Roberts Sees a Future in the Cloud

X1 Is Just The Start Of Comcast's Out-of-Box Thinking, Says CEO

Comcast chairman and CEO Brian Roberts has a simple benchmark when looking over deals the company has done during the past five decades: Did they buy it right?

Over the past 50 years, Comcast — founded by Roberts’ father, Ralph Roberts, in 1964 with a small system in Tupelo, Miss. — has built a reputation as a consummate dealmaker, but Brian Roberts came into his own when he engineered what was at the time one of the boldest moves of any cable operator in decades — Comcast’s 2002 acquisition of AT&T Broadband. While that deal put Roberts and Comcast on the map, vaulting the then-midsized MSO to No. 1 among the nation’s cable operators with 22 million subscribers, neither he nor the company has taken a breather since.

Comcast next turned its attention to video – it was an early proponent of video-on-demand and has expanded its library to more than 46,000 choices, with monthly customer views more than doubling from 200 million in 2003 to 403 million by 2013. That focus on content has also helped fuel a string of technological services and innovations, from iPad apps and other mobile innovations to its own multiscreen subscription VOD offering, Streampix.

Along the way, Comcast also managed to gain control of one of the top broadcast and cable network properties, NBCUniversal, in a 2009 deal with General Electric that gave the Philadelphia-based MSO 51% control over the NBC broadcast network, Telemundo and top cable networks such as CNBC, Bravo, and Syfy, theme parks and the Universal Studios movie studio.

Comcast surprised some people earlier this year when it bought out the rest of NBCU for about $16.7 billion, more than a year earlier than expected. And though Roberts admits the company made a bet by taking NBCU “all in,” it was another example of that buy-it-right strategy.

In talking about the original NBCU deal, he said Comcast purposefully told Wall Street not to factor in any cost synergies in their models for the deal — that’s how confident he was in his team’s ability to turn NBCU around.

And so far it looks like he has bet right: NBCU’s operating cash flow is up more than 50% since they first proposed the NBCU deal in 2009.

With the NBCU deal behind it and its status as the premiere content and distribution company in the country, Roberts isn’t quite ready to pull up a chair and wax nostalgic. He said in a recent interview that to do so would be to run the risk of losing perspective.

Instead, he is considering sharing one of Comcast’s biggest technological achievements – its X-1 platform, with the rest of the cable industry – a plan still in its preliminary stages that could transform the cable industry, giving operators across the country a standards-based, easily upgradable platform to launch the industry’s next generation of new services. It could be, in the words on some observers, the answer to the scale gap that some operators have lamented, allowing cable operators to roll out products and services all at once, without having to worry about conflicting operating systems and the like.

In short, it could be Roberts’s way of showing how the rest of the cable community can buy it right.

MCN: What’s the most important thing happening in the cable industry?

Brian Roberts: I think that taking the brains out of the box and putting them in the cloud is one of the most exciting things that is happening in our industry. 

Because of this, we’re investing more and speeding up the rollout of X1.

In fact, we went from a business plan this year that said we would roll X1 out in 50% of our markets, to deciding to roll it out across almost 100% of our footprint by the end of 2013. And we are already enhancing the platform with X2, with cloud DVR and with in-home streaming. We have so many features we are hoping to activate that will just light up the experience, and it’s all driven by being in the cloud.

MCN: What keeps you up at night? Intel, Netflix, Google, Sony — do those guys worry you?

BR: When has the cable industry ever been free from the pressure of the next competitor — whether it’s DirecTV, the telephone companies, cord cutting, or now, over the top providers? One of the things that makes the people that work in this industry, and in this company, so amazing is that we just figure it out.

So, I always worry at night, but the company is in a really unique position. We have a mix of assets that I think is really special with our technology platforms and content. On the cable side we are seeing strong momentum thanks to the hard work of Neil Smit and his team. We continue to see improvements across our video business, and are making good headway in reducing subscriber losses. Our broadband business is strong and growing. At some point in the near future, we may have more broadband customers than we have video customers. Broadband just keeps growing and evolving to meet the needs of customers and changing technology, we have increased speed 11 times in 11 years. Our Business Services business is also delivering strong results and impressive growth, and we continue to introduce new products like home security and automation. I couldn’t be more proud of our performance at Comcast Cable.

MCN: What about these newer competitors in the TV industry that appear to be more nimble?

BR: My philosophy for all of Comcast has been to be ready, to be flexible, not to be married to one way of doing things and to be willing to change. And change is hard.

So if anything keeps me up at night, it would be to keep us from getting complacent. But I don’t think that’s happening at all.

MCN: Unlike any other cable operator out there today, you are vertically integrated with distribution and programming. How’s it working?

BR: It’s exciting. The businesses serve the identical consumers and I think having both areas collaborate on innovation positions us very well given how fast the landscape is changing. From a shareholder standpoint, it comes down to, did you buy NBCUniversal at the right time?

When we bought a majority stake in NBCUniversal back in 2009, the economy was at a really low point in the financial crisis. Interest rates were low. We had many questions, like “Would advertising come back?” Now fast-forward to 2013 and looking at the company’s performance, it feels like we did pretty well.

And if you ask me what’s the most important thing to happen in 2013, other than getting named Multichannel News Operator of the Year, it was our decision to buy the other 49% of NBCUniversal from GE. Just two years in, we believe the opportunities for growth and value creation are stronger than we first thought. NBCUniversal’s operating cash flow is up over 50% since we bought it so I think our timing was good.

MCN: You’re feeling good?

BR: Yes. So now shareholders have a company that’s diversified and uniquely positioned as a leader in both content and distribution. And employees are able to move between companies, which gives them more career opportunities.

Here’s an example. This morning at 8 a.m. I met with 13 young professionals who are part of our Financial Management Leadership Program.

Every employee in this program comes from a different part of the company. They do a three-year rotation in everything from Internal Audit, to Universal Theme Parks to Financial Planning. This is a great opportunity for young people to learn about the entire business.

MCN: What do you think is going to happen to sports costs as they continue to increase? And also, just in general, programming costs?

BR: It’s expensive and risky to create content, and that certainly includes sports content.

That being said, I think the entire industry, both programmers and distributors, need to create some flexibility, or find ways to make sure that we have offerings that are affordable and are attractive.

We’ve been having this conversation for many, many years and we will probably continue to have it for many more. I think it’s healthy but it’s also frustrating.

MCN: In terms of TV Everywhere, do you think the industry’s biggest challenge is one of education, measurement or technology rights?

BR: I don’t know that I have the answer. Xfinity TV has been a great success. HBO Go has also had a lot of success. But we all have to keep educating our customers on how they can find the content they love across platforms.

MCN: John Malone has commended you and the company for operational performance and for pushing TV Everywhere. But he also makes a point out that the rest of the industry is behind. Do you agree?

BR: Perhaps X1 can become a platform that others could use. As we figure out what we’re comfortable with, we’re thinking very seriously about how to offer that to anybody that’s interested because if it’s working for us, we’re interested in sharing the intellectual property for some sort of licensing fee or some relationship.

MCN: Comcast has an anniversary coming up, right? Do you get nostalgic as you think back to the company’s early days in Mississippi?

BR: Our 50th anniversary is coming up in a couple of months. It’s certainly fun to reflect back with my father on how far the company has come. But we don’t like to spend a lot of time looking back. If you do that, you will get run over. We are more focused on what’s coming next. But I will say, I still tend to think of us as a small company in Philadelphia.