Q3 2020 Comcast Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Comcast third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. Please note that this conference call is being recorded I would now turn the call over to senior Vice President Investor Relations Ms. Marci Ryvicker. Please go ahead Miss Ryvicker.
Thank you operator and welcome everyone.
Joining me on this morning's call are Brian Roberts, Mike Cavanagh stable I can just show and Jeremy there.
Brian and Mike will make formal remarks, and Dave jump in Germany will also be available for QNX.
Let me now refer you to slide two which contains our safe Harbor disclaimer.
Mind you that this conference call May include forward looking statements.
I'll get to certain risks and uncertainties.
In addition during this call.
Certain non-GAAP financial measures.
Okay, and trending schedules and a record.
So each of these non-GAAP financial measures to GAAP.
With that let me turn the call over to Brian Roberts for his comments.
Right.
Thanks, Marcy and good morning, everyone.
We're nearly eight months into this pandemic.
Despite many harsh realities I could not be more pleased and proud of how our team has worked together across the company to find C suite of solutions to successfully operate in this environment.
We are executing at the highest level.
Now on our top strategic priority broadband.
The success, we've experienced to date has been driven by years of investment combined with our leading scale.
We engage with 56 million high value households, and businesses globally.
He's subscribers give us a stronger starting point in direct to consumer relationships.
Typically with broadband.
Our connection's at the point of sale provide us with a distinct advantage is this is the moment when customers really contemplate their aggregation and streaming options.
We have the best broadband network in the U S.
Perhaps in the world buoyed by a completely integrated consumer experience with the widest array of products that go beyond just speed.
We offer coverage control an unprecedented level of flexibility.
With our broadband service you get your choice of entertainment over your preferred distribution mattered, whether it's the industry, leading video bundle with X, one where the highest quality streaming product with flecks.
Both powered by the same platform and technology. The same award winning voice remote and the same cloud based software.
With the Xfinity Internet you can opt for Xfinity mobile a great value wireless service hosted by Verizon now inclusive of nationwide five G and augmented by our own Wifi network.
Largest in the U S.
And we have the ability to evolve this offering overtime should we choose to include our own wireless network or cellular infrastructure to generate even greater profitability and the most highly traffic mobile areas.
Is this unique combination of broadband products and services that led to this quarter's 556000, net new customer relationships and 633000 net new high speed Internet subscribers, both the best quarterly record and our company's history.
In the U K customer relationships now standard over 13 million I figure that's been steadily growing driven by our exclusive content and experience that cements our video relationship with customers a.
Differentiated broadband service as the number two provider.
And increasing wireless penetration.
It's a winning formula for other markets that we will look to replicate.
Moving to our second strategic priority aggregation.
Whether it's a pay T V video bundle or streaming solution for the home entertainment remains an important consideration for new and existing broadband customers.
X, one and sky queue, or the world's leading platforms aggregating broadcast sports and streaming services.
Flex provides that same experience to those customers who prefer streaming only video included for free with explain any internet.
We've developed the best operating system for your entertainment experience controlled by one global voice remote enabling 15 billion commands five languages annually.
Our expertise our technology and a tremendous amount of R&D continue to push us forward with opportunities to generate new revenue streams and areas of monetization, which sets us on an even stronger path towards long term growth.
The goal of our common tech stack is to build once and deploy as many times in as many markets and in as many ways as possible on our network or through wholesale distribution.
We've already experienced great success with our current X one syndication model white labeling our software and technology gives us a significant revenue stream that both healthy margins.
And even more important or scale for our platform. We look forward to expanding this expertise to other distributors and believe it even larger nationwide and potentially international syndication model will create new opportunities in this rapidly changing ecosystem that will create value for our company and our shirt.
Holders.
A third strategic priority is streaming which not only provides us with another increasingly important way to reach our viewers and monetize are content, but it also drives demand for higher speeds and more reliable broadband and differentiates and improve the economics of aggregation.
Peacock our premium AD supported video on demand service is the right screaming strategy at the right time.
After launching nationwide just this past July we were excited to already have nearly 22 million Peacock sign up to date and have exceeded all of our internal engagement metrics, even without having the benefit of the 2020th Olympic.
Going out with free allowed us to grow quickly with a very low cost per acquisition and significantly less marketing spend in other do streaming services we've.
We've also been able to effectively leverage are expensive high quality library in over $20 billion of annual content spend that supports our existing media businesses for peacock and enhance it with targeted incremental investment an additional streaming I P.
Extensity has been a significant contributor to peacock success, driving awareness and usage through bundling with X one influx.
In fact Peacock was the number one app on flex and a number three app on X one for the month of September when measured by reach.
We're also leaning into flex, which increases the lifetime value of our broadband customers as we see churn improve by 15% to 20% for new customers that engage with the platform.
Since adding flexes a video option we've.
We've seen our entertainment relationships increase in fact, the growth and the flex monthly active user base, which now sits at over 1 million more than offset the decline in the number of our traditional pay T V video subscribers for the past two quarters.
Reaching these three strategic objectives takes focus and discipline.
And we have both.
We're realigning our cost structure across our company and making the appropriate level of investment in the right initiatives, so as to fuel longterm growth and enable us to effectively compete in an evolving global marketplace.
Turning from a long term strategy I'd like to highlight or third quarter results, which I'm quite proud of in light of the challenges we have faced with Covid.
And cable our revenue growth accelerated and we generated an impressive 10.5% increase in EBITDA.
We have been incredibly successful in identifying longterm cost efficiencies.
In fact, with ourself install offerings and digital tools customers can do virtually everything they want or need to without picking up the phone, we're requiring a truck roll.
But we're also investing for growth with the goal of increasing awareness of our ever improving Xfinity brand promoting and advancing are leading broadband position and accelerating our mobile in business segments.
At N B C. Universal the team has done a really creative and impressive job of navigating through an incredible amount of uncertainty and I'm pleased to report that some businesses are steadily recovering.
Given the resumption of both sports and content production.
Where we continue to see the most pressure from Covid is in our theme parks, which were the single biggest dragging the quarter.
In fact, excluding this segment N B C. Universal EBITA would have grown by 9% year over year.
While it will take some time for the parks to return to historical levels, we've made substantial progress.
<unk> Lando in Osaka are operating a limited, but growing attendance, while we don't know when Hollywood might reopen.
We remain very bullish on the parks longterm.
I am very excited for next year's launch or frankly incredible new theme park in Beijing.
Early in the third quarter, we announced a completely new structure for television businesses, enabling us to realign how we invest into creation production and distribution of world class content.
In essence, we've done away with the concept of creating a piece of work for a specific network.
Our priority is to invest in and create the absolute best content and ensure that we maximize monetization by choosing the most effective method of distribution, whether it's broadcast cable networks Peacock sales to a third party or some combination of all four.
Last we're closing in on two years since we bought Sky. So I thought I would spend a moment, providing some context on the progress we see to date.
The U K, which is by far the largest component of sky EBITA as proven to be a strong business that is generated high single digit EBITDA growth over the two year span when adjusting for the momentary impacts of Covid.
Anchored by growth in both our customer base and revenue per customer relationship.
R U K customers continue to do more with us as evidenced by our higher penetration of broadband and wireless and then the cube box all of which solidify US is the home of aggregation and screaming and which set us up nicely for continued growth.
What we see in the U K guy to our thinking on the prospects for what Germany, and Italy could each become.
In both markets, we have a leading brand name and customer proposition and video supported by significant scale.
While it may take time, we're on a path to replicate the U K playbook and took an important step toward this in Italy with our recent launch of broadband.
We also are fairly immediate opportunities to improve our cost structure as we move to centralize our organizational efforts across our markets and as we've begun to reset any of our largest sports rights and continental Europe, which should provide hundreds of millions of dollars in annual savings.
As Jeremy highlighted recently, we were confident in our ability to double EBITA at Sky over the next several years.
And importantly, sky fits right in with our broader company priorities, playing a big role in strengthening our tech stack, <unk> and and content solutions across all of N B C U and cable.
When you put it all together and look at the first nine months of the year.
Certainly not the year, we all would have expected we've.
We've executed extremely well, we've taken advantage of the favorable interest rate environment to enhance our balance sheet and liquidity.
And we remain committed to getting leverage where it needs to be so that we can return to buying back stock.
All in all this was a really strong quarter and Mike will now take you through a results in greater detail.
Thanks, Brian and good morning, everyone now.
Now I'll review, our third quarter Twenty-twenty results and offer some commentary on the current conditions in our businesses.
Caveat that circumstances around us remain fluid and therefore, our outlook is subject to change.
Beginning on slide six with our consolidated third quarter results.
Consolidated revenue declined 4.8% year over year $25.5 billion, well adjusted EBITDA was down 11% $7.6 billion and adjusted EPS fell 18% to 65 cents per share.
All a result of the lingering effects of COVID-19.
Free cash flow of $2.3 billion was up 10.5% benefiting from the positive year over year change and networking capital due to Covid at both N B C U N sky.
Half of which resulted from the timing of when sports rights payments were made versus when sports actually aired and.
And half of which resulted from a slower ramps and content production.
We expect this trend to reverse starting in the fourth quarter and continue into next year as our businesses continue to recover from Covid.
Before moving to segment results are remind you that corporate and other losses have continued to increase as a result of our focus on the successful positioning a peacock.
Also incurred covid related severance and restructuring charges totaling $239 million a year to date we.
We expect to incur an additional charge that is approximately double that amount and this year's fourthquarter as we continue to align the cost structure across all of our businesses.
Now, let's turn to our business segment results, starting with cable communications on slide seven.
For the third quarter tables communications revenue increased 2.9%.
EBITDA increased 10.5%.
Revenue this quarter was once again impacted by adjustments for customer R. S. N fees. Excluding these adjustments overall cable revenue would have risen by 3.9% with no corresponding impact to EBITDA.
As Brian mentioned, we generated 556000 customer relationship net additions the best quarterly results on record driven by high speed Internet.
We added 633000, net new residential and business customers.
Also the best quarterly results on record.
Underlying net additions or symbol or to last year's third quarter, and we were able to successfully convert son customers to pay status that continued to receive our service, but we're not included in our second quarter results.
Roughly one third of those customers converted to page status or free Internet essentials customers.
While the remaining two thirds for high risk customers begun paying their balances and returned their full service after being on our assistance plan.
Going forward, we do not expect the impact of converting free Internet essentials and high risk customers to pay status to be as significant.
Hi speed Internet revenue route, 10%, including R. S. N V adjustments and grew just over 11% excluding those adjustments.
Remember are as soon as the adjustments are allocated to those customers taking bundled services. According to their standalone market prices.
The strength and high speed Internet is coming from a number of areas. One we continue to take care of an expanding market as evidenced by an increase in our broadband penetration 50.
51% of homes and businesses in our footprint are now taking our HST product up 240 basis points versus a year ago.
To our investment in our network and product differentiation is resonating in the market whether it's our best in class Gateway are controlling security through X Fi, it's not just about speed.
Three.
We are seeing higher take rates of our entertainment product with the addition of flex which continues to have a significant positive impact on shurn and therefore customer lifetime value.
And four we also continue to drive connects by expanding our network through line extension.
Business services revenue grew 4% as we returned to a necking of 17000 customer relationships this quarter.
And turning to video revenue declines, 2.1% with a crude R. S N fee adjustments, having an adverse impact of 130 basis points.
We lost 273000 net video customers this quarter, which reflects modest improvement in our underlying video losses compared to the second quarter and the benefit of converting some of the previously high risk customers to pay status.
Wireless revenue increased 23% driven by 187000 additional lines, resulting in 2.6 million total lines at quarter and.
Our wireless business continues to be impacted by our decision to keep some of our retail stores closed for most of the quarter, especially in areas, where Covid cases remained high that said the vast majority of a retail stores are now open and we put a number of plans in place to accelerated growth in this business.
Advertising revenue increased 12% year over year due to strong political advertising, which was up 70% over what we are generated in the last presidential election in 2016.
Poor advertising, excluding political was down 6.8% year over year.
A significant improvement relative to last quarter with better trends across most categories.
He also sauce and benefit from the clustering of sports programming that began air in the third quarter.
Turning to expenses.
<unk> communications third quarter expenses decreased 2.2% with programming expenses down 6%, primarily as a result of the accrued R as in fee adjustment.
Without this adjustment program the expense would have increased by 4%.
Non programming expenses declined 3.2%, primarily as a result of curtailed advertising marketing and promotion spend as well as lower technical and product support primarily due to a covered related slowdown in business activities.
We're also continuing to find better and more efficient ways to do business, particularly through our digital tools and interactions cable communications EBITDA grew by 10.5% and margin reached 42.7%, reflecting 290 basis points of ear over your improvement.
While it crude R. As in fee adjustments had no impact on EBITDA. They did have a positive contribution a margin of roughly 40 basis points.
Capital expenditures decreased 2.5%, resulting in half X intensity of 11.8% and improvement of 60 basis points year over year, driven by lower spending a customer premise equipment and support capital, partially offset by higher spending on scalable infrastructure, which continues to increase due to our ongoing.
Investment in the network.
I'll know touch a bit on what we're seeing so far and what we expect in the fourth quarter for.
For high speed Internet underlying subscriber trends remain healthy and we currently expect revenue growth to accelerate from the third quarter driven by this year strong subscriber growth combined with higher <unk>, resulting from an increase in the uptake of some of our higher margin products, such as modems and X five pods and <unk>.
To better extended assistance program shirts.
While we're pleased to see a continuation of net new customers in our business segment, we do not expect revenue growth to accelerate in the near term given the covid subscriber impact we saw earlier in the year as well as the longer sales cycles associated with the recovery, we're seeing with our mid market and enterprise customers.
That said, we remain optimistic on the long term prospects across all of our business segments.
We remain the challenger with the highest quality offerings at lower price points than our competitors.
On the video side, we expect fourthquarter video losses to be similar to the third quarter levels, reflecting modest improvements to our underlying trends and just like with high speed data are less significant impact from converting customers to pay status.
When it comes to our outlook for expenses and margins.
<unk> with the sequential acceleration an underlying revenue growth that we anticipate for the fourth quarter. We expect a non programming opex to be flat to slightly up reflecting are aggressive focus on maintaining strong connect activity by returning to home installs.
Increasing our marketing spend to defend our strong position and further accelerating our mobile and S. M D businesses.
That said, we continue to make significant inroads with implementation of the long term cost efficiencies weird identified earlier this year, which puts our overall expense space in a very good position as we entered 2021.
We expect programming costs to be up mid to high single digits in the fourth quarter, giving scheduled programing of noodles and we do not anticipate additional R. S. N fee adjustments given what we have seen for the first nine months of the year combined with our outlook for the fourth quarter. We now expect cable EBITDA margins to exceed our prior guidance.
About two 100 basis points year over year improvement by a healthy amount, both with and without the R. As in fee adjustments, while capex intensity is still expected to improve by up to 100 basis points you're over here.
Next let's turn to slide eight for N B C Universal.
For the third quarter N B C. Universal revenue decreased 19% six $7 billion, while EBITDA decreased 39% to $1.3 billion. The majority of the revenue and substantially all of the EBITDA declines came from our theme parks business as Hollywood remains closed and both Orlando.
<unk> in Osaka are open to limited attendance as a direct result of COVID-19.
Starting with the television businesses.
Networks revenue was down 1.3% driven by declines and distribution and advertising revenue offset by an increase in content licensing another.
Distribution revenue decline of 3.8% resulted from a slight acceleration is subscriber declines.
Less race benefit due to the absence of programming renewals and I nearly 200 basis point impact from a crude R. S. N fee adjustments advertising revenue is down 2.1% a significant improvement compared to the second quarter as we benefited from the broadcast of rescheduled sporting events, which is not expected to recur.
Her in the fourth quarter.
Cable networks EBITDA decreased eight 9% due to higher programming and production expenses driven by the ship the sports rights amortization costs into the third quarter.
Turning to broadcast revenue increased 8.3% driven by 66% growth and content licensing sales and continued growth and retransmission consent fees, partially offset by a decline in advertising.
While advertising improve significantly compared to the second quarter broadcast did not benefit as much from the shift of sports as rescheduled sporting events, where basically offset by cancelled events as well as fewer NFL games relative to last year.
After recognizing a significant increase in content licensing revenue year to date at both broadcast and cable networks, we expect a double digit decline in the fourth quarter to the timing of our sales to streaming platforms, which were more heavily concentrated in the first nine months of the year combined with a difficult comparison too significant library.
Deal and last year's fourth quarter.
Broadcast EBITDA increased 29% to the higher revenue as well as lower programming and marketing costs associated with a delayed start of our new fall season, which were somewhat offset by higher program expenses related to content sales.
Owned entertainment revenue declines twenty-five percent year on year with the ethical revenue down 95%, reflecting theater closures as a result of COVID-19.
Especially upset by a 15% increase in content licensing revenue as well as a 49% increase in home entertainment revenue due to trolls World Tour.
Filmed entertainment EBITDA increased 53% as lower revenue was more than offset by lower operating costs related to less spending on current period releases as a result of COVID-19.
While we are pushed the majority of our movie slice of 2021, we're looking forward to the release of the cruise a new age and theaters and a subsequent <unk> released later in the quarter.
Theme parks revenue with $311 million in the quarter with an EBITDA loss of $203 million go to Universal Orlando Resort and Universal Studios, Japan operating it limited capacity, while Universal Studios Hollywood remained closed as a result of COVID-19.
This quarter's EBITDA included roughly $20 million, a free opening costs related to our theme park in Beijing, which remains on scheduled to open by the summer of 2021.
Anticipating cumulative preopening cost me roughly $400 million with approximately $100 million and 2020 and $300 million in the first half of 2021.
We continue to see improvement in underlying trends and expect the theme park business to break even at some point in 2021 independent of what occurs with Universal Studios Hollywood.
Next let's turn to slide nine for Sky, which I will speak to on a constant currency basis.
Revenue for the third quarter was even with the prior year as we are seeing the benefits are very healthy underlying business in the U K.
Lined with the return of major sporting events, primarily European football that had been previously postpones.
Content revenue was up 17.5% driven by higher wholesale revenue for sports programming, while direct to consumer in advertising revenue showed significant sequential improvement each down 1% year on year.
On the advertising side, we outperformed the European marketplace, which was down about 10% as we benefited from strong advanced advertising and rescheduled sporting events that were previously postponed Buddha COVID-19.
In addition to sports overall Sky Entertainment viewing was up double digits, partly aided by the addition of our new branded channels, including Sky comedy, which launched in January and Sky documentaries, Sky history, and Sky nature, which launched and met.
The significant sequential improvement in direct to consumer revenue resulted from the return of sports and a healthy underlying trend in the UK, which experienced again, a 51000 customer net relationships and low single digit Arco growth.
The strong performance was driven by our strategy could be the best T V aggregation platform in the market.
Record low G V churn and continued growth and streaming broadband and mobile customers.
Our large resilient Sky T V base continues to benefit from the deployment of our more advanced sky queue product.
Overall sky queue penetration is that 51% of households, while UK penetration has reached 58% of 13 percentage points year over a year.
We are also pleased with the results at now T V, which is positioned for a different market segments.
<unk>, who is increasing is this growing customer base continues to take more packs on average underscored by a 60% increase in the uptake of our highest price sports back.
Revenue from our hospitality business, the pubs and clubs that receive our Sky T. V service remains pressured we've seen weekly revenue back 70 per cent of historical levels versus 25% at the start of the quarter.
Italy, and Germany remain a bit more challenged in Germany, we made changes to our pricing packaging earlier in the quarter. While we were pleased with a positive customer response, this will pressure or two in the near term as your focus on growing market share and reducing churn.
And Italy are results showed meaningful sequential improvement, but we continue to be impacted by a tough macro environment.
We are encouraged by positive momentum in Italy broadband postage mid June launch customer editions are beating our initial expectations with satisfaction scores at high levels.
EBITDA for the third quarter was down roughly 45% as flat revenue was offset by an increase in programming and production costs, primarily as a result of the postponement of European football events, which moved from the second quarter into the third as a result of COVID-19 looking ahead, we continue to <unk>.
<unk> third quarter in fourth quarter, EBITDA combined be down roughly 60% with the fourth quarter impacted by the later return of the current season of European football.
The shift of other sports programming to the fourth quarter investments and original programming and higher costs associated with the launch of our new UK Entertainment channels.
Wrapping up on slide 10, with free cash flow and capital allocation.
Free cash flow was $2.3 billion and a quarter, an increase of 10.5% year over a year.
Consolidated total capital, which includes capex as well as software and intangibles decreased 5.8% in third quarter to $2.9 billion, primarily driven by declines at N B C U, particularly parks as well as the table.
During the quarter and year to date, we refinanced five $9 billion and $58 billion of debt, respectively and in the third quarter with a weighted average cost of that a 3.6%.
Finally, we remain committed to our long standing balanced approach to capital allocation.
Maintain your strong balance sheet investing organically for profitable growth and returning capital of shareholders through a strong commitment to a recurring dividends and eventual return to share repurchases.
With that I'll turn it back to Marcy, who will lead the question and answer portion of the call.
Thanks, Mike Regina, let's open the coppock customer please.
Thank you will now begin the question and answer session did you have a question. Please press star and then the number one on your attached Jonestown, if you wish to be removed from the queue. Please press. The pound key you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again, if there are any questions priced stars and the number one on your touch Jones.
Our first question comes on the line I'm, just gonna read Erlick with Bank of America Merrill Lynch. Please go home.
First Brian can you talk a little bit of that how you give me your vision of the how you best monetize being an aggregator across a variety of media traditional T V streaming video absolute cetera outside of just being the broadband provider and what are other ways you considering to help monetize your position that's in.
Center of the consumer in the living room, and then on N. B C. U is surprising actually that you had a good you you mentioned the press release that you've had a positive up I'm given ratings.
It's across the board for the whole industry as well as lack of production. So can you talk about some of the drivers there can streaming make up for the weakness and readings. It's clear Q4 will be weak, but what do you see beyond that.
Thank you.
Okay. There's a lot in their Jessica let me, let me start with the aggregation and broadband question and then let Jeff and others talk about the upfront.
Well look we we think we have there's three pronged strategy that complement each other work together and basically ended up giving the best product regardless of what segment there in <unk>.
And broadband is definitely a central element of that but aggregation in this world as we know as consumers.
That you want to flip back and forth between one streaming service another streaming service live television.
You too.
Whatever it may be.
And finding a way to have our entertainment platform.
And our voice commands, whether it's in a smart T V.
Whether it's in a box and whether that is and frankly, the U S or in rest of the world and in other other.
Other providers and so we've made great progress with aggregation.
And this quarter and and this year.
Name the service and you'll see that it's now either on the roadmap were very much being used whether it's a N b C who have been content with Peacock. We've now shown that we can market and make aware for our customers. We chose like a yellow stone, but.
We may not have found on a different network at all of a sudden zoom to the top.
Before we get additional complement like the office.
In the Olympics or what have you and so putting it all together, we see the tech companies and the others with ambitions on having a relationship with our high valued customers are 56 million high valued customer can aggregation and who can do that the best with a voice and just say the words I was.
Literally watching last night.
I'm show switch the Netflix and they went back to N. B C. All with just one click and with my voice and so the innovation that our team has done the seamless integration working with the various content providers. We've made tremendous scribed, Jeff you Wanna talk a little bit about and therefore I'm starting to close.
Out on monetization of that we've seen a number of ways leads right into advertising because it's an ability to not only gives you a good experience in charge who are subscription fees.
Pending on what level of service it is but in the case of <unk>.
Lex whether it's lower churn for broadband whether it's additional advertising.
Sumo and.
Smart television platforms and other things, we have our roadmap, which are very exciting that continue to take these tools and find new ways to give them to customers and thereby create additional value for the shareholders.
Yeah, if you want to talk about the appointment thanks.
Thanks, Brian and thanks, Jessica So obviously the upfront was a very unusual upfront. This year Jessica I mean, we didn't think a couple of months ago. There was even going to be an upfront. This year and the fact that there was one and it ended up being relatively normal and much stronger than we expected.
Was really good news for the whole business. We ended up we ended up kind of slightly up on price, which was we expect it to be way down in price. We ended up slightly up on price slightly down on volume.
And as you mentioned the big impact on advertising really is the ratings and the ratings is not just us but everybody because we stopped production who would normally have kind of our fall schedule and high here right now and we're just starting all those shows and we don't have a lot of new new content.
So that's what's driving kind of the advertising choppiness and declines the flip side of that is it creates scarcity in the market. So the market actually here's pretty strong because if you have less rating points.
More demand and a couple of the moves that we've made we're kind of perfect timing they'll pick awkward talked about peacocks and add driven platform gives us an opportunity to just sell where others don't really sell and and and we we launch right into the strength of that scarcity and then we also got a consolidated all of our advertising under Linda.
Reno and our one platform approach and we think that was also perfect timing because it gives us the opportunity to kind of cell and address that scarcely across multiple platforms. So you'll obviously a much.
A much smaller upfront in the past, but much better than we expected.
[laughter]. Thank you.
<unk>.
Our next question will come from the line of dog Mitchelson with credit please.
So I can maybe on mute.
Oh no I believe that's mine has disconnected. Our next question will come from the might've been Swinburne with Morgan Stanley.
Thanks can you hear me.
Yeah.
Okay, Great I guess two questions on.
On cable or maybe just probably an entertainment.
For either Brian or Dave I'm wondering if you think about the video business evolving from what you've been selling for decades, a package of 20 or networks.
To a bundle of apps, where you're basically taking a distribution fee.
What the consumer pays rather than earning a margin on a on a bundle.
And if you do you know what does that mean for the business and and sort of how you think about and.
Investing in products and capital allocation et cetera.
It seemed like a possible future in the not too distant future across Comcast and Sky.
And then for Jeff you know, there's a lot going on at N. B C. You know to put it mildly I'm just wondering if you could talk high level about what you're trying to accomplish organizationally from a restructuring point of view.
How we should measure your success and in in particular, you mentioned in the prepared remarks or Mike did that you think the parks will break even at some point next year I, just maybe [laughter], that's a pretty interesting comment in the context of all the uncertainty if you could just talk a little bit more about that would be helpful. Thank you.
Why don't I help organize that this answer because I think you've touched on a little bit of everybody and and give it some of the folks a chance to to talk about the quarters. So why don't we.
Start with Dave to talk about video packaging I would just add that I think we've seen the ship coming I think David the team I've done an outstanding job or having connectivity platform.
And thinking of it that way so that we're ready for that shift I don't think it'll be all or nothing I think it's been.
<unk>.
You know highlighted here during covid and people being at home as much but Fortunately we were ready for that I think Jeremy could took a little but they're kind of some of the different trends in Europe, and how skies preparing for that bundle of that world as you called it and you're right. The the economics change depending on.
Oh, what can we want to get ourselves to a position of indifference, where the consumer is driving not the company and the consumer decides where they want a rash from what package. They want the company find itself in a.
I think the best product and a good set of economics, we may always have a preference yoga one versus the other naturally, but we want you to be satisfied as a consumer and make our our our long term growth happened and then obviously, Jeff can talk a little bit and and and like if you want on the.
On on all that the definition of success, which I think is a great way to to look at that'd be sweet, but Dave wanted to take it all.
Thanks, Brian Hello Bend, So I I think clearly the you know video market places almost everyday evolving from our perspective, we have invested in a video abroad video platform capability.
That I think gives us a lot of options and you can give customers a lot of choice. So we wanted to deliver to the customer what they want and a video experience. So we segment the marketplace. We break it down we've been doing that for some time in his Brian said, we anticipated a lot of these changes so.
For customers that want the the full experience that want you know all the channels that want a video on demand DVR capability and apps and as Brian talked about the ability to seamlessly connect all of that we have X one.
Yeah. We also now I think are very uniquely positioned.
To go after the streaming segment with flax and the Best example, I think of our position in the marketplace with video when you combine it with broadband were surrounding broadband with a lot of video capability and was screaming and Peacock, we're giving them the best of aggregation right streaming off.
Options. So we're going to break down the marketplace continue to compete and deliver to customers. What they want so I I I think that will continue word or we feel that this is a sustained competitive difference that we have and we'll go to where the customer wants to go and and.
Terms of whether it's a more profitable outcome for US then we'll be indifferent if they want streaming capability with flecks, we're gonna be right there to deliver that.
And then he's generally him ended up just chipping from Sky I think.
I don't know something you've been out with split it says will supply side relationships and then comes Hemocyte service and so I think on supply side.
Well, we will we see central step into and out will are good examples would be for example, Disney where we took a a very high fixed cost.
Fixed cost long term contract and if that can be turned on into Iraq. We've taken a cost of up here now and they're getting a margin by selling does he passed through crew Sky and then we could do something similar with Netflix of course, and then we can take the money I need to let it cool through the P&L or invest some of it.
And and that are like Sky Studios low you can then scale about one originated content, which improves the customer experiences of courses, which will variable and differentiates as well, but when you get to the consumer side really there's really itchy no change the experience cause cause. He was wounded continued to get all of our contract on sent through the sky use it into.
The place we can deep link into our spring customers Bach efficient disease. The Sky interface is very very easy to move around as Brian said with the growth and development and voice just becoming easier every day. So actually we think we can complement the user experience very much and I should get a much more flexible and more valuable set of color.
[noise] structures and then we can think of 90 the doesn't addendum to that in a way just to target. In addition, Paul the market. They use as many of those contracts relationships and allows us just to get to walk customers in a different way. So that so how we think about bringing all about together.
Brian want me to Japan. This is Jeff.
Sure. Okay. So thanks for the question a lot in your question. So I'll I'll try to just didn't really quickly but.
First of all just working backwards definition of success success. There is a lot going on in N. B C. Universal I really don't think the definition of success is any different than it's ever been you know our our job is to.
Profitable you know generate cash flow and generate a longterm value for the company and that's how we're we're kind of thinking about everything and it's obviously a very changing world. So you have to be you know you.
You have to be nimble in doing that but the the the measures of that are the same measures as they've always been in our view.
And organizationally I really think we're kind of you know.
Through the execution of most of our restructuring the costs will head over the next 12 months, there's about a third of them in this quarter and then by the Middle of next year, we're kind of.
The majority of them and they're designed for two things. One you know we have we have an obligation as our revenue moves down to adjust our cost base, which which I'm proud of our team for doing across our whole our whole company, but more importantly, we really realigned our T V organization under Mark Lazarus it used to be in the T V World.
You were very vertically are oriented by network and you would say Oh I need a show for this time period to go out and get a show for that time period and every every network kind of have their management team and staff, we've realigned kind of dramatically. So that everything is one management group and the T V business under two great executives for instance, Berwick in Susan Rosemary who just joined us.
And the idea now is to find great content and use our platform, which is in many ways better than anybody else's platform with all of our networks, not just linearly, but peacock to take right platform and really maximize the value of it and I'm very excited about it it it does resolved and a lot less cost.
I think more importantly, et cetera us up to grow as the world changes turning to parks very quickly parks are obviously, it's a very it's a it it parts are a great business by the way when the world returns and people get sick of being in their house.
I really feel that they're gonna are are gonna be a very strong business nobody can tell the pace of how that's gonna go given what's happening, but so far we're rebounding fairly nicely in in Florida in Japan, where we're open our first priority always has been always will be the safety of our of our guests in our employees.
And I'm proud of Tom Williams on the team there that they've actually had a set of protocols that has resulted in his being open without any problem, whether it's guess or employees.
And and who knows how the future will bring but the rebound is nice is happening nicely and if it continues in this way we do expect you know it.
As Brian said in the opening too.
To to hit breakeven if not more at some time and Ah 21.
Thanks, everybody and then I <unk> to Jeff's point. It is obviously a statement about breakeven subject to have covid evolves, but you know if it stays on sort of the trend that we've been seeing through through this winter into next year, we would hope at some point to get there and then you're circling back to your first question been I think there's no <unk>.
Western that's when you really look at the fact that and Brian said earlier that with 56 million relationships around the globe Globe as we've talked about in the highest Ah wallet markets for subscription services, whether they'd be broadband or R. O T. T video entertainment of any sort.
We're at the point of sale when people are choosing their broadband provider, where they're providing what we think are the options any way for the best aggregation services with or without our own video packages and if you'll think about it from the perspective of anybody trying to launch a video streaming platform.
We represent 56 million homes, where you Wanna be on our platform and it's worth it to share economics for us to promote and allow and I think and that's what we already experienced today. So there's no reason that wouldn't be.
A way of the future not the only way, but a way of the future and I think it just is even I'm kind of more evident that the power of the platforms with the customers that we have you know allows for the kind of launched the Peacock had I don't think it's a mistake or you know that it that release that 22 million sign ups does that.
Really related at this stage to us having the relationship with the customer through both broadband and and our aggregation products.
Thanks, everybody, thanks, Bye and I'm thinking about them all and he my next question. Please.
Our next question is from that Mitchelson with credit please.
Oh. Thanks, so much you all have solve global voice-activated video streaming, but I can't handle the phone mute button one topic for Brian one per day, Brian One thing that seemed new to me. This quarter was your comment on licensing the Comcast Tech stock internationally, and I think I heard some optimism regarding getting to nationwide in the U S. Can you help us understand potential timing.
What are the impediments, the new wholesale deals, particularly overseas and you mentioned scale benefits beyond the healthy margins you get from licensees and I'm curious, how you'd articulate those scale benefits of expanding that platform M. If I could per day regarding wireless Mike mentioned the company put in place a number of plans to X one.
Great growth in this business. If you wouldn't mind, you know sharing some of those plans and why now why leading into that business. At this point in time and if that means anything about timing for breakeven free but it'd be castle for wireless that would be helpful. Thank you both.
Great and you're glad you figured out your tech issues I don't want to suggest that there's a any new news regarding the U S and in terms of.
X one licensing what what I think we referring to is.
Or what I'd like to refer to is just what it what it does when we do license others and we're in conversations all the time with companies and the success that that business has had which we haven't talked about very much on these calls.
It's gotten to a pretty good size and it has a very healthy margin and there's a lot of Canadian companies Ah Cox in the U S.
And.
Area that we've been focusing on his drawing sky.
And and Extensity closer together into one global Tech stack, what's and opens up the opportunity to do this now not just in North America, but also starting with with Sky and.
Where number of common architectures and I think you'll see in the future.
Products rule out as a result of our ability to do that and conversations that are that are being had to to be able to know take that conversation more broadly I think that the most significant benefit it certainly is the money.
That it brings in.
What what that allows us to do in terms of scale is so we talked a lot about video here, we've pivoted a lot of our innovation took broadband and the last 234 years and we saw this transformation coming we saw how important broadband was going to be.
Would be calm and even further become and reinvent itself over and over again.
To have the best broadband quarter in the company's history.
Sitting here in 2021.
It's a 20 year old product give or take.
It's a pretty dramatic an amazing statement in my opinion and that's because we've kept reinvesting what is broadband.
What kind of be in and.
Going to Wifi when that did not exist now integrating that into your.
You're screaming your aggregation things we've been talking about this morning, so having the scale and.
And the quality of talent.
On a global basis to be able to recruit the best engineers when again, we see a number of.
Other companies wanting to enter this space and or lead expanding not shrinking is is I think the greatest achievement and I give credit that we are.
Expanding our footprint synthetically, if you will through some of these other relationships.
With companies, who Wanna take all of our products whatever they can be calm and they've done that and I think we've given them a great experience for their customers and they've been super supportive of our I T. R. A our technology team eight.
Thanks, Brian Hi, Doug So just one other comment on the the the flex side of things with our partners. So we haven't really solid syndication business right distribution partners in the U S Canada.
Looking elsewhere and flex most certainly is on the road map for all of our partners, So and gives us the option of being able to work with <unk>.
Device participants smart T V folks and others to be able to have it be a software solution. So we'll look at all options going forward and wireless.
So where in general we're pleased with where we are you know and many quarters in a row, where we're delivering a material amount of the net ads in our footprint and so we're on track having said that you know with retail we chose.
Was to shut down to the retail stores and a good chunk of the country Uhm that did have an impact.
We reopen numbers, Mike said, and we really feel that we're committed to accelerating the wireless business. It's a really important product for us going forward and and it just it will be focused not just on retail we think digital still has great promise and we're all.
Already seeing as we put our shoulder to bringing things back. Some you real early stage success in terms of what mobile can do the results again still relatively early but we really liked the retention benefits to broadband as we package them with it a lot of options.
We do Triple play with mobile now do you use it to a package just with broadband very focused across all of our sales channels and it really comes down to it I mean, the three things that were focused on one I is that we have access to it really great network with Verizon.
We have the ability to cut across all technologies, including five G. So we'll give the customers what they want Ah there, we can leverage our own investment in the home with Wifi outside the home. We have you know most of the broadband the the the.
Cellphone smartphone traffic goes over our Wifi network. So it's a great combination of the two and then over time I think we're gonna be uniquely positioned to leverage the potential for building out and dense pockets wireless capability to give US you know a more efficient way of delivering mobile.
So, but overall, we think that this is an important opportunity for us a long term still feel that way right on track with where we wanna be we want to be a little bit more aggressive and I and that's yeah. That's on the roadmap alright. Thanks, so much.
Regina we're ready for the next question you're.
Your next question comes from the lineup Craig Moffett with Margaret Nathan's then please go ahead, hi, two questions if I could.
I guess, the most obvious and pressing one is where do you think all the broadband subscribers are coming from <unk> I think as great. As your results were there even more surprising in that AT&T and Verizon also both posted better than expected results. So we're obviously seen enormous market expand.
And I'm just I'm just wondering what your sense is of how much that is <unk> of that is pull forward and and and where the subs are coming from and then on the wireless side of the business I Wonder if you could just talk a little bit about what you see and expect to see in the iPhone cycle, given the promotion Ality uhm that we've seen from and.
Particular, AT&T, what does that look like for you in the fourth quarter and in terms of your customer acquisition costs.
Well, Craig Dave here, so in broadband Yeah, let me start with what we've been saying and we've been saying consistent momentum now for awhile well before Covid, it's been rock solid in terms of this momentum this is.
Our focus we everyday wake up thinking about you know how we Brian mentioned, we innovate go to market. So.
And we're talking about a marketplace and perhaps speaks to across the board is all boats rise, but the the market's growing it continues to grow and you look at our position is 51% penetration there's upside a lot of upside so I I look at where it comes from and.
The good news is it's been relatively consistent maybe.
Few new opportunities entered the picture through the Covid period, but.
It's across the board in terms of where were taken share in the front and combining that with record churn. It results in the net ads, but were taken chair from telco Wired participants D. S. L. M D U competitors mobile providers, those kind of across the board and many different segments.
So it's a lot of opportunity and the Formula Braggers. The the I think a consistent one we look to have a sustained competitive difference by delivering just a better product in the marketplace better speed better coverage better future capability and now with streaming and then you can be.
Find that with Peacock in other apps by the way all the other apps that come connected Biflex I think this is a really good long term competitive formula. So it's across the board there's upside good runway for broadband I believe going forward in regards to wireless and Apple works.
Cited about their product launches, where but well positioned with five G.
And so as that began to take off early feedback, we're we're getting from prospects and customers existing customers and it's very solid. So we get prepared just like everyone else all the other carriers in terms of these launches worked very closely.
With Apple, but we do have a full supply chain plan go to market approach.
And so where we were optimistic about it it's happening a little later and and this year than than last year, but that's okay that it'll just be a nice opportunity for later on the quarter into next year.
Okay. Thanks, Thank Virginia in a question paint.
Your next question comes on the line and they'll Cusick with J P. Morgan. Please go home.
Hey, guys. Thanks.
Brian Real quick to follow up on on your wireless comments, you spent $400 million on an auction recently and both you and David mentioned options to build and wireless can you explain on your plans or maybe timing for billions building your own cellular network and.
And then Mike can you give us an update on how the conversations are with rating agencies on leverage it seems like if they look at things on a trailing basis. It could be some time before you get below the two and a half turned target.
But if they consider an al Q a basis, we could get there in 2021 is parks a breakeven what do you see there. Thank you.
Well, let me on on wireless let me have gave comment a little further but I don't think we have any new news day on that question, we are trying to build optionality.
I'll make cough spaces, it really won't.
You know affect the product you receive we hope that it will be <unk>, you would notice a difference, but what network you're wrong. We just want to have the best value with the best service and now have five G.
Right at the same time was everybody who is a network operator and and show that that's how we start ahead I guess is the best way for me to answer that question. When we did the original M V. N O relationship we thought about things like.
What new technologies might come in the future and and this opportunity to and we have to.
Mister.
Respect that some or the auctions rules require us not to comment on things. So we we just look at it as waiting options for the future for the company when they have a value net value add to do all of us to shareholders, David does that sound right to you.
No absolutely Brian I think filled the main point is we really like our current position we have I hope that yeah. We go to market, we're still unique and and that and the other other cable partner charter does the same thing where you have by the gig but unlimited option.
<unk>, so we like our current position and as you look to the future as we look to the future with the the spectrum. Then you have an opportunity to look at dense pockets of usage and then just build a more efficient long term.
Delivery system. So we'll do we we don't have to rush to do that we're gonna. We're looking at it from an engineering perspective and will be opportunistic down the road, but right now we really like our current position.
Okay and talent.
[laughter] Oh my God on the other question I mean, I think obviously as you said before we're very committed to the amendments that we made to the rating agencies and therefore to the bondholders who support the balance sheet. So it's our highest priority to get ourselves.
Deleverage consistent with those commitments and then get ourselves back to a balanced capital allocation, which were eager to have that include buybacks as we've been talking about no doubt I'd say, it's premature to talk about you know where where the the <unk>. The topic you raise and other ways to think about.
How to how to think about our ability to support the death through the lens of a rating agency is stuff that will talk about with them you know as we see covid make a turn in the businesses that are you know hurt on EBITDA front.
Make their turn until then it would be premature to you know make any further comment.
Okay sounds like you know we have time for one more hostile.
Our final question will come from the line of John had like with you B S. Please go ahead.
Okay. Thanks, guys.
You know obviously solid growth in Peacock. This quarter is there anything you can tell us about usage or maybe daily average users or maybe the number of of premium versus free subs and then.
We know what content has resonated with yours is it sports or entertainment or some of the original is our library to to you could tell that there would be great and then more broadly and I guess, it's for for Governor Brian do you guys believe that that N. B C has the scale to compete effectively in a ddc's centric world.
Don't like Netflix Amazon and Disney.
We can talk about that that'd be great. Thanks.
Yeah. Thanks, John This is Jeff while jump into that so [noise]. So clearly we I think we talked about the 22 million sign ups, which is great and way ahead up we thought we'd be if you look at you just mentioned and kind of where generally the majority of our advertising revenue.
Was advertising and there's three metrics that really go into it is how many people sign up it's it's how many of them use it regularly.
Kinda Maa's and monthly ask of a couch and then how often they use of what the engagement is and those 22 million, obviously sort of the top of the bundle and we're way ahead on the other two of what we what we projected to be in that obviously then translates to revenue. So you know couldn't be more pleased with where we are.
And we're just seeing the effects of the roku deals by the way just kicking and so we have lots of growth coming in amongst roku customer's going forward because we're just seeing the very beginning of that effect on us. So.
Couldn't be more pleased with the content. That's resonating it really is interesting it's kind of across the board I mean, obviously Premier League soccer has been an interesting driver for us.
Some of our topical stopped some of or N B C news.
Product has been has been resonating Brian mentioned some of the shows that we are able to get from other people that they didn't necessarily discover on other platforms like Yellowstone and recently Mr. Mercedes are are resonating, but I think that the in general if you look at the usage. The fact that we have such a deep library a familiar.
It's kind of the opposite of Kobe, We have we have stuff people are you want to watch they want to Rewatch 30, right. They want to watch pick world's library, it's really kind of across the board in very broad based and with most of our programming strength coming in and future future quarters were really very optimistic we don't even.
You know get the office, which is still amongst Netflix cop shows until January exclusively.
And then with the Olympics behind isn't that two Olympics behind it you know to add to our sports strike or were were very very very optimistic on how the content is is resonating.
Just more broadly on direct to consumer.
You know we we.
I do think we have the scale is accompanying to more than compete I think we have the best platform. We have a content machine that can do not across our company and then when you think about direct to consumer across our broader company, it's not just peacock, but Comcast and sky both have deep broad customer relationships.
And and that was by the way we took advantage of both when we lost Peacock.
Not just using skies expertise to have a product that looks good and works really well, but also using Comcast.
Right on the X.
One platform and and flex to really drive pickup and we launched.
But more broadly across the company, we have things like Fandango, and Rotten Tomatoes, and lots of different ways that we reached customers directly. So we think I think we have more than an upscale both in our content and across the broader company and the way that we reach consumers Southern O'brien, if you want to add anything.
No I think that's an excellent answered a good way to end the call I I think going back to a question was asked earlier, what's your definition of success I think you've just laid out yep. It's it's looking across the whole company.
And he cock is a fantastic example of yes.
And there's want just from quarter to quarter Amazing progress and it's helping all parts of the company and their roadmap to head. So it just one example, really good quarter and we look forward to giving you more engagement stats and everything else as we go my.
It was a raison.
And we did really well in the last 90 days in the last hundred and 80 days in that race like by the strategy that has been laid out here, which for a lot less money and a lot less.
Risk to our core company changing the financial characteristics, and yet, giving us that potential.
Now have many customers, having the peacock app signed up what can we do to get that engagement and usage up that's it that's over the next 10 years and life over the long term of once you once you get that real estate. So we're gonna continue that race and we've got some great content ahead, you get people have yet to try peacock.
To play with it and when you get there it's got to work really well and that's where that experienced some sky and X one and doing user interface is paid off so we'll keep focused on it and thanks for for all the questions in the conversation marshy back to Ya.
Thanks, Thanks, Jonquil that concludes our third corner 2020 earnings call. Thank you for joining us I mean with all of you well.
There will be a replay available today's call starting at 12 o'clock P. M. Eastern time, it will run through Thursday November 5th at Midnight Eastern time, the dial in number is 8558592 056 and the conference I D. Number is 309 0648, a recording at the.
[noise] Conference call will also be available on the company's website beginning at 12 30 P. M. Eastern time today. This concludes today's teleconference and thank you for participating you may I'll disconnect.
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