By Shalini Ramachandran
Comcast Corp.'s first-quarter profit grew 30%, as it continued
to add video subscribers and enjoyed strong growth in its
NBCUniversal entertainment arm, thanks to the Winter Olympics.
The company added 24,000 video customers in the first quarter,
after losing subscribers a year earlier, although most of the
increase was due to a change in how Comcast counts its subscribers.
Last quarter, Comcast added video subscribers for the first time
after 26 straight quarters of decline.
Overall, Comcast reported a first-quarter profit of $1.87
billion, or 71 cents a share, up from $1.44 billion, or 54 cents a
share, a year earlier. Excluding gains on sales and
acquisition-related items, adjusted per-share profit rose to 68
cents from 51 cents.
Revenue increased 14% to $17.41 billion, although excluding the
effect of the Winter Olympics it grew 6.5% to $16.3 billion.
Comcast is seeking to convince regulators in Washington to
approve its $45 billion deal to buy Time Warner Cable Inc. On
Monday, opposition among media companies crystallized when Netflix
Inc. said it opposes the merger because of the dominance the
combined company would have in the U.S. broadband market. Comcast
has argued the merger doesn't change the current state of pay TV
and broadband competition because Time Warner Cable and Comcast's
service areas don't overlap.
TWC has more than 11 million subscribers; Comcast has roughly 22
million. The company has promised to divest about three million
subscribers after the merger, disclosing on Tuesday it was
considering "a number of potential structures" for the
divestitures, including a sale or a spin-off.
Comcast Chief Financial Officer Michael Angelakis told analysts
that "key considerations" for divestitures would include structures
that were "most tax efficient" and help "deliver cash for our
shareholders," as well as allowing Comcast to "maximize our
presence in our most strategic markets." He said the company wasn't
working on any particular timeline relating to the
divestitures.
Charter Communications Inc., whose own pursuit of TWC was
trumped by Comcast, is expected to try to buy the subscribers being
divested.
Comcast also has dangled the possibility of offering a new
wireless service as it seeks regulatory approval. Such a service
would use connections on Comcast's more than one million Wi-Fi
hotspots and would switch to traditional wireless airwaves where
Wi-Fi isn't available.
On a conference call, Chief Executive Brian Roberts said Comcast
is studying the wireless market and is "encouraged by it." With the
wireless assets Comcast has, long term "we are in a position to
think about where wireless is going and how we can participate in a
way to build value and whether that is through our existing
products or it's a new product," Mr. Roberts said.
By adding video subscribers in the past two quarters, Comcast is
bucking a trend. In recent years most cable operators have been
losing video subscribers to phone and satellite-TV companies.
ISI Group LLC analyst Vijay Jayant has said in research notes,
however, that the recent improvement in Comcast's video-subscriber
trends came after a "heavy promotional period" in the fourth
quarter, as well as a focus on discounted, "value-oriented bundles
to drive subscribership" and "skinny" TV bundles targeted at
younger consumers in the first quarter. Mr. Jayant said the
strategy will give subscriber sign-ups momentum but "may put
pressure" on revenue.
Neil Smit, Comcast's cable president, said the company's
skinnier bundles, including a basic broadcast TV package with HBO
and fast Internet, is a "good margin product" and has been
successful in targeting millennials.
Comcast's video revenue grew 1.3% in the quarter, less than some
previous quarters, due in part to Comcast levying a smaller rate
increase than it did last year.
Comcast said it is focused on deploying its new advanced
Internet-connected set top box and guide dubbed "X1," citing that
X1 customers are more satisfied and spend more on services through
the box. Mr. Roberts said the company has doubled the rate of
deployment of X1 to 15,000 to 20,000 boxes a day from just six
months ago. While other operators like Dish Network Corp. and
DirecTV are attempting to create new, cheaper online video services
to appeal to younger consumers, Mr. Smit said Comcast found such an
"over the top" video model "to be very difficult," though he added
that Comcast is open to the possibility still.
At the cable business, which accounts for the bulk of the top
line and includes broadband and phone businesses, revenue increased
5.3% to $10.76 billion. Operating cash flow, a measure of
profitability, rose 4.3% to $4.4 billion.
Subscriber growth in broadband and voice slowed. Comcast added
383,000 broadband subscribers compared with 433,000 a year ago.
Voice subscriber additions slowed to 142,000 from 211,000 in the
prior-year period. Broadband revenue increased 9%. Business
services revenue jumped 24%.
At Comcast's NBCUniversal, operating cash flow jumped 38% to
$1.3 billion, helped by the Winter Olympics. At the broadcast-TV
segment, home of the flagship NBC network, revenue was up 17% even
excluding the effect of the Olympics, helped by strong ratings in
prime time ratings and late night.
On the call, Mr. Roberts said NBC is "positioned to end the full
season as the No. 1 network in the coveted 18-49 age category" for
prime-time and late night.
Cable networks' operating cash flow grew 4.2% to $895 million.
At the theme-parks division, operating cash flow declined 1.5%.
Excluding the effect of the Olympics, total revenue at NBCUniversal
rose 8%.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
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