NBCU Posts Record Full-Year Film Profit, Comcast CEO Vows Discipline in Acquisitions

Cable giant Comcast on Wednesday reported its fourth-quarter financials, including a higher profit at its entertainment arm NBCUniversal. The company also said its film unit had a record profit for the full year 2017.

Comcast chairman and CEO Brian Roberts on the earnings call discussed his team’s view on industry consolidation as the company had in December backed away from bidding for key 21st Century Fox assets, leaving Walt Disney to wrap up a $52.4 billion deal.

Saying that the performance of NBCUniversal, including its fifth double-digit, full-year profit growth in a row, positions the entertainment arm “to succeed in these rapidly evolving media businesses in this changing landscape,” Roberts highlighted that “not every company can say that.”

How does Comcast approach possible future acquisitions in the entertainment sector? “With the pace of change in the industry accelerating, many of our peers are reevaluating their strategies as we have seen recently,” Roberts said. “So along the way, there may be opportunities for us to create more value for our shareholders like we did with NBCUniversal. In this respect, it shouldn’t be a surprise that we study every situation that comes along. We believe our shareholders expect this from us. But the bar is set high, and we have been and will remain disciplined.” 

Asked how high the bar is set for possible acquisition, Roberts later said: “There is nothing we feel we have to acquire…. So I think we set it high.” He said he wouldn’t talk about specific situations.

“When a set of assets like Fox’s becomes available, it is our responsibility to evaluate if there is a strategic fit that could benefit our company and our shareholders,” Comcast had said in a statement at the time it had bowed of the process for Fox’s assets. “That is what we tried to do and we are no longer engaged in the review of those assets. We never got the level of engagement needed to make a definitive offer.”

Burke lauded the company’s integration of DreamWorks Animation over the past year-plus, highlighting that it has “completely retooled the flow of releases,” getting to two releases every year next year, plus two from Illumination. “We are very happy with the progress we have made at DreamWorks,” he said. “And you can imagine a year when we have four great animated films, what that will do to put film [operating cash flow].”

Sports also were mentioned on the call. “We are excited to have the Super Bowl on NBC, followed by the 2018 Winter Olympic Games in PyeongChang,” Roberts said. “The Olympics highlight our strengths and capabilities across Comcast NBCUniversal, as we combine the storytelling of NBC with Comcast technology to create a truly spectacular viewing experience.”

Asked about TV ad trends, Burke told investors: “Television advertising is holding its own.” Discussing the SuperBowl, he said: “We’re averaging about $5 million a unit, which is up, call it, 15 percent or 20 percent, we think, from last year. And we’re essentially sold out.”

And this year’s advertising upfront season should shape up well, according to Burke. “By all accounts it’s going to be a strong upfront,” he said.

Kicking off earnings season for big Hollywood players, NBCUniversal, led by CEO Steve Burke, posted adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $1.88 billion, compared with $1.77 billion in the year-ago period.

The company recorded EBITDA improvements in all key divisions except for broadcast TV. “We still have a lot of opportunity” for growth, Burke said when asked about the outlook for NBCUniversal. He mentioned the likes of MSNBC and Telemundo as key businesses that have more upside.

NBCUniversal said Wednesday that its film unit’s fourth-quarter EBITDA hit $230 million, up 90 percent from the year-ago period. For the full year, film unit EBITDA reached $1.28 billion, up 83 percent from $697 million in 2016, “reflecting higher revenue, partially offset by increased programming and production costs,” and $1.23 billion in 2015. 

Film profit in the latest quarter rose thanks to lower programming and production costs and higher content licensing revenue. Theatrical revenue decreased 42 percent, “primarily due to a higher number of releases in last year’s fourth quarter,” and home entertainment fell 20 percent. Among the quarter’s theatrical releases from the company were Happy Death Day, Pitch Perfect 3 and Focus’ Darkest Hour. The year-ago period had included the likes of Sing and Trolls.

Cable Networks’ unit profitability increased 9 percent to $1.0 billion in the fourth quarter amid higher distribution, advertising and content revenue, partially offset by an increase in operating costs. “Advertising revenue increased 2.3 percent, reflecting higher rates, partially offset by audience ratings declines,” the company said.

Broadcast TV profit in the fourth quarter fell 26 percent to $194 million as higher retransmission consent fees and content licensing revenue were more than offset by a 6.5 percent advertising drop, “due to audience ratings declines, partially offset by higher rates,” and higher programming and production costs, driven by increased sports costs.

Comcast said it lost 33,000 pay TV subscribers in the fourth quarter, which is traditionally the weakest of the year for pay TV operators. In the year-ago quarter, Comcast had added 80,000 pay TV subscribers, while its third-quarter losses had amounted to 125,000 amid competition from streaming video services and the impact of hurricanes.

“It is definitely a very competitive video environment,” Comcast Cable CEO David Watson said on the earnings call. “We really don’t expect the level of competition to diminish.” But he said the company feels it is in a strong position to compete.

Based on its performance and financial growth, Comcast unveiled a 21 percent increase in its dividend to 76 cents per share on an annualized basis and said it would buy back at least $5 billion of its stock this year.

Based on that news and Comcast’s better-than-expected overall earnings, the company’s stock rose in early trading.