Comcast (NASDAQ:CMCSA) will report its Q3 2013 earnings on October 30. While we expect steady growth in the broadband business, the company’s pay-TV subscribers will continue to decline, albeit at a slower rate. NBCUniversal’s results will benefit from improved ratings for Sunday Night Football. The success of Universal Pictures’ Despicable Me 2 will further boost the company’s overall revenues.
Continued Growth In Broadband
- How Has Comcast’s Revenue Composition Changed In The Last Five Years?
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The broadband business has done well for Comcast on rising demand for faster Internet and a decline of DSL Internet connections. Last quarter, Comcast reported 20 million broadband subscribers that generated revenue of $2.6 billion, 8% higher compared to the same period previous year.  We expect broadband to continue to grow as the U.S. broadband market is growing rapidly driven by an improving economy and growing need for higher speed and connectivity. The increased use of multiple devices and higher penetration of smartphones is also aiding broadband demand.
According to a report from the White House, 94% of U.S. homes now have access to broadband and more than two-thirds of American households have Internet service compared to 4.4% in 2000.  However, given that only 72% of Americans use broadband at home, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular as it accounts for 58% of the U.S. broadband market.  Comcast itself is the largest player in the industry with close to 25% market share of the U.S. broadband market. We expect Comcast to continue to gain broadband subscribers throughout 2013.
Decline In Pay-TV Subscribers
Increased competition and the availability of online video streaming from Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) have put immense pressure on traditional pay-TV operators such as Comcast. For cable companies in the U.S., the past several quarters have been tough as they have been experiencing significant challenges in retaining pay-TV subscribers. The company saw a decline of 159,000 pay-TV subscribers last quarter.  While we expect this trend to continue in the near term, the subscriber losses will reduce eventually as Comcast has been actively addressing this issue by providing additional services such as X1 and Xfinity to its subscribers. The company offers shows from ABC, NBC, Scripps, Cookie Jar and Lionsgate as well as movies from Sony Pictures, Universal, Snag, Lionsgate, Disney and Warner Bros through its Xfinity Streampix service. Xfinity is helping Comcast to compete with Netflix and Amazon. It will be interesting to see if X1 and Xfinity along with the company’s triple-play and quadruple-play offers can help it reduce subscriber losses as compared to 2012.
NBCUniversal To Benefit From The Success Of Despicable Me 2
Despicable Me 2 has been a huge success for NBCUniversal. During the second quarter earnings conference call, Comcast CEO Brian Roberts stated that Despicable Me 2 will be the most profitable film in Universal’s history.  The movie cost a modest $76 million to produce and so far it has grossed close to $900 million in box-office sales globally. This will further boost the company’s overall revenue in this quarter. 
NBCUNiversal will also benefit from better ratings at NBC driven by Sunday Night Football. The season’s premiere show itself saw ratings higher than last season’s final-week deciding game. The show is averaging 22.7 million viewers, marking the best seven-week start for an NFL primetime package in 17 years and up 5% from last year. Notes:
- Comcast’s SEC Filings [↩] [↩]
- FOUR YEARS OF BROADBAND GROWTH, The White House, June 2013 [↩]
- Faster & faster! The US now has 82.4 million broadband connections, Gigaom, May 21, 2013 [↩]
- Comcast’s CEO Discusses Q2 2013 Results – Earnings Call Transcript, Seeking Alpha, Jul 31, 2013 [↩]
- Despicable Me 2, Box Office Mojo, Oct 22, 2013 [↩]
- NBC’s “Sunday Night Football” Scores Best 7-Week Start for NFL Primetime Package in 17 Years, The Futon Critic, Oct 22, 2013 [↩]