Q2 2019 Earnings Call
At this time all participants are in a listen only mode.
Please note that this conference call is being recorded.
I will now turn the call over to senior Vice President Investor Relations and Finance Mr., Jason Armstrong. Please go ahead Mr. Armstrong.
Thank you operator and welcome everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanagh, Steve Burke, Dave Watson and Jeremy Darroch.
Brian and Mike will make formal remarks, and Steve Dave and Jeremy will also be available for Q and I.
As always let me now refer you to slide number two which contains our safe Harbor disclaimer.
And remind you that this conference call May include forward looking statements are subject to certain risks and uncertainties.
In addition in this call we will refer to certain non-GAAP financial measures. Please refer to our 8-K and trending schedules for the reconciliations of non-GAAP financial measures to GAAP with that let me turn the call over to Brian Roberts for his comments Brian .
Thanks, Jason and good morning, everyone.
I'm really pleased with our strong second quarter results and the continued successful execution of our strategy.
All of our businesses demonstrated significant growth.
Contributing to adjusted EBITDA of $8.7 billion in the quarter, an increase of 7.6%.
We also delivered 78 cents of adjusted EPS in the quarter, an increase of 13% over the prior year.
All in all we generated $4.2 billion of free cash flow in the second quarter.
Resulting in a year to date total of 8.8 billion.
The key driver of this sustained growth continues to be our market position with 55 million valuable customers in many of the world's most attractive markets generating $111 in revenue per customer each month.
With high margin and strong retention.
Across the Sky and cable we added 456000, new relationships this quarter and 868000 in the first half of the year.
In all of the geographies in which we compete we lead with superior products content and technology.
In the U.S. connectivity is the focal point of our customer relationships enabled by our world class network or connectivity businesses again generated nearly 10% growth in revenue and collectively are on track to deliver the 14th consecutive year of well over 1 million broadband net additions.
In Europe , Sky's premium brand and exclusive content is the principal differentiation in our relationship with customers driving net additions of 304000 in the quarter.
Importantly across the company, we also have leading scale and premium content with a vast library of IP and new productions that are extremely popular across generations and geographies.
At NBC, we're on a path to finished number one in the us for the sixth straight year of the key demographic of adults 18 to 49.
And I would tell him window, we're number one in Spanish language Prime time.
In film.
We are executing our strategic slate approach and look forward to the return of the hugely successful fast and furious franchise with the spinoff of Hobson Shaw later this August .
And Sky continues to develop a strong lineup of original content.
Including their highly acclaimed Chernobyl, which debuted in the second quarter.
On the back of this success, we launched Sky studios to expand our production capabilities and more than double the investment in local original content.
The popularity and scale of this premium content and advertisers need for trusted brand safe environment drove nbcuniversal upfront to record levels. This year.
Advertising is a core strength and once again, we led the market on both volume and price.
The overall portfolio volume was close to $7 billion, an increase of 10% over last year and average price was similarly strong.
We help shift the marketplace to embrace all video unifying all screens platforms and content.
Breaking down the historic barriers between linear and digital which is particularly important as we prepare to launch our AD supported streaming service next year.
To that end, we had record digital video sales an increase of 50% over the prior year.
So when you add the scale and strength of our customer relationships premium content and advertising capabilities, we have a uniquely strong position to capture and profit from the growth opportunities in our markets.
For example in the streaming segment, we've already made significant moves to better serve viewers, who want to consume content in and out of the home.
Sky was ahead of the curve launching now TV almost seven years ago.
The platform has proven to be incredibly durable and popular evident and skies Q2 net additions.
At cable Flex offers a new approach for our broadband customers to enjoy the most popular streaming apps on our X one platform.
Including the voice remote without requiring a traditional linear content subscription.
Finally at Nbcuniversal, we're making great progress on the direct to consumer streaming service that we announced earlier this year.
We believe the strength of our assets and leadership across our businesses.
Combined with access to tens of millions of customers will lower both our cost of entry and execution risk as we deliver a truly special offering.
All in all our strong operating and financial momentum continues.
If you take a step back theres significant competition and change in the ecosystem right now.
But that said for years, we felt that video over the Internet is more friend and foe.
We believe it plays to our strengths.
We've got a great roadmap in each of our businesses and an even better outlook. When you add it all together the fastest broadband married to world class platforms as well as highly rated relevant content.
And we are the leading company in both of those businesses at scale globally.
It's our scale that allows us to evolve and continue to invest all while maintaining momentum.
And driving substantial growth and this has always been our approach.
In fact, if you look over the last 10 years.
Just to pick one stat, showing our consistency during significant other transitions in our business.
Weve grown adjusted EPS by double digits in nine of those 10 years, and we are pretty close in the 10th year.
Our second quarter and first half results continue this trend of robust growth.
And our outlook is for more of the same.
Over to you Mike.
Thanks, Brian and good morning, everyone I'll begin on slide four with our second quarter consolidated results.
As a reminder, we completed our acquisition of Sky in the fourth quarter of 2018.
Our reported results include Skype for the from the acquisition date, while pro forma results includes guy as if the transaction had occurred on January Onest 2017.
Having said that on a reported basis revenue increased 24% to $26.9 billion and adjusted EBITDA increased 18% to $8.7 billion.
On a pro forma basis revenue increased 2.8% and adjusted EBITDA increased 7.6% reflecting growth across all three businesses.
As Brian mentioned adjusted earnings per share grew 13% to 78 cents and free cash flow was $4.2 billion, bringing the first half total to $8.8 billion.
Now, let's turn to our segment results starting with cable communications on slide five.
Cable delivered another very strong consistent quarter of growth driven by healthy customer metrics and our connectivity businesses and continued success in controlling costs.
While also making significant strides in the customer experience.
We believe that the strength of our network.
Best in class products and customer experience improvements are winning combination that will continue to drive profitable growth.
Overall cable revenue increased 3.9% to $14.5 billion in the second quarter.
Revenue growth in the quarter was led by the steady increase in customer relationships.
For both residential and business services as well as higher ARPU.
Total customer relationships increased 3.4% year over year to $30.9 million.
Driven by 209000 high speed Internet customer net additions across residential and business services in the quarter and $1.3 million over the last 12 months.
Total video subscribers declined by 224000 in the quarter as we continue to respond to changing consumer viewing preferences.
We will remain disciplined in executing our connectivity led strategy to drive customer relationship growth and total lifetime value of those relationships.
Video will continue to play an important role in our strategy, but as we said before we will not chase unprofitable video subs.
The success of this approach is evident in our results with our monthly adjusted EBITDA per customer relationship growing 3.8% year over year, and our continued improvement in retaining customers, including best on record retention for broadband in the second quarter.
Consistent with recent trends, our connectivity business residential broadband and business services continue to drive the growth of cable.
Our revenue in these businesses collectively reached $6.6 billion in the quarter up 9.5% year over year.
In addition to the solid customer additions that I mentioned earlier.
Residential high speed Internet ARPU grew 4% this quarter.
Looking ahead, we expect to continue a healthy balance of both customer and rate growth.
Our wireless business expanded the mobile is another important contributor to our growth at cable.
This still new business is already positively impacting retention, while also attracting new customers and us firmly on a path to positive Standalone economics.
We added 181000 net customer lines in the second quarter, while we also reduced our quarterly adjusted EBITDA losses of expanding mobile to $88 million, reflecting progress in scaling and fine tuning our operations.
While we expect this overall trend of improvement and extended the mobiles financial performance to continue we anticipate customer related acquisition expenses will increase in the seasonally strong third and fourth quarters.
Moving now to cable expenses and margin on slide six.
Overall total cable expenses increased 1.6% as we continue to see the benefit of our disciplined approach to controlling costs. While also increasing the total number of customers that we serve.
Non programming expenses slightly increased by 1.4%, but improved by 2% on a per customer basis.
Our ongoing efforts to continually improve the customer experience.
By reducing unnecessary transactions and digitizing many of the remaining transactions continue to drive costs out of the business.
The company had its best performance on record this quarter across many of our key customer metrics for instance, customer contact rate and truck rolls hit record lows as we continue to improve reliability and expand digital and proactive messaging to our base.
On the programming side, we continue to benefit from the relatively low rate of expense growth up only 1.8% this quarter, which reflects the timing of contract renewals.
Putting it all together the strong growth in our connectivity businesses the improvement in our performance, we've expended in mobile and our ongoing focus on cost management enabled us to deliver a healthy 7.4% increase in adjusted EBITDA cable.
EBITDA margin expanded by 130 basis points to 40.5%.
Based on our performance in the first half of the year and our outlook for continued improvement in the second half we are increasing our prior guidance.
We now expect the improvement in EBITDA margin at cable for the full year to be slightly above 100 basis points compared to our 38.7% margin. In 2018. This is an increase from our prior guidance of up to 100 basis points of improvement in 2019.
This primarily reflects lower spending and scalable infrastructure and line extensions in part due to the timing of planned construction and other investments, we're making in our network.
That said consistent with the broader shift in our business toward connectivity, we expect to continue to invest in our network, which will enhance our competitive position in broadband by enabling us to stay ahead of customers high and increasing expectations.
Evidenced by the rapid growth in data consumption, we now expect cable capex intensity for the full year two improved by at least a 100 basis points compared to 13.8% in 2018.
This is an upgrade from our original guidance of 50 basis points improvement in 2019.
This is driven in part by timing of network investment as well as the trend in decreasing CP investment as the total number of video subscribers continues to decline and as the rate of our deployment of X one has moderated.
And while we don't provide specific multiyear guidance and we could potentially adjust our plans if attractive new opportunities emerge. We expect the underlining video CPG trends that are contributing to the improvement in our full year capex intensity to continue beyond this year.
In total we are encouraged by the cable teams consistently strong performance and the great quarter and first half of the year. The formula is working.
We're seeing healthy growth in total customer relationships and adjusted EBITDA with margin expansion driven by our strong connectivity results and focus on cost control.
Coupled with the decrease in cable Capex intensity as the mix of our business continues to shift.
Together this drove a 22% increase in net cash flow a cable in the first half of the year.
Nbcuniversal EBITDA increased 8.1% with contributions across all of our businesses clearly demonstrating the power of our premier content portfolio and IP.
Distribution revenue increased 3.4% driven by the ongoing benefits of previous renewal agreements, partially offset by subscriber losses in the 1.5% to 2% range.
Advertising revenue was consistent with the prior year as lower ratings were offset by higher pricing.
Finally content licensing and other increased 5.1% in the quarter.
We would note our content licensing comparisons become considerably more challenging in second half of the year due to the heavy level of programming license to third parties last year.
Broadcast revenue increased half percent to $2.4 billion, and EBITDA increased 28% to $534 million. Excluding the comparison to tell him Endos broadcast of the FIFA World Cup last year revenue was up mid single digits and EBITDA was up double digits driven by growth in Retrans and strong advertising.
Retrans revenue increased 15% to $500 million.
Excluding the World Cup advertising increased mid single digits as lower ratings were more than offset by higher price, reflecting a very strong scatter market with double digit price premiums as well as some benefit from an additional NHL Stanley Cup game and Copa America soccer in the quarter.
Filmed entertainment revenue decreased 15% to $1.5 billion, while EBITDA increased 33% to $183 million.
Revenue reflects a tough comparison to drastic world falling kingdom in the second quarter last year, partially offset by the release of the secret life of pets to this quarter.
Theatrical revenue declined 53%, reflecting this tough comparison content licensing revenue increased 9.8% driven by the timing of when content was amazed made available under licensing agreements.
Theme parks revenue increased 7.5% to $1.5 billion and EBITDA increased nearly 4% to $590 million.
These solid results were driven by higher attendance aided by the timing of spring break vacations and higher guest spending.
We're excited about the future of our parts business as we have a great weren't runway in coming years with Nintendo World opening in Japan in 2020, Universal Beijing opening in 2021, and other significant opportunities to come soon moving on to Sky results on slide eight now as a reminder, I will be referring to our pro forma results as if the Sky transaction had occurred on January one 2017 and growth rates on a constant currency basis, consistent with whats reflected in our earnings release.
Sky added 304000 customer relationships and in the quarter with $24 million relationships.
Customer growth, mostly came from streaming subscribers, primarily driven by game of Thrones and also from the debut of the Sky original breakout hit Chernobyl both were exclusive on Sky Atlantic.
Importantly customers are choosing to watch more sky content. The amount of time Sky's customer spent viewing sky channels increased by more than 20% year over year, driven by our investment in sports and entertainment programming.
As Brian mentioned on the back of this excellent performance. We've now launched Sky Studios with the intent of doubling investment on local original content. This investment reflects our strategy to shift our mix towards more original content production.
In a difficult macro environment in Europe Sky revenue increased 2.4% in the quarter to $4.8 billion.
Direct to consumer revenue grew 1.7% benefiting from customer growth, but partially offset by the decline in average revenue per customer.
The change in ARPU includes our previously announced rate increase in the UK as well as the record addition of streaming subscribers, which contributed incremental revenue to the business, but at a relatively lower amount of revenue per customer.
Our investment in programming is driving topline growth.
Sky's content revenue increased 28% to $376 million, reflecting the wholesaling of sports programming, including exclusive sports rights recently acquired in Italy, and Germany as well as the monetization of our slate of original programming.
Advertising revenue at Sky decreased 5.6% to $563 million.
We made $954 million in dividend payments in the quarter for a total of $1.8 billion for the first half of the year.
We also continue to make good progress in deleveraging.
Pro forma net leverage at the end of the second quarter was 3.1 times.
Also we are exploring ways to monetize the embedded floor value and our recently announced Hulu agreements with the Walt Disney Company.
Should such a transaction come to pass we would anticipate using the cash proceeds realized to accelerate our deleveraging efforts by paying down Comcast debt.
We remain focused and on track to meet our deleveraging commitments.
In closing we are very pleased with our results in the quarter and throughout the first half of the year, we continue to execute at a high level consistently generating significant free cash flow, which we believe drives growth in intrinsic value and in turn over time strong total shareholder returns so with that I'll turn it back to Jason to lead our culinary.
Okay. Thanks, Mike operator, let's open up the call for questions. Please.
Thank you.
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Hey, good morning, everybody.
I have two questions one around the the outlook for broadband growth.
And the second around the NBC streaming strategy, maybe for Brian or Dave or wants to take it when you think about continuing to drive broadband net adds at the level. We have seen over the last couple of years can you just talk about the sort of product and service pipeline that you're focused on you think you can deliver.
Continued market share gains in a market that is obviously maturing.
Particularly as you think about Fiveg, arriving at least someday down the road.
And then on NBC, maybe for Steve or and or Jeremy Im just curious we saw the move of the office from Netflix.
To NBC, we've seen shows like share noble do really well.
How do you think about the cost of building this streaming business.
In terms of content spend or licensing lost.
Relative to the opportunity down the road are you convinced that the sort of the upside is worth whatever dilution you expect to come and I know you are still formulating your plans, but it seems like every media company is doubling their programming spend so theres a lot of incremental investment going on I'd love to hear your updated thoughts there.
Thank you.
Hey, Ben this is Dave so.
Broadband.
Everything starts with the steady consistent investment in the network.
So I think we are delivering we will continue to deliver.
The most efficient and effective way of supporting the high bandwidth applications, whether its gaming to Internet TV.
Our network is built for those applications. So we will continue to do that and ubiquitous way throughout our footprint and it really comes down to the three big areas that we will stay focused on one is speeds.
Going to continue to match capacity and.
Strong track record 17 time 17 years, we now have 100% of our network.
Where we have one gig available.
So we're going to continue stay very focused on that Wi Fi in the home.
Is just critical for all the different devices. So our gateway I think is the best gateway in the marketplace, we have pods.
That we have brought into the marketplace and and we make it easy through the app being able to optimize its so easy to install the pods and then over time, there to automatically and proactively optimize to make sure that the coverages.
Continuously improved and last but not least is control and this is how do we help devices get attached to the network.
How do we manage applications and increasingly over time, how do we help customers with security. So all those things kind of add up to X five X five is the brand, which all these things kind of come together.
And you look at the performance as Brian said.
Yes. This is the 14th year, we're looking at for 2019 will add over 1 million net broadband customers and we're balancing share gains with strong revenue. So as we do this I think we are delivering good value that the ARPU is growing broadband revenues growing and its margin accretive so its helping to EBITDA growth. So overall.
I think we have a solid pipeline for broadband innovation. This is we start with this category.
The only other thing I would add I think thats a very complete.
Thorough description of the strategy and great execution by Dave and his team is this latest product that we keep referring to flex because we want to deepen the relationship with those with that broadband customer and we'll have more to show and talk about in the months ahead.
But in a nutshell, we see this pivot to consuming video leads right into your second question consuming video and other ways and we want to make sure that that that relationship is made simple and easy and has value add by subscribing to our broadband and.
I think the team is off to a got some really great ideas, there, but Steve you want to answer the second question than Germany can weigh in so we're hard at work on our streaming plans were planning on announcing.
More details as we get closer to the launch of our goal is to launch the service next April .
We have over 500 people working on the service at present, we're using the now TV platform that has worked so well in Europe has really the platform Foundation. We believe we have a very innovative way of coming into the market that is.
Very different than anything else in the market and we believe has very attractive financial aspects versus other ways to get into streaming.
The office was important to us because.
According to Nielsen in the office is the number one show on Netflix about 5% of all of Netflix is volume.
It's obvious is show that was on NBC and is tied to the DNA of NBC and we see the office is being one of the 10 pool.
Programs on on our.
Platform.
So we will have more to talk about I think for competitive reasons. We believe we've we've got some ideas that are innovative and don't really want to share those until we get right close to.
Launch, but we're very pleased to have the office and very optimistic about our streaming.
Plans at this point, Jeremy maybe talk about Sky studios and at a little bit the strategy. There. If you wouldn't mind to the question they made about Chernobyl.
Sure Brian .
So a couple of things patents interstitial a first point remember in Europe , typically well buying content for the market as a whole. So we can use our content very efficiently even over the DTC service over a streaming service. So it's one of the reasons it while revenue from our streaming Braun no TV tends to be lower.
Our cost base is much much lower as well. So it's we were thinking of a efficiently.
On an incremental basis and the more we can do that with technology as Steve described of course, the mold that effect can apply across the company.
In terms of Sky Studios really our focus is.
On loan originated content and European continent, I think this is going to be extremely powerful for us because that is a big opportunity.
To develop European stories at a scale that weve never really seen before it's no surprise to me that.
Both game of Thrones actually but also to the oval did particularly well here game of Thrones essentially will show in Europe had a lot of European not because of culture noble a difficult subject is one of the great. So European stories over the last few decades.
So I think there is a real.
There's a real spot for us to drive into now Sky Studios will be the vehicle that we'll use to do that.
That will complement all of the acquired programming that we are getting from around the world, but will be very very different as well because it will be essentially European so.
It's really very well with us and of course, we will displace some of the acquired programming programming with more of our own originated content as part of the investment thesis.
Thanks, everybody.
Thank you Ben next question please.
Your next question comes from the line of Craig Moffett with Moffettnathanson.
Yes, hi, two questions if I could first.
I know you are hesitant to give long term guidance, but margins have climbed as high as almost 50% for some of the kind of video light competitors. If you will in the cable industry I'm wondering if you could just.
Are there any real differences between those companies and your own other than than simply video mix.
And then second.
Brian just strategically as you think about NBC and.
The video strategy at Comcast being sort of to let video customers go if they want to go.
And the pressure that that puts on NBC can you just talk about how you think those two strategies can comfortably coexist.
Correct. This is Dave So let me start with margin.
And you're right, we don't give long term margin guidance, but let me start with our focus.
And I think that gets at the fundamentals that will continue to impact margin.
The main areas I think we've been very consistent on this with that we focus on total relationship growth EBITDA per customer relationship and net cash flow per customer relationship is there nothing is going to change in regards to the consistent strategy and that all starts in impacts margin by focusing on the conductivity businesses, both residential and business services, which are both of those are margin accretive so.
Thats the first part second part and as Mike mentioned.
Earlier, a ton of focus around improving the customer experience.
And just taking out.
The unnecessary.
Noise in that business they are necessary transactions lot of focus around the digital experience and the customer experience. So these are fundamentals that I think are impacted this quarter, but will continue beyond so I think theres a lot of runway ahead in terms of improvement as we stay focused on the conductivity businesses I do think you have and the.
The balance of the year to the second half of the year, you'll have cycles like sales activity.
Mobile sales.
If that picks up and we expect certain new product introductions could impact.
Margin, a little bit and or just the tough comp politically with political advertising.
So there will be a couple of things that could go from quarter to quarter, but overall the fundamentals I think are rock solid in terms of our approach towards margin and so don't give really anything beyond.
This year, but feel very good about the fundamentals.
On the other thing look we this is why we think Comcast Nbcuniversal is such a dynamic company. We there will be changes in one segment and other we've been pretty consistent Steve's been pretty vocal that cable nets, we'll see some pressure on subscriber losses were benefiting from that in and then selling a lot of content to streaming.
Not screw so.
And that's where having more global footprint will allow us to create one production and sell it all over the world If thats, what we choose to do so.
I think it's pretty much what we've anticipated we've positioned the company and shifted our strategies accordingly, and on the margin between one division or another there may be slightly different emphasis but part of the.
Uniqueness that Steve was just talking about of some of our ideas for streaming it's really.
Support the ecosystem as we see it and take advantage of this change that we're all living through and make it a positive on the other side and that we've seen as I said in my opening.
Time, and time again, and we've managed with really great leaders to have products that have yielded.
Many years of growth for this company and we see that for the future.
Thanks, Greg.
Next question please.
Your next question comes from the line of Jessica Reif Ehrlich with Bank of America Merrill Lynch.
Thank you I have questions for Steve and also Jeremy.
Steve can you talk a little bit about a really strong upfront advertising market, especially in the face of lower ratings, but.
Second on Florida coming on sort of.
Non advertising supported streaming services.
When do you begin to sell your own.
Direct to consumer service and then my kind of threw in when he was talking about NBC you that there is more opportunities and theme parks.
Maybe just some color on that.
I think Jeremy do you expect just to maybe follow up on Ben's question, but do you expect a pullback of Programmings programs like we've seen in the U.S. overseeing going to see any west from Disney and Warner <unk> and others.
And if yes, how much money do you think that will free up for your focus on doubling originals and I guess like just as part of that is there a secondary market for programming or will you is the plan to keep it on your own platform.
So we had a record upfront for the last seven years, we've been selling all of our channels together the upfront and pretty much for the last seven years, we've been leading the upfront. We're the first company that does business and we sell more television advertising than anyone else in the country.
This year was.
Particularly robust our volume was up 10% I think our average pricing was up close to 10%, maybe 9% NBC in prime time was up about 13.5%.
And we saw a variety of things that drove that may be the most interesting is that now the biggest category of advertising in our upfront.
Is from companies that are digital native companies, the Fang companies pellets on businesses streaming businesses businesses that.
Basically exist on the Internet and Ironically those are the businesses that are putting some pressure on our ratings, but interestingly those businesses find television advertising very very effective and because they're so did so data oriented they can measure the impact of television advertising, so well over $1 billion. This year came from digital native companies that literally didn't advertise four or five years ago.
And that's that's what happens when an advertising market is is in good shape you need a good economy and then you need some new advertisers we were fortunate enough to have both our digital AD sales are.
Our AD sales on our digital platforms digital products.
We have also surpassed $1 billion. So you've you've got a kind of an all screen approach to the market as opposed to just selling linear television.
So the advertising market is very very healthy and Thats part of the reason why we're still very optimistic about the future of broadcast and cable channels.
Jeremy.
Tim.
Sorry, yes, sorry, just in terms of your question I think we're going to be we remain.
Really fantastic Paul.
For.
Secondly, you mentioned or anybody else who wants to.
He wants to develop a DTC or a business in Europe and typically it seems to be where most people on the first question again after themselves is where all the pay TV customers.
On on the whole that with Sky. So I would hope that with our historic relationship. The relationship. We have so we'll continue to be able to work with with many many people to 11 us be successful.
However, weve you know as you'd expect either we deliver a lot. So we do have lots of options now business. So.
Our investment in Sky Studios isn't really predicated.
Or anybody else will double the amount of original programming. We have we have the capacity to take lot further quickly.
If we so want to.
We're seeing great results from that so just this quarter viewing the skies on original programs was more than double what it was a year ago.
And it is there is a secondary market, we are monetizing a while where either selling it in markets.
Other retailers. So for example, we've got relationships with all the telcos the cable businesses.
In Europe to on sell out our content to their customers.
And our revenues are up something like 30% in terms of content sales quarter on quarter year on year. So I think we've got a lot of a lot of good options available to us and we'll just have to see how commercial negotiations panna.
Just looping back to parks, which was part of your question. Jessica We continue to remain very bullish on the parks business and obviously we're investing.
In Beijing, we are investing in our domestic parks. We think there is a lot of opportunity down in Orlando, we built a lot of hotel rooms will be talking more about.
Investment in the state of Florida.
And.
It's now about a third of NBC Universal's total operating cash flow and we continue to love the business and think it fits very well with our animated.
Movie business and other things that we're doing.
Thanks, Jessica next question please.
Your next question is from the line of Brett Feldman with Goldman Sachs.
Thanks for taking the question your cable business becomes increasingly connectivity driven it certainly seems like the margin profile is going to keep improving and as Mike alluded to the Capex profile is also likely to continue improving as well and so what that implies is that that businesses natural ability to de lever is probably going to be greater in the future.
It has been in the past and that could maybe get you back to your pre sky leverage profile a bit quicker, but I think that really on a recurring basis and imply that business might just be creating more excess capital over the long term than we've seen so it's really a question about capital allocation as you get back to that pre sky leveraged profile. How do you think about where your capital allocation priorities go, particularly how do you balance the opportunity to return to a share repurchase program versus reinvesting in some of the growth opportunities you were talking about over the course of this call. Thanks.
Thanks, Brad it's Mike So I totally agree with the kind of outlook for what the profile of the broadband connectivity businesses imply for the long term great cash flow generation profile of that business and so we love owning it and what can keep investing in it.
And the way that Dave described in terms of priorities you know on Delevering deliberate Delevering is priority number one right now and so Weve said.
To the rating agencies, we'd get back in line with our.
Rating within 24 months of doing the Sky deal and so we've made obviously good progress.
Thus far on that and I would say were nicely on track to accomplish that on the other side of getting back to where were we.
Need to we'll talk about what to do from there, but I would say the fundamental principles of making sure we.
Invest steadily in our existing businesses.
And maintain a very strong balance sheet, while returning ample cash to shareholders through our dividend, which this year will be north of 3 billion $3.3 billion or so 10 years in a row of.
Increasing the dividend that principal together with likely.
Healthy buybacks.
As we did prior to Sky.
In the future.
Is the likely future, but we first have to get ourselves back to where we said we would.
Thank you.
Thank you Brett next question. Please your next question is from the line John Hodulik would you be.
Okay great.
Maybe for Brian .
Could you give us an update on your view on the M&A landscape. It seems like whenever there is a.
Telecom or media asset up for sale on a global basis that Comcast names as at the top of the list and then.
And a follow up to that in a lot of changes obviously going on in the potentially changes going on in the in the U.S. wireless industry given the increased focus on connectivity in the cable business.
Do you see the need to do eventually owned assets and in the wireless market here in the U.S. Thanks.
Thanks, we're pretty focused on what we have right in front of us and very excited by it.
What drove.
Or appetite for skywave began with.
Sky being in play and being put in the market and forces you to make a decision so theres not.
Anything at this point that I see that the company doesn't have that we're not pleased with on a big scale basis.
And second what Mike just referred to about our priority to return the balance sheet to its historic levels.
As quickly as possible is our number one two and three focus and so we're we're trying to execute well, which I think this quarter or the first half the year did I think to your wireless question.
We're really pleased with the wireless Xfinity mobile for several years, we've been in business team.
You know around 1 billion, a half customers I believe and.
Really.
We offering looks great suite of products with value to our best broadband customers. It's got a strategic focus for how we're operating the company and now it's beginning to have real volume and scale and getting us closer to that.
Point, where.
Economically.
It's not a drag and it's a contributor so.
I don't know why we would change direction.
And you know things can always change but were pretty.
Pretty satisfied that.
We have a great product and it fits with the suite of products, we offer customers.
Okay. Thanks.
Okay. Thanks, John next question please.
Your next question is from the line of Philip Cusick with Jpmorgan.
Hey, guys I guess two two follow ups, Dave following up on your comments earlier on broadband I'm curious what you see out in broadband competition.
And as Mike pointed out through the quarter broadband had a tough year over year comp in Twoq, but was similar to better than the few years prior to that any reason to think that second half broadband momentum wouldn't be consistent with those last few years.
And then and then second on wireless if I can just follow up on a comment I think Mike you made about them.
Getting on that pass the Standalone economics, how do you think about the scale needed there and also the benefit youve seen so far in in cable churn from those customers. Thank you.
So it's Dave so on broadband momentum and.
Yes, its we don't give longer term.
Specific guidance, but most certainly.
Our approach is to continue to focus on the conductivity side of things both residential and commercial so we're I think we're doing both we're adding <unk>.
We're gaining share where we are we have a good balance in terms of financial performance revenue.
And it really does start with broadband so our approach.
Very much starts with Standalone broadband.
Packaging broadband with.
Swann with other products and we'll continue to do that.
Our we have record churn and broad man, we continue to do I think a good job.
On delivering good value. So everything I said earlier around the product pipeline is going to continue to help us in the back half of the year. So like our momentum. This is you know Q3 is always around back to school and.
Other opportunities and broadband, but I yeah, we're looking at as we set another year, we're going to have over a million broadband net adds and there's just really solid momentum.
That we have there.
Yes, it's Mike I'll, just add in on broadband exactly right. We see another very strong year second half.
So in fact, the first half second quarter had a tough comp to last year's best ever but when you put the first half together, it's basically in line with the last couple of years, we've had or thereabouts and so.
Feel very good about the remainder your outlook in broadband adds on the wireless question.
We were quite pleased with the beginning to see churn reduction benefit caused by.
In the mobile space overlapping with what Dave just described in broadband so quite pleased with what's going on there in fact in terms of the we were 1.8 million lines now about 180 ads in this recent quarter, but you look on a quarterly basis in our footprint were taking a very meaningful portion of the opportunity in terms of net adds.
Available to the opportunity tire wireless market. So we like the scale. We are at in terms of economics, you know the loss of 88 or so million Bucks in this quarter is substantially improved from last year, if we need to get into that.
Mid to high single digits penetration of our broadband base to achieve the neutrality on economics, we're on track to do that it will take a little bit of time, but most importantly, we just like the.
I mentioned, we have in the business as it exists for the reasons, Brian and Dave both pointed out.
Thanks, guys.
Okay. Thanks, Phil next question please.
Your next question comes from the line of Doug Mitchelson with credit Suisse.
Oh, thanks, so much two questions first for Steve understanding you do not want to provide too many details on the Odisi service I do want to explore the concept of originals versus library programming with you as a driver for the service the office.
Obviously stands out.
But Netflix believes it is new originals that drives new subscriber Activations will library content is more of the glue that keeps customer satisfied in the value of a service do you embrace that view that exclusive originals are a key driver for Odisi services like the one youre launching.
Well first of all our service is very different than Netflix I do think when Netflix started it was all acquired programming and I believe today acquired programming is something like 80% of Netflix is volume.
The vast majority of our volume I expect to be acquired we are spending some money on originals and we've announced that we're.
Doing another year of HP bio and we have another we have a number of originals that are actually tied to libraries that we currently own but I would expect the vast majority of the of the consumption in the beginning would be acquirers.
Okay, I appreciate that and Dave when you look at 18 these difficult programming negotiations, where they're attempting to bend the cost curve as they say and lower the pace of programming cost growth does it change your expectations that Comcast cable for cost growth and.
You might not want to share or would it be helpful. When you look for the next few years to know whether your programming renewals are lumpy or spread out more evenly on on an annual basis. Thanks.
Well, Doug we Havent, we don't give longer term guidance.
As you know and programming we have to do certainly side that we are this last year. This year in a cycle, where there's less activity deal activity. So.
Leading to lower programming increases so but.
Having said that I do think we are very different and a couple of different ways one.
That we have excellent excellent I think gives us strategic flexibility as we approach this new environment in that we combined the best of live on demand DVR applications and so as we approach relationships important relationships with us, we're just giving consumers unprecedented options for them to simply get to what they want so we are.
We will approach it we look we very aggressively look at data every single deal.
And that we will look at engagement.
But we will offer up X one and the Exxon will continue to be really important platform for us in the future.
All right. Thank you.
Thank you Doug next question please.
Your next question comes from the line of Vijay Jayant with Evercore ISI.
Thanks.
Probably for Jeremy.
Lastly, in the UK and in Germany, you, a reseller of the incumbent phone companies.
Network.
It's probably some opportunities to.
Get partnerships with companies that have faster speeds and all.
Be partners with new build out opportunities for broadband given Comcast DNA on connectivity can you just talk about is that a real opportunity to drive subscribers is broadly given.
The potential of faster broadband speeds in New York.
Yes, I think from a customer point of view.
No I'm, not saying, we and actually our business is already trading up to foster speed about half of our customers in the UK. For example, now are already taking sky fiber. So I think on the back of a trend there is nothing so dramatically happening in Europe consistent trend, we can grow we get good access to high speed broadband and the markets in which we compete.
That are launching in Italy, which will be.
Probably the store next year later this year. So next year is actually a good example level, calling with open five over to be particularly helpful contract with them that gives us flexibility to just start with fiber to the premises from the get go so.
I think our position today is a good one you can see the of course in the success that we delivered in the UK, where we become.
Neither a very strong number two in the residential markets.
We will build a similar position in Italy, being big new business for us to build and then we'll be open to kill me work more closely with network providers.
In all those markets. If we come we will but I don't think it's going to constrain is and I don't think it's a prerequisite for us to continuing to grow.
Great. Thanks, Mike.
Okay. Thank you Vijay operator, we'll take one last question.
Your last question comes from the line of Marci Ryvicker with Wolfe Research.
Thanks.
I think we all understand the connectivity message, but I think we're still trying to get a little bit of clarity on the video strategy.
Two questions related to this number one are you still investing in the video product and I think from all of the comments on the call. So far the answer would be yes, but just wanted to confirm that and then sort of following up to doug's question. If you're in a sense deemphasizing video had you become indifferent to affiliate fee increases as your annuities carriage contracts because I'll just pass the increases on to customers and it can be they view or are you still going to fight the fight to keep programming costs down.
Hey, Marci, Dave So I think you had to break that down in two ways, one theres, a marketing focus and as a product focus.
From a marketing perspective, our focus is and we've talked about conductivity, but we also video is an important packaging element to the segments that are profitable that want the best video platform. There is an excellent. So we will continue to emphasize our approach towards segmentation and leveraging X one with broadband so you've got the best in class combination of the two so we're not going to chase.
Low end.
You look at the last quarter a lot of them are we actually are video churn was relatively stable to last year's second quarter. It's just less emphasis on going after lower end.
But overall X one we will continue to market and to those segments from a product perspective, we will invest in our investing and X one we're adding applications.
We've talked about who will be up next year. There are others that we're talking we're excited about next year.
With NBC, there's a lot more in terms of what customers want and as Brian mentioned, we are excited about and more to come on flex Flex is as another is an extension of X. One that gives an opportunity to go after the streamer segment.
With a solution that.
Kind of the integrates an elegant way the applications. The data. So you can use your voice you can get to the content that you want for those app. So more to come on that but we will continue to invest where it makes sense and video.
Okay, well I just would add to it I think it was a.
Good.
First half of the year and I think we had a pretty robust discussion. This morning. So let me think that was a good answer Dave. Thank you.
Okay, we'll end the call there. Thank you again for joining us this morning.
We have no further questions at this time.
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And the conference I'd number is 119 slide 998.
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