August 1, 2013
Comcast Corp.'s buyout of full ownership of NBCUniversal helped drive net income 29% higher in the second quarter, as the entertainment business showed stronger results in television and film, helped by movies like "Fast and Furious 6."
At the same time, Comcast's cable business, which accounts for the bulk of the company's revenue and profit, showed growth in broadband while the video business continued to lose subscribers. In March, Comcast acquired General Electric's 49% stake in NBCU. Some of Comcast's big rise in net income was due to the buyout, because it sharply reduced the amount of NBCU profit that the company had to share with GE. Comcast's net income, before allocation for "noncontrolling interests" and preferred stock, rose 6.8%.
NBCUniversal itself had a strong quarter. Operating cash flow-a measure of profitability-rose 21% to $1.2 billion. The Universal film studio, which had lost money a year earlier, enjoyed higher profits both in the cable networks and broadcast television. NBCUniversal Chief Executive Steve Burke said Universal's new movie "Despicable Me 2" is "going to end up being the single most profitable film in the 100-year history of Universal Studios." At the broadcast TV segment, home to the flagship NBC network, advertising revenue grew 13% to $1.3 billion, helped by stronger prime-time ratings and higher "retransmission" fees from pay-TV distributors. Meanwhile, a content licensing deal with Amazon.com Inc. helped NBCU's cable networks' increase operating cash flow 8.9% to $860 million. Comcast's Class A shares rose 5.5% in Wednesday.
Total cable revenue gained 5.8% to $10.47 billion, and operating cash flow grew 5.7% to $4.3 billion. Broadband customer additions rose 20.1%, the best second-quarter subscriber growth in the past five years, according to Comcast Chief Executive Brian Roberts, who spoke on the earnings conference call. Broadband revenue grew 8% to $2.6 billion. As other providers like Google Fiber and Verizon Communications Inc.'s FiOS raise the bar for broadband speeds, Mr. Roberts emphasized that Comcast's broadband network has additional capacity to boost speeds.
"The more the consumer desires speed, the better that is for the company," he said. Comcast executives said that about a third of broadband customers now subscribe to faster, more-expensive Internet service. Like other cable operators in the U.S., Comcast in the past few years has shed video subscribers because of competition from satellite-TV and phone companies. In the quarter, Comcast lost 159,000 video subscribers, compared with 176,000 a year earlier. Even so, the company increased video revenue by 2.7% to $5.2 billion, thanks to growth in sales of advanced video services like digital video recorders and raising rates. Comcast executives said on the call that 55% of their video customers now also subscribe to high-definition TV or digital video recorder service. Programming costs rose 8.1%, reflecting in part higher "retransmission" fees paid to broadcast networks, Comcast executives said on the call. Comcast said that it expects programming costs to increase by 10% for the full year.
Comcast Chief Financial Officer Michael Angelakis also told analysts that the cable operator, the biggest in the U.S., is focused on "organic growth" rather than acquisitions. "That being said, we always want to look at everything," Mr. Angelakis said, and "we really want to spend time internationally," which could relate to expansion of NBCUniversal's businesses. Mr. Angelakis said, in response to a question, that there isn't a legal limit to Comcast cable's size in the U.S. and that it's "a gray area." Some industry executives, including Liberty Media Corp. Chairman John Malone, have said in recent weeks that the cable industry needs to consolidate. Overall, Comcast said revenue rose 7% to $16.3 billion, and earnings rose to $1.7 billion, or 65 cents a share, from $1.35 billion, or 50 cents a share, a year earlier. Wall Street Journal; see also Philadelphia Inquirer
DirecTV, the largest U.S. satellite-television provider, reported second-quarter profit and sales that missed estimates after adding fewer Latin American subscribers than projected. Net income fell to $660 million, or $1.18 a share, from $711 million, or $1.09 a share, a year earlier, the El Segundo, California-based company said today in a statement. Analysts had estimated $1.34 a share on average, according to data compiled by Bloomberg. Sales rose to $7.7 billion, compared with a prediction of $7.74 billion.
DirecTV's Latin American business, seen as its biggest source of growth, attracted 165,000 subscribers - well short of the 426,500 estimated by analysts. DirecTV lost 84,000 subscribers in the U.S., compared with a prediction that it would drop 74,000. "The bloom is off the rose in Brazil," said Vijay Jayant, an analyst at ISI Group in New York who has a neutral rating on the stock and spoke before results were announced. "Weakness in the core business, particularly in Latin America, could threaten the stock price." DirecTV rose 1 percent to $63.28 yesterday in New York trading. The stock has gained 26 percent this year.
The company said economic and operational challenges in Latin America, especially Brazil, affected results. An internal investigation of DirecTV's Latin American division found on June 27 that the company had overstated subscribers in Brazil by 200,000. DirecTV said it would record a $25 million pretax charge for capitalized installation costs and subscriber-related equipment held by terminated customers. Bloomberg
- Wall Street Journal: Time Warner Cable Earnings: Profit Up 6.4% Amid Revenue Growth (registration may be required)
- Philadelphia Inquirer: Union fights Verizon for Shore phone lines
- USA Today: Did Google 'crack the code' on TV before Apple?
- Associated Press: Netflix rolls out new tool to profile viewers
- Politico: Broadcast TV landscape is shifting under FCC
- Bloomberg: Netflix Clones in Russia Get a Head Start With Piracy Law
- zap2it.com: Nielsen Top 25 Cable Program Ratings for Week Ending July 28
- Allentown Morning Call: Judge weighs last-minute request to dismiss voter ID suit
- Pittsburg Tribune-Review: Kane to Corbett: Don't tell me what to do
- Philadelphia Inquirer: Fumo to be freed from prison Tuesday