Comcast CFO on Interest in Deals: "Quality Content" Is More Important Than Scale

Comcast CFO Michael Cavanagh - P 2017
Courtesy of Comcast

"We don't see a strategic gap," but always look at assets that "would create value for shareholders," Michael Cavanagh says without specifically addressing the company's appetite for buying parts of Fox.

Comcast CFO Michael Cavanagh at an investor conference Monday didn't specifically address the company's interest in buying parts of 21st Century Fox, but reiterated that the company always looks at possible deal opportunities, while continuing to feel it is strategically complete. 

Speaking at the 45th annual Global Media and Communications Conference in New York, he said "our focus is on quality content," adding "we got plenty." And he argued: "Quality content is going to be the coin of the realm, I would say, more than scale." 

Amid a recent slew of acquisition chatter in the industry, some observers have suggested that companies could end up chasing scale for scale's sake instead of focusing on deals that make financial and strategic sense.

Cavanagh didn't get a direct question about and didn't specifically comment on Comcast's interest in parts of 21st Century Fox. The company has been understood to be looking at possibly buying some assets from Fox, which has also held  talks with Walt Disney about possibly selling the 20th Century Fox film and TV studio, the FX and National Geographic cable networks business, its 30 percent stake in Hulu, Star India and its 39 percent stake in European pay TV giant Sky.

Comcast chairman and CEO Brian Roberts last year, around the time the AT&T-Time Warner deal was unveiled, declined to comment on it and what it would mean for Comcast, but signaled there was no need for acquisitions for the sake of doing deals: "We have a fabulous company," he had said. "The assets are great, they are working well together."

Declining to comment on specific deal chatter, Cavanagh reiterated Monday: "We really like the collection of businesses we have.... We don't see a strategic gap." He added: "It's our job to evaluate and consider and see if despite the fact that there is not a strategic necessity, are there things out there that we could do that would create value for shareholders."

The recent slew of deal chatter in the entertainment industry and the Department of Justice's legal challenge of AT&T's proposed $85.4 billion acquisition of Time Warner are expected to be key topics of debate throughout the UBS conference. 

Cavanagh on Monday also once again touted the performance of NBCUniversal. Comcast first got a controlling stake in NBCU in early 2011, before buying full control in 2013. It has since more than doubled the operating cash flow at NBCUCavanagh said "it's been a great story," adding "there is continued runway there" for growth.

Asked about TV advertising outlook, especially at NBC, he said, "we expect it to be a continued large and solid business." He said NBC has the Olympics and Super Bowl in 2018, and Telemundo will have the soccer World Cup, which will all be key performance drivers. 

Asked about network carriage fees and retransmission consent feels, Cavanagh said that the former is doing "quite well" and virtual pay TV services provide added revenue opportunities. And retrans revenue has jumped from $800 million to $1.4 billion this year, with "continued, steady growth" being in the cards for the future.

Asked about NBCU's direct-to-consumer services and strategy, he said the company was continuing to experiment in the space, but didn't have all the answers yet. He cited the Hayu reality show streaming service in international markets and the Seeso comedy service, which has been shut down, as examples. "We have done a few things," he said. "We are definitely trying to experiment and learn."

"We are doing plenty in the space of how millennials are absorbing content," Cavanagh added, citing relationships with Snapchat and BuzzFeed.

Discussing the film unit, he said the studio will this year have "one of its very best years" in its 100-plus years in existence.

Cavanagh said on the cable side of the company, Comcast is particularly optimistic about the outlook for its connectivity business. "We are very confident and proud of the very robust platform" the company has in pay TV, he said, emphasizing: "Video is an important part of the overall equation." Competition in the video business remains strong, but stable, he said. 

Asked about streaming video competitors, Cavanagh said Comcast's integration of Netflix and continued focus on offering diverse content gives management confidence that "we continue to have the premier product in video." Citing skinnier bundle offers, he said the company has been looking to provide "a variety of different video products to different segments" of customers.

Asked about continued growth in programming expenses in the cable business, the Comcast CFO said that improving the customer experience was key, but 2018 would see "a significant decline in the rate" of programming cost increases given a recent slew of carriage deal renewals.  

At last year's UBS conference, Cavanagh had been asked what the incoming Trump administration could mean for business, saying there was “optimism” that it would be good for businesses. "We got to go from the optimism in the market to really seeing what happens," he had said back then, adding that he too was optimistic "that it will be a good environment for business broadly, which I think will help the economy very broadly, which will help everybody, including us."

He had cited tax reform as a possible benefit for companies, highlighting that “we’re a high tax payer.” And asked about net neutrality, he had said that past regulation didn’t hurt the cable sector, but that “the overhang of where it could go in the future was something that had a [chilling] effect.”

On Monday, the CFO said that "we look forward to seeing what will finally happen" on tax reform, adding that both the House of Representatives and Senate versions of the bill would be "significantly meaningful to Comcast."

Cavanagh said Comcast would add more than 1.1 million broadband subscribers in 2017, with growth set to continue as market penetration of the service will rise, new homes will provide an opportunity for added gains and the company expects to gain market share from competitors.

Net neutrality was also a topic of debate. Last month, the FCC unveiled a proposal that would remove existing rules that prohibit Internet service providers from blocking, slowing down or charging different prices for access to different Internet content. The FCC will vote on the proposal Dec. 14.