exclusive domestic streaming rights to The Office for five years, paying $100 million per year to stream the series after outbidding Netflix. Asked about the deal, Burke said Thursday that according to Nielsen, the series is the No. 1 show on Netflix, accounting for 5 percent of its overall “volume.” With the show having aired on NBC and therefore being part of its DNA, he said, “we see The Office as one of the tentpole programs on our platform.”
Asked about the role of original programming on the NBCU streaming service and how similar it will be to Netflix, Burke responded, “Our service is very different from Netflix.” He added: “The vast majority of our volume I expect to be acquired. We are spending some money on originals. … We have a number of originals that are actually tied to libraries that we currently own. But I would expect the vast majority of the consumption in the beginning would be acquired [shows].”
He also hinted that the streaming service would have some “innovative” elements, but declined to provide further details, citing competitive reasons.
NBCUniversal on Thursday recorded adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $2.32 billion, up 8.1 percent. The entertainment arm posted higher EBITDA across all its units, including the film division, which posted lower box office figures for the period. Quarterly revenue declined 0.8 percent to $8.2 billion.
“NBCUniversal successfully completed another record upfront, highlighted by overall volume up 10 percent to nearly $7 billion and a double-digit price increase at NBC Prime,” the company highlighted. “Once again we led the market on both volume and price,” Roberts said.
At Sky, adjusted EBITDA rose 13.4 percent. Total customer relationships increased 4.4 percent to 24 million, including net additions of 304,000 in the latest quarter, an improvement of 197,000 from the second quarter of 2018. Management said subscriber growth mostly came from streaming costumers and was driven by the appeal of Game of Thrones and Chernobyl.
Comcast’s cable systems recorded a video subscriber loss of 224,000, but their broadband subscriber base increased by 209,000.
“I am very pleased with our terrific second-quarter results and the continued, successful execution of our strategy,” Roberts said. “Each of our businesses demonstrated healthy growth in adjusted EBITDA, contributing to a double-digit increase in adjusted earnings per share. Our company’s consistent, profitable growth is fueled by our leading scale in direct customer relationships and premier content. We now have nearly 55 million high-value direct customer relationships, including the 456,000 net additions in the second quarter, and a vast library of intellectual property and new productions that are extremely popular across generations and geographies. Our teams throughout the company continue to collaborate to make themselves and each other even stronger, and I’m excited about our growth opportunities ahead.”
On Thursday’s earnings conference call, Roberts said the company has made “great progress” towards the launch of the upcoming advertising-based NBCUniversal streaming service. “The strength of our assets and leadership across our businesses, combined with access to tens of millions of customers will lower both our cost of entry and execution risk as we deliver a truly special offering,” he said.
While there is “significant competition and change” in the pay TV eco-system right now, “for years, we have felt that video over the internet is more friend than foe” and “plays to our strength,” said Roberts, adding that the company has a “vast library of [intellectual property] and new productions that are extremely popular” across geographies and generations.
NBCUniversal on Thursday said that its film unit revenue fell nearly 15 percent to $1.5 billion in the second quarter, primarily due to a 53 percent drop in theatrical revenue, “reflecting the strength of releases in last year’s second quarter, including Jurassic World: Fallen Kingdom, partially offset by the performance of The Secret Life of Pets 2 in this year’s second quarter.” Adjusted EBITDA in the film unit still jumped 33 percent to $183 million, driven by “lower programming and production costs.”
Broadcast TV unit revenue edged up 0.5 percent to $2.4 billion in the second quarter, thanks to higher distribution and other revenue, partially offset by lower advertising and content licensing revenue. Distribution and other revenue increased nearly 15 percent, primarily due to higher retransmission consent fees. Ad revenue fell 4.2 percent, though, “primarily due to the absence of revenue generated by Telemundo’s broadcast of the 2018 FIFA World Cup Russia.” Excluding the World Cup, ad revenue increased in the mid-single-digits range, “reflecting higher pricing, partially offset by audience ratings declines.” Adjusted EBITDA in the broadcast unit rose 28 percent to $534 million, driven by lower programming and production costs.
The cable networks unit revenue increased 2.5 percent to $2.9 billion in the second quarter, thanks to higher distribution and content licensing fees and other revenue. Distribution revenue rose more than 3 percent, due to contractual rate increases and the timing of contract renewals, partially offset by a decline in pay TV subscribers of around 1.5 percent-2.0 percent. Advertising revenue was unchanged from the prior-year period, “reflecting higher rates, offset by audience ratings declines.” Adjusted EBITDA in the cable networks unit increased slightly more than 2 percent to $1.2 billion as the higher revenue was partially offset by higher programming and production costs.
Roberts on Thursday’s call was also asked about Comcast’s appetite for acquisitions. “We’re pretty focused on what we have in front of us,” he said, emphasizing that debt reduction is the priority. In that context, management also said it was looking for ways to monetize the floor price set in its deal to sell its stake in Hulu to Walt Disney over time, which would allow it to pay down debt further.
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