NBCUniversal Earnings Drop as Pandemic Hits TV Advertising, Theme Parks

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Comcast chairman and CEO Brian Roberts

Film unit profit fell 70.9 percent for the first quarter to $106 million "reflecting lower revenue, partially offset by lower programming and production costs, as well as lower advertising, marketing and promotion costs."

Cable giant Comcast, led by chairman and CEO Brian Roberts, on Thursday reported lower earnings for entertainment unit NBCUniversal for the first quarter as the novel coronavirus pandemic started hitting TV advertising revenue and the firm's theme parks unit.

Parent company Comcast in its earnings report predicted a bigger impact in the current second quarter, saying: "Our Cable Communications results, while strong in the first quarter 2020, will be negatively affected in the second quarter by the significant deterioration in domestic economic conditions in recent weeks and by the costs associated with our support of customer connectivity as the population increasingly works and learns remotely from home. NBCUniversal and Sky results also will be negatively impacted to a greater extent in the second quarter 2020. As a result, we expect the impacts of COVID-19 to increase in significance in the second quarter 2020 and to have a material adverse impact on our consolidated results of operations over the near-to-medium term."

In late March, Comcast had said the pandemic could have a "material" hit on its financials, but said it was difficult to quantify the impact. "For example, we have closed all of our theme parks; we have delayed theatrical distribution of films both domestically and internationally; and the creation and availability of our film and television programming in the United States and globally has been disrupted, including from the cancellation or postponement of sports events, [including the push of the Tokyo Summer Olympics to next summer,] and suspension of entertainment content production."

David Sidebottom, principal analyst at Futuresource Consulting, in an earnings preview had said there were "expectations of mixed performance from Comcast as revenues [are] likely to be impacted by cinema closures, sports cancellations and an overall downward trend in TV advertising and compensated for by widespread lockdown fueling increased content consumption and broadband access — through both video streaming and also working from home."

Helping to kick off earnings season for big Hollywood companies, NBCUniversal early on Thursday reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), the profitability metric the company uses, of $1.75 billion, down 25 percent compared with $2.34 billion in the year-ago period.

It was the first financial update for NBCU for a period led by CEO Jeff Shell who, at the start of this year, took over day-to-day operations, with Steve Burke now serving as chairman until he retires in August.

At NBCU, film unit profit was down 70.9 percent for the first quarter to $106 million "reflecting lower revenue, partially offset by lower programming and production costs, as well as lower advertising, marketing and promotion costs." Dolittle and The Invisible Man were key theatrical releases in the first quarter, while the late December release of 1917 also continued to play into the latest period.

Filmed Entertainment revenue fell 22.5 percent to $1.4 billion, "reflecting decreases in theatrical revenue, content licensing revenue, home entertainment revenue and other revenue," the firm said. "Theatrical revenue decreased 28.8 percent, reflecting a difficult comparison to the success of films in the first quarter of 2019, including How to Train Your Dragon: The Hidden World, Us and Glass." The company didn't mention the impact of mid-March cinema closures on the financials.

Film unit "content licensing revenue decreased 15.4 percent, driven by the timing of when content was made available under licensing agreements, partially offset by the performance of certain 2020 releases that were made available on premium video on demand after theater closures due to COVID-19, including The Invisible Man, Emma and The Hunt," the company added. "Other revenue decreased 20.3 percent, primarily due to decreases in revenue from our live stage play and movie ticketing and entertainment businesses, which were impacted by theater and entertainment venue closures as a result of COVID-19."

At NBCU's cable networks unit, advertising revenue dropped 2.2 percent, "reflecting audience ratings declines and reduced advertiser spending resulting from the postponement of sports events due to COVID-19, partially offset by higher pricing," the company said. Adjusted EBITDA fell 1.2 percent to $1.2 billion while revenue was little changed at $2.9 billion. Distribution revenue decreased 1.5 percent, "reflecting a decline in subscribers, partially offset by contractual rate increases and the timing of contract renewals," the company said. It also highlighted a decline in programming and production costs "primarily due to decreases in the recognition of sports programming costs as a result of the postponement of sports events due to COVID-19."

NBCU's broadcast TV unit also saw an ad hit due to the pandemic, but adjusted EBITDA rose 29.6 percent to $501 million in the first quarter on an 8.8 percent revenue increase to $2.7 billion, partially offset by higher operating costs and expenses. Content licensing, as well as distribution and other revenue rose, with the latter benefitting from higher retransmission consent fees. "Advertising revenue was consistent with the prior-year period, reflecting higher pricing and local political advertising, offset by audience ratings declines and reduced advertiser spending due to COVID-19."

Meanwhile, theme parks revenue at NBCU decreased 31.9 percent to $869 million in the first quarter, "primarily due to the closures of Universal Studios Japan in late February and Universal Orlando Resort and Universal Studios Hollywood in mid-March as a result of COVID-19." Adjusted EBITDA dropped 84.7 percent to $76 million, "reflecting lower revenue and higher operating costs. The increase in operating costs was primarily due to increases in employee-related costs and pre-opening costs associated with the Universal Beijing Resort and Super Nintendo World in Universal Studios Japan, partially offset by lower park operation costs due to the park closures." 

The company on Thursday also detailed results for European pay TV giant Sky, which the company acquired late in 2018, and Comcast Cable, which had reported total video customer net losses of 733,000 for 2019, up from 370,000 in 2018, Management previously predicted higher losses for 2020.

Comcast's cable systems unit lost more pay TV users in the first quarter, 409,000, compared with 121,000 in the year-ago period, but grew its broadband user base. "Total high-speed internet customer net additions were 477,000, the best quarterly result in 12 years," the firm said.

At Sky, revenue for the first quarter fell 5.8 percent, or 3.7 percent when excluding currency impacts, to $4.5 billion due to lower direct-to-consumer, advertising and content revenue. "Direct-to-consumer revenue decreased 1.9 percent to $3.7 billion, primarily reflecting a decrease in average revenue per customer relationship due to the impact of COVID-19, which has resulted in lower sports subscription revenues, partially offset by an increase in customer relationships over the last 12 months," the firm said. Sky has allowed sports package subscribers to pause their subscriptions amid the virus crisis.

Sky advertising revenue fell 11.6 percent to $513 million, "primarily due to overall market weakness, which was worsened by COVID-19, as well as an unfavorable impact from a change in legislation related to gambling advertisements in the U.K. and Italy." And the pay TV giant's content revenue decreased 10.5 percent to $325 million, "primarily reflecting the deferral of wholesale revenue from sports programming as a result of the postponement of sports events due to COVID-19."

Sky's total customer relationships dropped by 65,000 to 23.9 million as of the end of the first quarter, with the company citing "the postponement of sports events and the suspension of certain sales channels due to COVID-19."

Said Comcast boss Roberts: "Society is being challenged like never before in our lifetime, and I couldn’t be prouder of our company, our employees and our leadership team across Comcast Cable, NBCUniversal and Sky. Now more than ever the world needs to stay connected, and we’re extremely pleased that our investments in our network continue to pay off as we are handling significant increases in traffic and meeting our customers’ needs. While parts of our business have been more impacted by COVID-19 than others, we have continued to innovate. ... All the divisions of our company are in constant communication, and the level of collaboration has been extraordinary. "

He reiterated previous comments that construction on a planned Chinese theme park has resumed, saying the firm has been "putting in place new procedures that have allowed more than 15,000 construction workers to safely come back to work to build our theme park in Beijing."

Concluded Roberts: "We have a strong balance sheet, terrific portfolio of assets and a world-class management team. This is a moment in time; and when it passes, I am very confident that the decisions we are making now will enable us to emerge from this crisis as a healthy, strong company that is well-positioned to continue to grow and succeed."

Comcast's stock was up about 1.1 percent in pre-market trading at $39.42.