NBCU Earnings Drop on Theme Parks Loss Amid Pandemic, TV Advertising Takes Hit

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Comcast chairman and CEO Brian Roberts

Comcast's entertainment arm also posts a higher film unit profit for the second quarter, the first fully affected by the novel coronavirus pandemic.

Comcast's entertainment unit NBCUniversal reported lower second-quarter revenue and earnings as the novel coronavirus pandemic hit TV advertising revenue and led to a loss at its theme parks unit. Its film, cable TV and broadcast TV units posted higher earnings, though, thanks to lower operating costs amid the pandemic.

Comcast had previously said that NBCU's results "will be negatively impacted to a greater extent in the second quarter" than in the first.

NBCUniversal reported adjusted earnings before interest, taxes, depreciation and amortization, the profitability metric the company uses, of $1.64 billion for the three months ended June 30, down 29.5 percent from the year-ago period.

Adjusted EBITDA for the period rose in the film division even though cinemas were closed in most major markets around the world due to the virus crisis, and also percent in the cable networks, where ad revenue fell 27 percent, and the broadcast TV unit, where ad revenue fell 28 percent due to the pandemic. The theme parks unit swung to a loss, because of the park closures due to the pandemic. 

"Our response to COVID-19 has been extraordinarily fast and effective, and our products and brands continue to resonate strongly with our customers across all segments and all geographies," said Comcast chairman and CEO Brian Roberts. "The solid results that we delivered in the quarter highlight the resilience of our company."

Comcast's core cable systems continued to lose pay TV subscribers, but delivered what Roberts noted were "record second-quarter customer relationship net adds, driven by the best second-quarter high-speed internet net adds in 13 years." The firm's high-speed internet service posted net customer additions of 323,000 for the latest period, which does not include more than 600,000 high-risk or free customers that still receive the service amid pandemic schemes. Comcast's pay TV customer losses amounted to 477,000, compared with a loss of 224,000 in the same period of 2019.

Addressing Comcast's European pay TV unit, Roberts said: "At Sky, our flexible strategy helped retain customers until key sports returned in May and June. Overall, based on our results and the many organic growth opportunities that we have across our company, I am confident in our ability to continue to successfully navigate the impact of COVID-19, and emerge from the crisis even stronger."

Comcast CFO Mike Cavanagh had during the first-quarter earnings conference call shared some insight into how the second-quarter results would be impacted by the pandemic. "We anticipate [broadcast and cable] advertising revenue will materially weaken from the first quarter due to the continued postponement of sports, as well as the shape of the economic recovery as it reopens from COVID-19 shutdowns," he said back then. "Somewhat offsetting the advertising declines in the second quarter will be lower sports rights amortization given we amortize those rights during the period in which games air."

Broadcast TV revenue ended up falling 1.6 percent to $2.4 billion in the second quarter, "reflecting lower advertising revenue, partially offset by higher content licensing revenue and distribution and other revenue." Ad revenue decreased 27.9 percent "due to reduced spending from advertisers as a result of COVID-19, including from the postponement or cancellation of sporting events, and continued ratings declines." Content licensing revenue jumped 58.5 percent, "primarily due to the timing of content provided under licensing agreements, including transactions with Peacock. Adjusted EBITDA in the broadcast unit rose 20 percent to $641 million as lower revenue was "more than offset by lower operating costs."

Cable Networks adjusted EBITDA in the latest quarter climbed 3.5 percent to $1.2 billion as lower revenue again was more than offset by lower operating costs. "The decrease in operating costs was driven by lower programming and production expenses, primarily reflecting the postponement or cancellation of sporting events due to COVID-19," the company said. Cable networks revenue fell 14.7 percent to $2.5 billion in the quarter as distribution revenue declined nearly 15 percent and advertising dropped 27 percent. 

Film unit revenue fell 18.1 percent to $1.2 billion in the second quarter, led by a nearly 97 percent decline in theatrical revenue, partially offset by a 19.5 percent gain in content licensing revenue "driven by the performance of certain 2020 releases that were made available on premium video on demand, including Trolls World Tour and The King of Staten Island, as well as the timing of when content was made available under licensing agreements, including transactions with Peacock." Adjusted EBITDA in the film division increased 24.8 percent to $228 million in the second quarter as lower revenue was more than offset by lower operating costs, "primarily driven by lower advertising, marketing and promotion expenses due to lower spending on current period releases as a result of COVID-19."

For the film unit, Cavanagh had previously predicted that EBITDA would "decline substantially, particularly in the second and third quarters as a result of moving our two most highly anticipated feature films, the next installment of Fast and Furious as well as Minions: The Rise of Gru, to 2021."

Theme parks revenue decreased 94.1 percent in the second quarter to $87 million due to the closures of parks as a result of COVID-19. "Universal Orlando Resort and Universal Studios Japan reopened with limited capacity in June, while Universal Studios Hollywood remains closed," the firm noted. Theme parks adjusted EBITDA swung to a loss of $399 million "reflecting lower revenue, partially offset by lower operating costs."

Roberts on Thursday's earnings conference call said the company has been "performing incredibly well" despite the pandemic challenges at NBCU and Sky and was focused on positioning its businesses for strong, long-term growth. He argued Comcast was in an "enviable" position despite likely "noise" in quarterly results across Corporate America ahead. Roberts touted the "underlying strength of our company" and said its various units are "working together like never before and (leveraging) our combined capabilities."

The pandemic "feels like the new normal, at least for the rest of this year," Roberts said, with NBCU CEO Jeff Shell and other unit chiefs also speaking about the virus crisis' impact.

Shell said its impact was "most daunting" at the theme parks unit. Reopened parks in Florida and Japan are "still doing better financially" with lower attendance than if they were closed.

In film, lower marketing and other spending means near-term financial impact is positive, with the main negative financial hit expected to be most pronounced in 2021. He also said that given productions are the lifeblood of the studio, there is a  creative hit from production shutdowns.