Comcast‘s (NASDAQ:CMCSA) NBC broadcasting has been riding high on the success of its programming and ended the 2013-14 prime time season at the top spot in 18-49 demographic.  This is for the first time in a decade that NBC ranked No.1 in its key demographics. The network benefited from the success of its shows such as The Voice and The Blacklist, which delivered higher ratings during the season.
We estimate that NBCUniversal contributes close to 25% of Comcast’s value. While the broadcasting business contributes close to 30% to NBCUniversal’s revenues, it merely contributes 7% to the segment’s profits. This can be attributed to high programming and production costs that include distribution costs, sports rights and direct production costs. Broadcasting networks such as NBC rely heavily on advertising income. The broadcasting advertising trends are uneven, as they are driven by various events such as political campaigns and sports. Around 70% of NBC’s revenues are derived from advertising while content licensing and retransmission consent make up for the rest. The split between advertising and non-advertising income is much higher for NBCUniversal as compared to Disney’s (NYSE:DIS) ABC broadcasting, which now derives 45% of its revenue from non-advertising sources (See How Is Disney’s Broadcasting Business Trending?). We estimate that advertising will continue to drive growth for NBCUniversal’s broadcasting business in the coming years. However, if the company manages to grow its non-advertising income at a faster pace than advertising income, it can look forward for a stable growth outlook in the long run.
We currently have $59 price estimate for Comcast, reflecting more than 10% premium to the current market price.
Broadcasting Business Has Been Trending Well For NBCUniversal
NBCUniversal’s broadcasting business includes the NBC Network and its owned NBC affiliated local television stations, the Telemundo Network and its owned Telemundo affiliated local television stations, television production operations and related digital media properties.
The broadcasting business derives revenues primarily from two sources: advertising fees and content licensing. Broadcasting revenues were approximately $6 billion in 2011, around $8 billion in 2012 and $7 billion in 2013.  The surge in 2012 revenues was driven by the Olympics games and high political spending. Advertising income represented 70% of overall broadcasting income in 2011 and 2013, while it was a touch higher at 73% during 2012. Licensing revenues have been around $2 billion over the past three years.  We forecast broadcasting revenues to grow moderately and be north of $10 billion by 2020, driven by higher advertising income. Sustained demand for its programming will help the network achieve higher advertisement rates, evident from the 2014-15 season upfront sale.
Earlier this week, the company sold the upfront inventory for its cable and broadcasting networks. Unlike other media companies, NBCUniversal bundles its advertisement inventory for its cable and broadcasting networks. The company has got orders worth $6 billion in advertisements for the 2014-15 season.  This represents an 11% increase over last year’s upfront sales. It must be noted that upfront sales do not include Super Bowl, which NBC will telecast in 2015 and ad sales for the same will be sold separately. Earlier in Q1 2014, NBC benefited from its coverage on Sochi Olympics, which generated $1.1 billion in revenues for the media company (See – Comcast Adds Pay-TV Subscribers For The Second Consecutive Quarter; Q1 Results Impressive With Strong Growth Across The Segments).
How Is Advertising Marketplace Trending?
The U.S. advertising market trended well in 2013, despite the absence of the Olympics or high political spending. While the overall U.S. advertising revenues grew by 1.3% in 2013, the broadcast TV declined by 5.7%.  This can be attributed to the absence of heavy political advertisements versus the prior year. Television as a medium continues to lead with more than 57% share of the overall advertising market.  We expect a slight uptick in 2014 advertisement spending primarily due to the U.S. midterm elections. According to research by eMarketer, the 2014 TV ad market will grow 3.3% to $68.54 billion and to $78.64 billion by 2018.  The overall growth in the advertising market will boost advertising income of ad supported cable and broadcasting networks.
- BACK ON TOP:NBC WINS THE 2013-14 SEASON, Comcast’s Press Release, May 20, 2014 [↩]
- Comcast’s SEC Filings [↩] [↩]
- TV networks wrap upfront ad sales; NBCUniversal nabs $6 billion, Los Angles Times, Jun 24, 2014 [↩]
- MAGNA GLOBAL Advertising Forecasts: 2014, Magna Global, Dec 9, 2013 [↩]
- TV REMAINS THE REIGNING CHAMP, BUT DISPLAY INTERNET ADS ARE THE MVPS OF 3Q, Nielsen, Jan 27, 2014 [↩]
- US TV Ad Market Still Growing More than Digital Video, eMarketer, Jun 12, 2014 [↩]