Comcast subs down, revenue up in 3rd quarter

NBC U joint venture on track to close by end of year

During the summer when the pay TV companies reported their first collective loss of subscribers, the numbers offered credibility to the argument that people were dropping their subscriptions in favor of free video services like Hulu.

But even with loss of more than 620,000 TV subscribers so far this year, Comcast insists that the declines were not due to cord-cutting.

During a third quarter earnings call on Wednesday, CEO Brian Roberts laid the blame on the “tough economy,” unemployment and unfavorable comparisons to gains from the broadcast transition to digital TV a year ago. The company lost 275,000 video subscribers down to a total of 22.9 million, but Roberts said trends showed improvement at the tail end of the quarter with that continuing into October. Wall Street had been expecting losses of about 190,000.

Overall, Comcast reported a 7% revenue gain in the quarter to $9.5 billion, but net profits declined 8% to $867 million, in part due to costs associated with Comcast’s proposed joint venture with NBC Universal. Those costs were $21 million in the quarter.

Roberts said the deal, under regulatory review, was still on track to close by the end of the year.

Although Comcast’s TV subscriptions fell in the quarter, the revenues the company generates per month per subscriber grew by 10% to $130 vs. the year-ago period. That is largely due to people signing up for more expensive services, such as the digital tier, or high-def.

Exit surveys conducted with those customers dropping TV service did not show they were leaving cable to watch shows online, but in some cases, simply to switch to over-the-air broadcasts, said Neil Smit, president of Comcast Cable. He added that the “roll off” of promotions offered to new subscribers last year during the digital transition had a significant impact on declines, too. He said 40% of those dropping service had the lowest tier basic offering.

Responding to an analyst’s question about whether Netflix posed a threat as a viable substitute for premium cable TV, Roberts said he thought the service was “complementary” to television and that he is seeing overall video viewing usage growing as a whole, including offerings such as cable’s on demand service.

Roberts then took the opportunity to tout Comcast’s Xfinity online service, which launched last week after months of testing. It offers 150,000 entertainment choices, including 2,000 movies and 20,000 TV episodes. The service is Comcast’s version of what is known in the industry at TV Everywhere, in which consumers can watch shows online as long as they can prove they are pay-TV subscribers.

Smit said that even if cord-cutting becomes a more significant factor, he sees Comcast as well-positioned because of its strength in broadband services. “Having that big pipe into the house is important,” Smit said. Comcast’s high speed data subscribers grew by 6.5% in the third quarter to 16.7 million. Smit added that Comcast’s bandwidth situation is sufficient to handle network traffic.

On NBC U, Roberts said that integrating the GE unit with Comcast’s entertainment business “is a huge task” but that Comcast prez Steve Burke, recently named CEO of the new joint venture, has worked on a plan over the past 11 months that allows them “to hit the ground running when the deal closes.” No details were offered.

When asked if Comcast would consider moving up the time frame to buy all of NBC U and own it outright, Roberts said he hadn’t even considered that question and didn’t anticipate changing the structure of the joint venture.

On the NBC U transaction, Burke said “almost all the news is positive,” while conceding that the NBC network still had its challenges. He cited as big positives Universal’s animated hit “Despicable Me” and the recent opening of the Harry Potter area at the Universal theme park in Florida. But he added that the real opportunity involves cross promotion between NBC U’s cable channels and Comcast’s existing businesses and channels and for creating new programming. “It brings everything to a different level,” he added.

Other highlights from the third quarter:

• Advertising revenue grew 27% in the quarter. Even without political spending, it gained a healthy 19%, said Comcast chief financial officer Michael Angelakis. The gains translated to $6.66 in advertising per TV sub, a 31% gain over last year.

• On the recent disputes over retransmission consent deals, such as the nasty fight between Cablevision and News Corp. that has left 3 million customers without Fox channels for nearly two weeks, Roberts said Comcast could play a constructive role in the future of such disputes. “As a cable operator and the owner of a broadcast network, we can foster ideas that will not have consumers caught in the middle,” he said.

• Although marketing expenses were up 17% in the quarter, Smit said it was not about offering steep discount promotions to woo new customers. “I have never been comfortable with overly-discounting,” he said.

• The long-touted industrywide initiative to bring interactive advertising to cable has apparently arrived. Canoe, as it is named, is now available in 10 million Comcast homes, said Roberts, allowing for interactive advertising on such channels as Style and AMC.

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