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Comcast cable revenue up; X1 a big success

Wed, 10/30/2013 - 1:21pm
Brian Santo

Combining TV, data and voice services, Comcast added 337,000 subscriptions during its third quarter.

Consistent with the recent pattern for MSOs, data and voice additions made up for basic TV subscriber losses. Comcast lost 129,000 video customers, while adding 297,000 broadband customers.

Comcast ended the quarter with 21.6 million video customers. It added 1.3 million Internet customers compared with a year ago to finish with 20.3 million.

The company said 70,000 customers moved to advanced services during the quarter. Looking at the full year, 876,000 more consumers than a year ago opted for high-definition and digital video recorder service. That, combined with a price hike and customers adding channels, helped video revenue rise, more than making up for the loss of 355,000 video subscribers over the last 12 months.

The company lost video customers in the face of rising competition from telecoms operators AT&T and Verizon, which now compete to serve about 44 percent of the 53.7 million homes and businesses that are in Comcast's service area. That's up from 41 percent a year ago as AT&T continues to expand its footprint.

Revenue from TV, Internet and voice hookups rose 5 percent to $10.49 billion. The average revenue for every video customer per month rose 7 percent to $161.07 a month from $150.73 a year ago.

Cable unit president Neil Smit said the company is in the middle of a number of trials of different types of usage-based pricing. “Thus far the consumer response has been neutral to slightly positive,” he said.

Comcast said that its X1 cloud-based interface is deployed in more than 90 percent of its footprint, and will be available in the company’s entire service area by the end of the year. The original plan for the year was a rollout to only 50 percent of the footprint.

Smit said that with the rollout of X1, VOD viewing is up 27 percent, and the reduction of churn has been “meaningful,” though he did not provide a specific number.

The rollout of X1 and other services such as Xfinity Home, the company’s home automation and security service, rely on more expensive gateways; approximately 6 million have been deployed so far (all are also Wi-Fi hotspots). The company said purchasing gateways for those services led to an increase in cable unit capex. Smit said he expects CPE costs to diminish with greater volume, and “as we deploy slave boxes or pucks that are smaller and less expensive for the additional outlets,” he said.

Based on the positive response to X1, the company expects to also accelerate its deployment schedule on the follow-on X2 platform, which will begin later this year, according to the company executives.

CEO Brian Roberts announced a new feature that follows from a deal with Twitter that will be rolled out in November. See It is a feature “that in effect creates an online remote control,” Roberts said. The feature is designed to drive Twitter users to live TV, and not coincidentally give NBC Universal another advertising opportunity to sell.

Asked about streaming services, such as the new package that combines the basic-tier channel lineup with HBO, Smit said, “We think that VOD is a very powerful platform, and with the C3 window, we disabled fast forward with our programming partners, and C3 being measured now, it provides incremental advertising opportunity as well as ratings. We think that could be a better alternative than DVR.”

On that subject, Steve Burke, CEO of NBCUniversal, added, “Neil is rolling out a technology called Digital Ad Insertion into VOD Streams. And what we’re also finding is when you eliminate commercial skipping in VOD, you make it very convenient for consumers to get large amounts of programming, but also you make it very good for a programmer to get C3 ratings. And we have a lot of our shows now that are getting a noticeable jump because of that, in effect, conversion from DVR viewing to VOD viewing.”

Comcast noted that programming costs increased 9.2 percent in the third quarter, which it attributed to “step-ups” with some contracts and increasing retransmission consent fees, as well as the cost of adding channels on multiple platforms. This is partially offset by the timing of certain network launches, CFO Michael Angelakis said. When asked to elaborate on that last comment, Angelakis and Smit took turns dodging the question.

Angelakis did say that the company was pleased with its management of those costs, by virtue of keeping the rise in costs below 10 percent, as it had expected.

Other revelations include that the company also reported it reduced its number of truck rolls by 1 million during the quarter, and that viewing on the Xfinity TV player app has gone from 2 million hours to over 6 million hours.  

Overall, Comcast posted a drop in third-quarter earnings that was milder than expected. Its NBCUniversal media subsidiary overcame the loss of Olympics programming with better movies like "Despicable Me 2" as well as upbeat theme park revenue.

Net income fell 18 percent to $1.73 billion, or 65 cents per share. A year ago, the company benefited from the sale of wireless spectrum and its stake in pay TV network operator A&E. This year, one-time items canceled each other out. The 65 cents per share profit beat the 60 cents expected by analysts polled by FactSet.

Revenue dropped 2 percent to $16.15 billion, short of the $16.25 billion analysts expected. Excluding the $1.19 billion in Olympics ad sales last year, revenue would have grown 5 percent.

Comcast shares fell 65 cents, or 1.4 percent, to $47.06 in morning trading. They are still up almost 28 percent since the start of the year.

Comcast continues to reap the benefits of its takeover of entertainment company NBCUniversal, which it began by taking a 51 percent stake for $13.5 billion in January 2011. It bought out minority owner GE for another $16.7 billion in March, five years ahead of schedule.

While NBCU revenue fell 14 percent to $5.85 billion, excluding the Olympics, it would have grown 4 percent.

Movie profits were helped because of the success of "Despicable Me 2," which has grossed more than $900 million in ticket sales worldwide since coming out in July. The opening of the "Transformers 3-D" ride at the Universal Orlando Resort in Florida this summer boosted attendance and spending.

Executive quotes are from the transcript provided by SeekingAlpha of the company’s analyst call this morning.

The Associated Press contributed to this report.

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