Comcast (NASDAQ:CMCSA) will report its Q1 2014 earnings on April 22. While we expect steady growth in the broadband business, we are eager to see how pay-TV subscriber addition trends. After losing thousands of pay-TV subscribers for several quarters, Comcast reported a modest gain in video customers for the fourth quarter of 2013. NBCUniversal’s results likely benefited from the continued success of The USA Network, which was the No.1 cable network in Q1 2014, and from the telecast of the Winter Olympics at the NBC Network.  And Universal Pictures likely benefited from its first quarter release of Ride Along and 2013’s last week release of Lone Survivor. We’ll be closely watching for any update on Time Warner Cable merger and any possible deal with Apple.
Growth In Broadband To Continue
- Where Comcast Stands In The U.S. Pay-TV Market
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- Threat To Pay TV Business Can Negatively Impact Comcast’s Value
The broadband business has done well for Comcast on rising demand for faster Internet and a decline of DSL Internet connections. From 13 million subscribers in 2007, Comcast’s broadband base increased to a little under 21 million in 2013. The broadband business generated revenues of $10.33 billion in 2013, 8% higher compared to 2012.  We expect broadband revenue will continue to increase as the U.S. broadband market is growing rapidly, driven by an improving economy and growing need for higher speed connectivity. The increased use of multiple devices and higher penetration of smartphones is also aiding broadband demand.
According to a report by Akamai (NASDAQ:AKAM), the U.S. ranks 18th overall in broadband penetration worldwide. The U.S. had 75% of the population on broadband connections.  Given that only 75% of Americans use broadband, there is still much room left for broadband to penetrate, and this will benefit the cable industry in particular as it accounts for 59% 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. The overall industry (17 largest players representing 93% of the industry) acquired 2.6 million new broadband subscribers in 2013, taking the total subscriber base to 84.3 million.  Comcast added 1.3 million broadband subscribers during the same period, representing 50% of total net additions in the entire industry. We expect this trend to continue and Comcast will continue to gain broadband subscribers throughout 2014.
Pay-TV Subscriber Trend In Focus
The pay-TV business contributes around 35% to Comcast’s value, according to our estimates. For cable companies in the U.S., the past several quarters have been tough, as they experienced significant challenges in retaining their pay-TV subscribers. This difficulty reflects a combination of market saturation, fierce competition, and the increased focus of providers on acquiring higher-value subscribers. Moreover, some consumers opt for a lower-cost mixture of over-the-air TV, Netflix (NASDAQ:NFLX) and other over-the-top viewing options. By the end of 2013, Comcast’s subscribers fell to 21.69 million, down 305,000 from 2012.  Comcast has been actively addressing the issue of subscriber churn by providing advanced features to its customers. The company offers the Xfinity Streampix service in order to cater to the demand for content streaming and X1 platform with advanced user interface. While the company managed to turnaround the subscriber churn in the fourth quarter of 2013, it remains to be seen if the company can continue to add more subscribers in 2014.
NBCUniversal Will Benefit From The Winter Olympics
According to our estimates, NBCUniversal contributes close to 24% to Comcast’s value. NBCUniversal includes the cable and broadcasting networks, theme parks and movie businesses of the company. The company will benefit from its first quarter release of Ride Along, which had a production budget of $25 million and has so far grossed close to $150 million at the global box-office.  NBCUniversal’s cable and broadcasting networks will also benefit from advertising growth. According to Magna Global, global advertising is projected to be up 6.5% in 2014. In the U.S., it expects the media owner advertising revenues to grow by 5.5% as compared to 1.3% growth witnessed in 2013.  The U.S. mid-term elections, the Winter Olympics and FIFA World Cup will boost the advertising growth in 2014. The company has benefited from its coverage of the Winter Olympics as NBC averaged 21.4 million viewers a night, which is very high and close to the viewership of popular Sunday Night Football. The Sochi games further helped NBC’s cable sports network, NBCSN, more than doubling the audience that watched the London Games to a daily average of 1.6 million. This reflects a nearly 1800% boost in the viewership that the network reaped in the four weeks leading to the Winter Olympics. 
- USA Is #1 Cable Network in Q1 for an Unprecedented 9th Consecutive Year, The Futon Critic, Apr 2, 2014 [↩]
- Comcast’s SEC Filings [↩] [↩]
- The State of the Internet, Akamai [↩]
- 2.6 Million Added Broadband from Top Cable and Telephone Companies in 2013, Leichtman Research Group, Mar 17, 2014 [↩]
- Ride Along, Box Office Mojo [↩]
- MAGNA GLOBAL Advertising Forecasts: 2014, Magna Global, Dec 9, 2013 [↩]
- Coverage of Olympic Games Delivers a Win for NBC, The New York Times, Feb 24, 2014 [↩]