Burke: NBCU Cable Nets Can Increase Sub, Ad Fees

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NBCU CEO Steve Burke said the programmer's cable networks generate the lion's share of the company's cash flow, but he believes the unit still has the capacity for growth.

Burke, speaking at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference in Beverly Hills, said that while NBCU’s cable networks generate about 80% of the company’s cash flow, with eight channels each making over $200 million a year, “we don’t think we’ve fully monetized those cable channels.”

He said both affiliate fee revenue and ad rates should be higher.

Cable amelioration notwithstanding, fixing NBC remains NBCUniversal’s top priority, Burke told the investors’ conference Thursday.

Two years after Comcast acquired control of NBCU from GE, Burke said, “We think we’re ahead of where we thought we would be. We feel like we’ve done a lot, made a lot of progress,” adding, “there’s still a lot more to be done.”

Burke said that with Comcast in charge, NBCU’s focus has been moved from short-term results to long-term growth in operating cash flow, as well as taking advantage of the company’s scale by putting its resource behind initiatives like the Olympics, launching shows like The Voice or opening movies like The Lorax.

Burke said that NBC—including the broadcast network, the owned-stations and the syndication business—make “a little money, but not very much.” Its competitors generate between $700 million in OCF and $1.5 billion.

“There’s no reason for that other than we need to make better shows. We need to rebuild NBC brick by brick, which is the process that we’re going through right now,” Burke said. I look at this as a tremendous opportunity. If you have three competitors and doing as well as the worst of the three adds close to a billion in OCF to your company, to me that’s a big opportunity.”

But Burke said it’s an opportunity “you can’t grab in one year.”

Burke said there has already been improvement at the station group, which was making less than $150 million a year and this year will generate more than $400 million. “This is a political year, this is an Olympics year, but we’ve made real progress in fairly short order just by reinvesting in local news and developing syndicated shows like Steve Harvey and really putting our attention back to that broadcast business.”

On the cable side, Burke sees more opportunities.

USA is the top-rated cable network, but “it’s affiliate fees are substantially lower than other general- entertainment cable channels like TBS or TNT,” Burke said. “If you’re looking at advertising, our CPMs for our big cable channels we think in some instances are 25% or 30% below others.”

He said that networks including USA and Bravo “made real progress during this past upfront.”

Burke also said that contracts representing about 25% of NBCU’s cable carriage are up this year, giving the company a chance to increase those rates as well. All of NBCU’s carriage deals expire by 2016.

He added that NBC currently makes “essentially no money on retransmission consent,” compared to CBS which expects to earn more than $250 million in retrans this year.

“There’s really no structural reason why NBC should not make the same amount of money as CBS makes on retransmission consent,” Burke said.

Burke also saw an opportunity for improvement at Telemundo, which makes less than $50 million a year, compared to Univision, which he estimated makes about $900 million a year. “To me that’s an opportunity,” he said. “We’re both programming the same number of hours and the beauty is that once you start to perform, once you start to get the ratings, there’s no increase variable cost at all.”

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