Ringing That Bellwether: Roberts Sizes Up Competition9/22/2006 8:00 PM Eastern
A decade ago, Comcast Corp. was a medium-sized operator. Now, it’s the largest operator and the bellwether for the industry. Even with its stock picking up, CEO Brian Roberts worries about when Microsoft Corp. chairman Bill Gates’s $5 billion worth of Comcast shares will get back to where they were when he bought them. Multichannel News editor in chief Tom Steinert-Threlkeld and senior finance editor Mike Farrell asked Roberts to assess competitors one by one. An edited transcript follows:
MCN: A year ago, cable stocks were in the doldrums. The Wall Street view was that cable was behind the times and satellite was gaining ground. After that, Cablevision Systems Corp. started releasing its quarterly results and then you came on in the last two quarters with better-than-expected results. Now, the vision has turned, and cable seems to be in the catbird’s seat. What will next year look like?
Brian Roberts: It has been a great year so far, and we’re very optimistic about the second half. I try not to let the highs and lows of the stock market penetrate the four walls of the building.
So it’s nice to see, gratifying, not just one year ago, but really for five years — ever since we bought AT&T Broadband — we have produced 28% cash flow annually compounded growth with no acquisitions. [Yet] the stock went from $42 to $34 today, and you’re telling me, 'Hey, you’re having a good run.’ Okay? Bill Gates bought $5 billion of stock at $42 with that story in front of us.
We have a long way to go, just to get back to where we were two or three years ago.
MCN: I think some of that is, of course, fear about the new competition. I wanted to ask about six companies. Can you tell me what worries you about each and which worries you the most and why? AT&T Inc.?
BR: I think their strength is their weakness. They have their size. They’re going to have some 70 million access lines. They have put Ma Bell almost all back together again, with everything from long distance; the brand; most of America, residential telephone and business phone; to Cingular [Wireless]. An incredible company. The question is to integrate so many acquisitions so quickly one after another has to be challenging.
So just when they get finished with AT&T, now they have to do BellSouth, and right before that, they were doing Ameritech — whatever the last one was.
So I think they have a terrific company and …
MCN: And technology?
BR: The jury is out on the technology. They’re working to utilize an unproven technology to do video over traditional phone lines. That hasn’t worked in the past. So the jury is out.
[AT&T has a] marvelous wireless platform and a very capital-intensive strategy that will have some benefits and some negatives.
MCN: DirecTV Inc.?
BR: I think [News Corp. has been] very focused on putting its stamp on it, post-General Motors [Co.]. [DirecTV] continues to be the competitor that we have to focus on as much as any other competitor right now … Aggressive marketing, and very excellent set of products.
MCN: What about true interactivity?
BR: Not true interactivity, though they have done a good job disguising that from the consumer as being a necessary flaw or a critical flaw in their bundle. But I think they’re focused as a public stock on all the metrics, not just any one metric, and I think that they’ve made some progress, and I think that they’re a well-run company.
MCN: EchoStar Communications Corp.?
BR: I still think [EchoStar chairman and CEO] Charlie Ergen has made more money in the media business as an individual than any other entrepreneur, which is a shocking statement, and one I don’t think too many people have ever written about.
MCN: By what metric?
BR: Dollars — if you actually take his ownership of EchoStar times the stock price. Name somebody — I’m factoring the Cox family out because they were kind of there for their holdings — but if you take Ted Turner, John Malone, Amos Hostetter, Chuck Dolan, Ralph Roberts, anybody you can put on a good list, I think Charlie Ergen is right at the top.
So I would not underestimate his resourcefulness. The fact that there was a time when people said this No. 2 satellite [provider] can’t be viable and they don’t have [NFL] Sunday Ticket and they don’t have interactivity. How could they have 10 million customers?
MCN: Google Inc.?
BR: Google, save Microsoft, is the most amazing success in my business career, in our space. I should say except for Comcast. But, I think that — whether it’s by genius, by luck, or a little bit of both — they’ve captured the essence of what the Internet can do for a user, almost as well as anybody else, and have created a brand and a market position that is incredibly enviable. Whether that means they’re worth $385 a share or not, I have no idea.
MCN: What challenge does it pose?
BR: The Google model historically has been free, for everything, and I think for anybody in the media space, that was the broadcast model. Cable came along and created a dual revenue stream, and not on an a la carte search basis. You couldn’t watch any show on ESPN. You had to pick the whole channel.
Should they disintermediate the entire media business status quo, I think it will be a challenge for anybody that’s, particularly in the content business, [receiving] a dual revenue stream.
MCN: Last year you said you would like to see Google become part of your experience and Comcast part of their experience.
BR: So as we think about the future of television and how much Google has been a winner in the last 10 years, the prospect of using our [reach] into 24 million American TV sets and 22 of the top 25 cities in America with a new technology that is two-way — whether we do it with or without a Google — to be able to create a new advertising vehicle similar to what Google did to Web searches, it’s possible that that could be one of the great growth engines. Maybe not in the next two or three years but the next five to 10 years, this industry could be as well-positioned to reinvent advertising as anybody else. If we could harness Google’s skill sets, that could be very useful, and if we do it with others or do it by ourselves, that’s OK.
MCN: How do you become the Google of video and commercials?
BR: Well, that’s the question, and so we have …
MCN: You have to have an answer.
BR: We’re working on it. That might be one of the greatest opportunities that’s completely untapped, and we don’t see it happening overnight. We talked about voice-over-IP technology for a very long time before we got going on Comcast Digital Voice in a way that it made a difference.
MCN: How are you currently out-googling Google in video?
BR: We’re laying the technology base. We’re building on demand. We’re putting digital devices into everybody’s homes. When we some day have all 24 million homes digital, which is clearly a goal of this company at some point to have the digital technology cheap enough that every consumer has it, coupled with an intelligent network on the other side. That’s what Google is. It’s an intelligent device in the home that is talking to an intelligent device out of the home. It’s doing the search for you.
BR: YouTube is a reminder for me that my father’s first theory of cable television is still true, which is choice sells, and people want to be in control of that choice.
So when we went to 30 channels from five channels, it was a winner. When we went to 50 channels, it was a winner. We went to 150 channels, it was a winner, and Bruce Springsteen made jokes about it. The Internet comes along, and you’ve got billions of pages and everybody does something on all those pages, and so suddenly everyone is making their own videos, and then people expanding on that experience and communicating to each other and swapping it and sharing it. We’re going out of the era of being programmed to, and we’re moving into an era which we dubbed a while ago “Viewer-Controlled Television.”
And Viewer-Controlled Television appears to really be happening. I wish we had thought of every great idea like YouTube, but it’s a reminder, whether it’s a big or little business, people want to be entertained.
MCN: Why don’t you buy YouTube before Rupert does?
BR: Well, we never discuss potential thoughts, but the undiscovered nature of YouTube is no longer the case. It’s been discovered and found-out, and it’s a great success.
BR: MySpace is what AOL was 10 years ago, and we’ve seen what happened to AOL. It’s a reminder that what goes up can come down. But at the same time, as with Google, what goes up may keep going up, and it’s an amazing success story.