NBCU CEO Touts "Very Different" Streamer With Peacock, Will "Keep Selling" Films to Premium TV

Universal Pictures
'Fast & Furious Presents: Hobbs & Shaw'

"You got the three biggest media companies, Disney, Time Warner and NBCUniversal, all launching streaming platforms. And a lot of people are being very, very aggressive about it, and I would anticipate that to happen until at some point there will be an inevitable slowing down and shakeout," says Steve Burke.

Cable giant Comcast on Thursday reported slightly higher third-quarter earnings for entertainment unit NBCUniversal, despite tough comparisons with the year-ago period, and European pay TV giant Sky, which the company acquired late last year.

Comcast shares rose in pre-market trading.

Comcast, led by chairman and CEO Brian Roberts, said NBCUniversal, overseen by CEO Steve Burke, recorded adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $2.09 billion in the latest quarter, up 1.6 percent from the year-ago period. NBCUniversal's quarterly revenue fell 3.5 percent though to $8.30 billion.

Comcast's entertainment arm had tough comparisons with the year-ago period when its film releases included Jurassic World and it aired the soccer World Cup on Telemundo and the Ryder Cup on NBC. In the latest quarter, the film division's main release was Fast & Furious Presents: Hobbs & Shaw, with Downton Abbey and Good Boys also among the theatrical offerings.

At Sky, adjusted EBITDA rose 38.3 percent on a pro forma basis, or 46.0 percent when assuming constant currencies, despite a 4.2 percent revenue drop to $4.6 billion. Sky's content revenue jumped 15.4 percent to $315 million, "reflecting monetization of our slate of original programming," including Patrick Melrose, and "the wholesaling of sports programming." Advertising revenue fell 13.8 percent to $446 million, "reflecting an unfavorable impact from a change in legislation related to gambling advertisements in the U.K. and Italy, as well as overall market weakness."

Sky's pro forma total customer relationships decreased by 99,000 to 23.9 million in the third quarter, with the company citing "record streaming growth due to unique content in the second quarter." It predicted a return to customer growth. Meanwhile, Comcast's cable systems recorded a video subscriber loss of 238,000 in the third quarter, while adding 379,000 broadband subscribers.

Comcast said its third-quarter net income included a gain of $60 million in other income, or $45 million net of tax, "related to our investment in Hulu," which the company previously agreed to sell to Disney, and $34 million of other losses, $25 million net of tax, "related to an impairment of an equity method investment" that the company didn't identify. 

At NBCUniversal, film unit revenue dropped 6.2 percent to $1.7 billion in the third quarter due to a 28.5 percent decline in home entertainment and an 8.8 percent decrease in theatrical revenue. Theatrical revenue reflected "the volume and strength of releases in last year's third quarter, including Jurassic World: Fallen Kingdom and Mamma Mia! Here We Go Again, partially offset by the performance of Fast & Furious Presents: Hobbs & Shaw in this year's third quarter," the company said. Adjusted EBITDA in the film unit was down 8.7 percent at $195 million as the lower revenue was partially offset by lower programming and production costs.

Management predicted strong full-year 2019 film results and growth in 2020 thanks to three animated sequels and a new Fast & Furious release.

Broadcast TV unit revenue fell 9.1 percent to $2.2 billion in the third quarter amid lower advertising and content licensing revenue, partially offset by increased distribution and other revenue. Ad revenue decreased 12.1 percent, "primarily due to the absence of revenue generated by Telemundo's broadcast of the 2018 FIFA World Cup Russia." Adjusted EBITDA for the unit increased 5.1 percent to $338 million though as the lower revenue was more than offset by lower programming and production costs, primarily due to Telemundo's broadcast of the 2018 FIFA World Cup in Russia.

Cable networks unit revenue dropped 2.8 percent to $2.8 billion in the third quarter due to lower content licensing and other revenue, partially offset by higher distribution revenue, which the firm said was "primarily due to contractual rate increases and the timing of contract renewals, partially offset by a decline in subscribers." Comcast said pay TV subscriber declines have "moderately accelerated" amid weaker satellite TV and virtual multi-channel distributor trends. Advertising revenue was unchanged as higher rates were offset by ratings declines. Adjusted EBITDA in the unit was down 0.4 percent to $955 million as the lower revenue was partially offset by a decrease in programming and production costs.

"We delivered excellent results in the third quarter, surpassing 55 million customer relationships and generating strong pro forma growth in adjusted EBITDA and double-digit growth in adjusted earnings per share," Roberts said. "We continued our long track record of highly profitable growth, while also investing in our businesses to further strengthen our leading competitive position. Cable had its highest third-quarter broadband net additions in 10 years, which drove its best quarterly net additions in total customer relationships on record; NBC ranked #1 in primetime for the sixth consecutive 52-week season; and Sky’s channels had a 10 percent increase in household viewership."

On Thursday's earnings conference call, Roberts reiterated plans for NBCUniversal and Sky to jointly launch a "global news channel," but didn't provide any timing or other new details.

Roberts also argued that Comcast's broadband strength, the "enduring popularity" of its premium content and the success of integrating Sky over the past year all position the company to perform well in the increasingly competitive streaming market. It has said that NBCUniversal's Peacock streaming service would launch next year. Management said Peacock's financials will in the early stages not be reported as part of NBCUniversal but under Comcast's "corporate and other" reporting segment. 

Burke said the company would not discuss promotion and marketing plans for Peacock until closer to its launch, but he did say Peacock's April launch will use the 2020 Summer Olympics as a promotional "afterburner." Asked about the low pricing and aggressive jockeying for position by upcoming streaming services, such as Disney+, Burke said he wasn't shocked. "It’s not too surprising to me. You got the three biggest media companies, Disney, Time Warner and NBCUniversal, all launching streaming platforms. And a lot of people are being very, very aggressive about it, and I would anticipate that to happen until at some point there will be an inevitable slowing down and shakeout, and the market will get a little bit more rational," he said. "You want to be aggressive to get in there and make sure that your service is one of the consumer's handful of favorite services."

He reiterated that Peacock would offer a mix of original fare, exclusive content acquisitions and library product and that NBCUniversal would keep selling movies into the premium window instead of "taking all of our movies off of premium platforms like HBO or Sky." He added: "We are not doing the same strategy that Netflix and people chasing Netflix have adopted." Given a focus on the existing pay TV ecosystem, the ability to leverage Comcast's 55 million customer relationships and an advertising VOD model, he reiterated: "We are going to get to cruising altitude much more quickly than a subscription service."

Burke also said he was "very pleased with the technical progress" behind Peacock, calling the service's look "beautiful and very different."

Comcast management also touted on Thursday that it has paid down $11 billion in debt this year, saying the firm will meet its ratings agency commitments by the end of 2020.