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Cable giant Comcast, led by chairman and CEO Brian Roberts, on Thursday reported slightly higher first-quarter earnings for entertainment unit NBCUniversal, driven by its film unit, and lower earnings at European pay TV giant Sky, which the company acquired late last year.
Roberts on the quarterly earnings conference call on Thursday morning said that the integration of Sky and its cooperation with other parts of Comcast/NBCUniversal have gone very well so far, with “significant areas of collaboration” and more upside and opportunities to come. For example, “we are also exploring launching a global NBC-Sky news channel later this year,” he said without providing more details, such as whether it would be a linear or streaming network or both.
News, including NBC News, MSNBC and CNBC, along with Sky’s Sky News network, has been one key area in which analysts have said the combined company will be able to share resources and cross-promote its brands. The company previously announced the launch of Sky News on Comcast’s X1 live TV, on demand and DVR platform. Roberts later on during the call touted the company’s U.S. news network’s ratings performance, saying MSNBC has continued “its impressive success, leading CNN by more than 50 percent, with the narrowest gap to Fox News in over 15 years in total viewership.”
Earlier this month, Hulu, the video streaming service in which Walt Disney owns a majority stake and Comcast a minority stake, agreed to buy back AT&T’s roughly 10 percent stake for $1.43 billion, valuing Hulu at $15 billion. Disney became Hulu’s majority owner earlier this year when it acquired most of the assets of 21st Century Fox, including its 30 percent Hulu stake. Disney and Comcast now have a period of time to determine how they will allocate the shares that AT&T sold back to the joint venture.
Roberts on Thursday’s call was asked about Comcast’s longer-term plans for Hulu, replying that for the streamer “the relationship with NBC … is very much in everybody’s interest to maintain, and we have no new news today on it other than it’s really valuable, and we are really glad we own a large piece of it.”
Comcast also recently unveiled its plans to launch a free NBCUniversal streaming service in 2020. “This service will be distinct and compelling, offering current and prior seasons, library and some original content with a light advertising load all for free to pay TV customers,” Roberts said then, adding that he believes it can “generate significant value with this service over time by enhancing our content monetization, strengthening the value of pay TV, becoming a leader in targeted digital streaming advertising and expanding our reach through direct customer relationships.”
On Thursday, Roberts highlighted that different sector giants had different direct-to-consumer (DTC) strategies. “We really like our plan,” which leans towards leveraging brands and strength across “all of Comcast,” said the exec. “Our DTC service will be positioned to gain scale quickly” by leveraging the existing pay TV system and Sky’s Now TV platform, which will “greatly accelerate” the company’s efforts. “The entire company is energized” by the upcoming streaming service launch.
Asked for pricing details on the planned streaming service and possible changes to NBCUniversal’s licensing strategy, NBCUniversal CEO Steve Burke said the company wasn’t ready to give any details at this stage “for the obvious competitive reasons.” But he said that top executives from Sky’s Now TV streaming service are working on the planned streaming service with NBCU staff to get it to its launch in about a year. He also reiterated that the streaming service would have thousands of hours of programming and be made available for free to pay TV subscribers in the U.S. and Britain.
Asked about competition, Burke said he expects “a lot of entrants” into the streaming space, with each company likely to look to tap into its unique strengths. “There is plenty of room” for various companies and strategies. He highlighted Comcast’s more than 50 million direct consumer relationships and the company’s advertising reach and expertise are key strengths and advantages, especially when it comes to reaching profitability quickly.
The exec added that “it’s very, very early innings” in the streaming age, calling the space “reminiscent of cable in the 1970s or 1980s.”
Roberts said that his team’s key view is that “video over the internet is more friend than foe” and the industry will continue to move in that direction. “We wish that every bit was our bit,” he said about rival services, but added that the opportunity in this space is “in the sweet spot of where this company is going to grow.”
Helping to kick off earnings season for big Hollywood companies, NBCUniversal early on Thursday recorded adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $2.34 billion, up 3 percent from $2.27 billion in the year-ago period.
The higher film profit helped more than offset difficult profit comparisons for the company’s TV operations given that they got a boost from airing the Winter Olympics and Super Bowl in the first quarter of 2018. But NBCUniversal revenue for the latest quarter fell 12.5 percent to $8.3 billion.
At Sky, adjusted EBITDA dropped 17 percent, or 11.3 percent when excluding the impact of currency fluctuations, to $663 million, “reflecting new contracts for soccer rights in Italy and Germany.” Sky’s total customer relationships increased 3.5 percent over the year-ago period to 23.7 million, Including 112,000 net additions in the first quarter, marking a 74,000 improvement from the year-ago period.
Buckingham Research Group analyst Matthew Harrigan had forecast a 3.9 percent NBCU earnings decline, citing “difficult Winter Olympics and Super Bowl comparisons,” and a 7.0 percent drop at Sky “due to sports rights expense timing with high growth later in the second half of 2019.”
At its cable systems, Comcast again reported a decline in pay TV subscribers, which amounted to 121,000 in the latest three months. Total cable customer relationships increased by 300,000 to 30.7 million in the first quarter, including high-speed internet customer net additions of 375,000, the company said.
Comcast’s total revenue for the first quarter increased 17.9 percent to $26.9 billion, slightly below Wall Street expectations. Earnings jumped 14.0 percent to $3.6 billion and earnings per share rose 16.7 percent to 77 cents, ahead of analysts’ forecasts. The full company results for the latest quarter were boosted by the Sky acquisition in late 2018 as Sky results aren’t included in the year-ago period.
Film unit adjusted EBITDA increased 78.7 percent to $364 million in the first quarter amid higher revenue and lower operating costs. Revenue increased 7.4 percent to $1.8 billion, reflecting “higher content licensing, theatrical and home entertainment revenue.” Theatrical revenue rose 5.1 percent “due to the performance of films in this year’s first quarter, including How to Train Your Dragon: The Hidden World and Us, partially offset by the performance of Fifty Shades Freed in the first quarter of 2018.” Home Entertainment revenue jumped 7.4 percent driven by the success of Dr. Seuss’ The Grinch. Roberts on the earnings conference call lauded the “tremendous” film performance.
Broadcast TV unit revenue decreased 29.4 percent to $2.5 billion in the latest quarter, “primarily reflecting lower advertising revenue.” Excluding $770 million of revenue generated by the broadcast of the PyeongChang Olympics and $423 million of revenue generated by the Super Bowl LII in the first quarter of 2018, revenue actually rose 7.1 percent. Adjusted EBITDA in the broadcast TV division fell 23.7 percent to $387 million in the first quarter amid the lower revenue, partially offset by lower programming and production costs.
Cable Networks unit revenue dropped 9.2 percent to $2.9 billion in the first quarter on lower distribution and advertising revenue. Excluding $378 million of revenue generated by the PyeongChang Olympics in the year-ago quarter, revenue rose 3.2 percent though. Quarterly-adjusted EBITDA in the Cable Networks unit edged up 0.7 percent to $1.3 billion as the lower revenue was more than offset by lower operating costs and expenses, including programming and production costs, due to the broadcast of the PyeongChang Olympics in the first quarter of 2018.
“Comcast is off to a terrific start in 2019, financially, operationally and strategically,” Roberts said. “Comcast Cable had the best quarterly EBITDA growth in over a decade, while NBCUniversal again posted favorable results. We also continued to strengthen our leadership position in valuable customer relationships and premium content.”
Added the exec: “Now with the inclusion of Sky, we grew customer relationships by 3.6 percent year-over-year, including 400,000 net additions in the first quarter, reaching over 54 million relationships in total.”
In a discussion of the advertising outlook, Burke on Thursday predicted a strong upfront advertising selling season, highlighting the healthy U.S. economy, scatter market ad rates that have been well above upfront levels and the performance of the company’s NBC broadcast network, MSNBC, Telemundo and other channels.
The CEO also said NBCUniversal is seeing “modest” pay TV subscriber declines, while virtual pay TV services’ growth is slowing. “There was a bit of excitement,” he reiterated past comments. “We have said virtual [pay TV services’] growth was probably unsustainable, and that has proven to be the case.”
Roberts on Thursday lauded Comcast’s “leading scale in premium content,” highlighting that the company spends $24 billion a year on making film and TV content, including sports, adding that this ranks the company first or second in the industry. “There are all these platforms that want this content,” he said, adding “our industry-leading scale is a defining asset.” Sky fits in well here as its original programming makes up the European pay TV giant’s five top-rated shows across its channels, and the company continues to boost its spending on original fare.
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