NBCUniversal CEO Sees “Challenge” for HBO Web Service, Cannibalization Risk

Comcast chairman and CEO Brian Roberts on Thursday touted NBCUniversal’s financial performance during the third quarter and its “great progress” so far in 2014, lauding the work of NBCUniversal CEO Steve Burke and his team.

The two executives on the cable giant’s earnings conference call answered questions on online-only video services from big TV players, saying they don’t expect them to really upset and challenge the existing pay TV ecosystem, but Burke also warned of the risks involved, particularly HBO’s risk of hurting its existing business.

In a reference to recent news from HBO and CBS that they would launch standalone online video services, Roberts said in his opening remarks: “We understand content companies attempt to look for new ways to grow their businesses.”

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Asked by an analyst about those plans later, Roberts said: “I do think all companies are trying to figure out how to reach all customers,” suggesting the companies wouldn’t truly go “over the top” and go against the traditional pay TV system. He added: “But I do think our existing business model is very strong.” He predicted future quarters would show that “many people” still want pay TV bundles in the digital age.

Burke on the call argued that both HBO and CBS are “trying to add to their existing ecosystem” rather than going “over the top” to avoid cannibalizing their high-margin existing pay TV business. “They have to be very careful with cannibalization,” he said. After all, HBO created the premium TV business, and “CBS is not, I don’t think, trying to get their existing ecosystem to move over.” He said the companies are, however, trying to reach millennials, adding “that’s what we all are trying to do.”

He concluded: “I don’t think distributing directly to consumers via the Internet is an easy thing to do.”

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Asked if the announcements came as a surprise, Burke said, “I was surprised by both” for different reasons. CBS has been “such a defender” of retransmission consent fees and the traditional ecosystem in which it has had much success, while for HBO, “it is going to be such a challenge for them to not cannibalize what is already a really, really good business,” he said.

But Burke added that “we are so early on in the transition to more Internet television that I think you are going to see a lot of surprising things.” He added: “It is surprising to me that we are making hundreds of millions of dollars from Hulu and Netflix and Amazon, businesses we didn’t even think about five years ago. So we’ve all got to be prepared to be surprised once in a while, but also put everything in perspective and [ask] what people’s real motivations and challenges are.”

Discussing the outlook for basic cable networks, Burke offered some bearish predictions and signaled lower growth rates in the future. He said cable networks would be challenged to grow ratings over the next five to 10 years plus, highlighting that acquired shows are now often available via various other services, including digital platforms, and he mentioned audience fragmentation and changing viewer habits. He said though that scatter advertising trends are “just fine” at the moment.

Burke also said that the USA channel would continue to invest more into original programming and could use more sports content. “You could see us taking some of our existing sports on other channels and putting them on USA,” the NBCUniversal CEO said without providing more details.

Overall, Roberts said Thursday regarding NBCUniversal that “the investments we have made in the businesses have paid off.” He cited the first full-season win for NBC last season in the 18-49 demographic and lauded early fall season trends. “NBC is off to another strong start” ranking top among viewers 18-49, he said.

Roberts also lauded management for having made NBC “vital and profitable” again.

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Talking about the film unit’s performance, he cited “an exciting slate” in 2015 following a more modest release roster this year.

Discussing time-shifted viewing and competition from original shows around the industry, Roberts said the firm’s cable networks unit posted only slight growth amid ratings challenges. He reiterated previous comments that the company’s cable networks were “undermonetized,” meaning there is more financial upside. He touted the success of USA, CNBC and Bravo.

In his comments on Comcast’s cable systems, Roberts emphasized the goal of improving customer service, saying it must be “truly exceptional.”

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Comcast CFO Michael Angelakis later said that programming expenses for the cable systems unit rose 7 percent in the third quarter and will be up slightly below the previous forecast of 9 percent to 10 percent, he said, adding management was “pleased” with the year-to-date trends.

Comcast continues to expect its planned acquisition of Time Warner Cable to close in early 2015, Angelakis said. On Wednesday, the FCC announced it was pausing its regulatory review of the deal.

Arguing that regulators and networks firms must decide how much information about carriage deals will become public, Roberts said: “It doesn’t reflect substantive concerns about our transaction.”

Email: Georg.Szalai@THR.com
Twitter: @georgszalai