Burke: NBCU Moving to Close “Monetization Gap”

While at Cable Ops, Programming Costs Will Accelerate in 2013

On the heels of its announcement that it would buy in the rest of the NBC Universal it did not already own, networks chief Steve Burke told analysts Wednesday that affiliate fees and retrans charges will rise at the programmer.

On a conference call with analysts to discuss fourth quarter results, Burke said that one of the top priorities for his division – which includes cable networks like USA Network, Bravo and Syfy as well as the NBC broadcast network and about 24 NBC and Telemundo broadcast stations – is to close the “monetization gap” between affiliate fees and ad revenue at NBCU properties and their peers.

“Our affiliate fees are not what they should be, both in terms of the cable channels and retransmission consent” Burke said on the call. “On the advertising side, our CPMs are lower than some of the other people in the business who have lower ratings than we do. The broadcast business continues to seem like a big opportunity to us, whether it’s the NBC network, our local stations or Telemundo. I think all three of those represent a big opportunity.”

NBC has particularly lagged on the retransmission consent side, according to analysts who have said the stations only started asking for cash for retransmission consent in recent years. They agree that could be a growing source of revenue going forward.

NBCU has struck several comprehensive carriage agreements in the past few months with Cablevision, Mediacom, and Verizon,  which included retransmission consent for its stations as well as carriage of its cable networks.

The broadcast network, hampered by low ratings in the past, showed improvement in the fall quarter, one of its strongest in years. But the absence of some key programming in the latest period – like Sunday Night Football and The Voice – has pressured broadcast ratings.

While Burke makes moves to squeeze more value out of its networks, Comcast Cable CEO Neil Smit is looking for ways to offset what he sees as low double-digit programming costs increases for 2013.

That is up from the 7% rise in programming fees in 2012, Smit said on the call. He added that the rise was anticipated and should be offset by modest rate increases, continued improvements in basic video subscriber losses and cost efficiencies.

Comcast lost about 7,000 basic video customers in the fourth quarter, better than the 17,000 it lost in the same period in 2011 and the ninth consecutive quarter of year-over-year improvements. Smit said Comcast has rolled out its X-1 cloud-based platform in about half of its footprint and expects to expand across the entire company this year. He added that cost efficiencies – it reduced truck rolls by about 4.5 million in 2012 and took 16 million fewer calls at its call centers – should also help drive results.

Comcast said late Tuesday that it will purchase General Electric Co.’s 49% interest in NBCU for about $16.7 billion. The deal is expected to close later in the first quarter. According to its original agreement to enter into the NBCU joint venture in 2009, GE had the right to sell half of its interest to Comcast beginning in July 2014, and the rest of that stake in 2018.

On the conference call, Comcast chief financial officer Michael Angelakis said the deal is a good one for both parties.

“They were expected to receive half of the value of their ownership in 2014, almost two years from now. Then they really had to wait until the early part 2018 to receive the other half,” Angelakis said on the call. “I think from their standpoint they are going to receive a lot of cash, which we know they are going to deploy to other services. From our standpoint, it was an advantage to accelerate that and we received a very fair price. We are quite pleased with the price and how we have structured the transaction as well.”