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2 May 2019

Comcast tries to drown out Hulu hearsay, glazing over poor Q4

Comcast closed out Q1 2019 with 400,000 fewer video subscribers than a year ago, yet the merry-go-round Hulu ownership saga has shifted attention away from the cable giant’s withering TV business – as execs attempted to extinguish rumors regarding the sale of its 30% stake to Disney. We’re not convinced.

Our gut instinct still says Disney’s powers of persuasion (cash) will eventually prove too much for Comcast, allowing the operator to concentrate on the new NBCUniversal streaming service while relieving debt accrued through the Sky deal.

However, Comcast CEO and Chairman Brian Roberts, commented, “On Hulu, 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’re really glad we own a large piece of it.”

Those might simply be a poor choice of words from Roberts, but they imply Comcast is licking its lips at the prospect of cashing in soon, rather than delight at continuing to operate the business as a minority shareholder in Disney’s shadow. And no wonder Roberts is glad to own a sizable chunk, considering Hulu paid $1.4 billion to buy back AT&T’s minority 9.5% slice a few weeks ago, valuing the entire business at $15 billion and making Comcast’s share worth an appetizing $4.3 billion at the time. Hulu is hot property right now and rising fast – so Comcast will bide its time.

Faultline Online Reporter was the first industry publication to report that discussions were underway between Comcast and Disney, making the call months prior to the AT&T deal in mid-April 2019 following a series of educated assumptions. This prompted us to go a step further recently and speculate that Comcast and Disney are destined to reach a deal this year, and while last week’s comments from Roberts have stifled the hearsay elsewhere, they have only fueled our projections for an agreement being struck sooner than we think.

Comcast EVP and CEO of NBCUniversal Steve Burke dished out some useful extra details on the company’s streaming strategy during the call, “In our case, NBC is the number one broadcast channel. We have a huge portfolio of cable channels. And if you add up all of our rating points, more people watch our channels than any other media companies’ channels. And then not surprisingly, we’re the number one provider of television advertising in the country. So, we think those are strengths. We also think the fact that Comcast Cable and Sky have over 50 million direct relationships means building direct relationships with customers is a real strength. So, our approach, which we think is very interesting and different, is to take thousands of hours of great programming and make it free to the vast majority of people who live in the US or the UK eventually. And we think that’s a way to get real scale quickly. And we think that’s a way to achieve profitability more quickly than we would otherwise.”

So, Burke’s comments boil down to putting a big focus on advertising for the upcoming NBCUniversal streaming service and eventual expansion from the US to the UK, as suspected. It will therefore likely lend assistance from the NBCU+ suite of advertising products, designed to sell targeted ads to VoD users while offerings advertising clients insights pulled from anonymized subscriber set top data. NBCU+ launched back in January 2014 but presumably to little acclaim given the lack of coverage and updates.

As for Sky, Roberts said the company scaled IP video capabilities and infrastructure, including the Now TV OTT platform, which he cited as a service set to greatly accelerate Comcast’s streaming efforts. And while Comcast’s domestic video subscriber base shrank by 121,000 subs in the first quarter, Sky added 112,000 net video subscribers, growing to 23.7 million in total.

One statement in particular from Roberts caught our eye, putting into perspective how Sky’s $39 billion price tag puts Comcast in a strong position. “The US, UK, Germany, and Italy are 4 of the top 10 markets globally in terms of high value households representing 15% of the world’s broadband and video customers, but with about 50% of the world’s associated revenues,” said Roberts.

However, data from Rethink TV only sees the NBCUniversal streaming service reaching 4.8 million subscribers by 2024, less than 10% as much as Disney+ is projected to accumulate.

On the financial side of the coin, Cable Communications revenue climbed 4.2% to $14.3 billion for the quarter, with wireless outperforming all sectors for growth with a 21.4% hike to $225 million, while video revenue was essentially flat at a decline of 0.5% to $5.63 billion. And despite being the country’s largest provider of TV advertising, as proclaimed by Burke, advertising revenue declined by 4.5% to $556 million which Comcast attributes to a slowdown in political advertising.

Sky revenue slipped by 5% to $4.8 billion, while EBITDA fell 17% to $663 million. Broken down into its core pillars, we can see a disparate three-way situation between Sky’s Content business, where revenue soared by 29.5% to $286 million in Q1, while the D2C division declined 7.2% to $4.13 billion and the Sky Advertising arm fell 6% to $593 million. Growth in content revenue reflected the wholesaling of sports programming, including recently acquired sports rights in Italy and Germany, while penetration of premium sports and movie channels increased on third party pay TV networks in the UK.

In the wake of cable TV subscriber losses, the critical nature of broadband to the Comcast of the future is being realized more and more every quarter. Comcast added 352,000 subscribers to high-speed internet services in Q1 to bring its base to 25.5 million, almost exactly the same number of additions as a year earlier.

Addressing the significance of video over IP, Comcast’s CEO of Cable Communications, Dave Warson, said, “When you look at where the usage is on the broadband network, the median monthly data usage for our residential business is over 200 GB and this is increasing at 34% year-over-year in the quarter. So it’s clearly critical to have a fantastic broadband network. And I think it really showcases for us this differentiated network and broadband. But while broadband is crucial delivering the experience for all these apps, as Brian said too, the X1 platform is uniquely positioned to tie up all of this together.”