Comcast (NASDAQ: CMCSA) beat its Q2 earnings forecast, despite missing on revenue, seeing increased video subscriber losses and even voice subscriber losses. The biggest cable operator in the US followed on the heels of AT&T’s 946,000 video subscriber losses with a 224,000 loss of its own, hopefully putting to rest arguments that Americans are simply churning between services and not abandoning pay TV altogether.
Seriously, that is so first-half of the decade.
Comcast did continue its strong growth in high-speed Internet, with 209,000 net adds in the second quarter (consensus was 204,100). Residential HSI revenue was up 9.4%. The 224,000 video losses surprised the Street, which expected the operator to see video subscriber losses of about 168,600 in Q2. With the decrease in video subscriber numbers, revenue slipped slightly as well. It was off 0.6%, or about $34 million Y/Y.
Comcast now has more residential Internet customers (25.68 million) than it does residential video customers (20.64 million). It’s also seeing declining numbers of bundled services subscribers, double- and triple-play subscribers who tend to create the highest margins for the company.
Revenue misses mar results
On the revenue side, NBCUniversal misses estimates with $8.21 billion compared to an expected $8.3 billion. Both its film division and cable networks missed their numbers, as did its newest addition, Sky, which saw revenue come in at $4.83 million, below the $4.91 million estimate.
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Advertising revenue from cable networks was off 8.7% Y/Y, or about $59 million, mostly due to a drop in political advertising, the company said. Comcast said the drop was mitigated because of higher rates, which were offset by audience ratings declines. Its broadcast television segment also saw a decline in advertising revenue, despite higher prices and, again, affected by a decrease in ratings.
Reflecting the direction most of the industry is leaning, Comcast saw its nascent wireless service segment revenue increase 21% from a year ago to $244 million. Comcast, like much of the rest of the industry, is positioning itself to compete for the increasing flood of mobile users who are cutting the cord and opting for mobile instead.
(See the earnings press release here.)
Connectivity, not pay TV, is the future
During its earnings call with analysts, Comcast CEO Brian Roberts reiterated that the company was continuing to change the focus of its cable business to one of connectivity, not necessarily entertainment. It said it would continue to build out its cable network, which now offers 1-gig speeds to 100% of its customers.
And, CFO Mike Cavanaugh said Comcast’s connectivity business “continues to drive the growth of cable,” adding that it “would not chase unprofitable video subscribers.”
Nevertheless, the company was pushing hard into the streaming space, saying it planned to roll out its new service in April.
Steve Burke, CEO of NBCUniversal, said the service would launch using Sky’s Now TV platform. He hinted at the service coming to market in “an innovative way” different than anything else in the market,” but declined to be more specific.
Burke also said NBCU plans to use content like The Office, which it’s reclaiming from Netflix as one of the “tentpole programs” on the new platform. Original content may take more of a backseat since he sees the new service as being very different than Netflix.
The “vast majority” of the service’s library will be acquired, Burke said, with originals tied to the libraries it already owns.
Still, a significant portion of original content could come from the newly enabled Sky Studios, which already has had a hit with the mini-series Chernobyl. Sky CEO Jeremy Darrocknoted that the studio would be able to produce content for all of Comcast’s outlets and as potential license content, too.
The bottom line
High-speed Internet, a new streaming service, a mobile service that now has 1.8 million subscribers, and, of course, Sky, all are part of Comcast’s repositioning of itself in the market.
Comcast will continue to shift its business toward connectivity, will stream more CapEx into building out its network, and, slowly, will leave its pay-TV roots behind, just as telcos like AT&T and Verizon have all but abandoned landlines. Those businesses will continue to provide a revenue stream, but the new action has passed them by.
Comfortable in its new skin, Comcast isn’t likely to get involved in any M&A activity in the near term. It still has a wireless business to build, a new streaming service to launch, and a balance sheet it would like to look a little more, well, balanced.