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For Comcast and Viacom, It’s All About Content

Posted on Tuesday, Nov 24th 2009

The recently released results of most U.S. media companies offered optimistic views for the future and reflected an upbeat quarterly performance. The slowly recovering economy is driving negotiation of big deals within the industry. Comcast, for instance, is looking to purchase a controlling stake in NBC Universal from GE. News Corp and Scripps Network are also competing with each other to purchase the Travel Channel, and there are talks about Viacom and Real Networks restructuring Rhapsody America, their subscription-based online music channel.

Comcast (CMCSA), the country’s largest cable provider, recently announced Q3 performance with revenues of $8.80 billion, which represented 3% growth over the year and EPS of $0.28. The Street was expecting revenues of $8.85 billion with EPS of $0.25. The company’s revenues continued to be impacted by slow ad spend. Revenues from advertising fell 16% over the year, or 10% over the year excluding political spending. This is a marginal improvement from over a quarter ago numbers when advertising revenues had fallen 20%. By segment, video revenues rose marginally to $4.78 billion, while phone revenues rose 20% to $829 million and Internet revenues grew 6% to $1.93 billion.

During the quarter, Comcast reported 361,000 new high-speed Internet customers and 375,000 new digital phone subscribers, offsetting the net loss of 132,000 basic video subscribers. Revenue from video customers grew 3% over the year to $66.84 a month while total average revenue per subscriber for video, phone, and Internet grew 5% to $116.91 from $110.67 a year ago.

In response to the growing popularity of video over the Internet, Comcast is set to launch its own online video service that will give viewers access to content on PCs at no additional charge. By the end of this year, Comcast will be the first cable TV operator in the United States to permit cable content to be aired on the Internet to its subscribers. The company has already tied up with a few cable networks and broadcasters to launch the service known as “On Demand Online”. The password-protected online, on-demand, cable access should help retain cable subscribers while leveraging Comcast’s broadband Internet service.

Additionally, Comcast is looking to enter into a joint venture with NBC Universal’s parent, General Electric, to expand its content library. NBC Universal is valued at nearly $30 billion, and Comcast is rumored to contribute its cable networks, including E! Style, G4, The Golf Channel, and a group of regional sports networks along with the $4 billion-$6 billion cash from their end. NBC Universal is expected to add USA Network, Syfy, Bravo, and CNBC, along with other outlets as their contribution to the venture. Comcast is looking to acquire a 51% stake and operational control of NBCU. However, the deal is currently delayed as the 20% ownership of NBCU is with the French media company Vivendi, which has not yet agreed to the deal. GE, which owns 80% of the network, is open to the deal.

Comcast’s stock is currently trading at $15.01 with a market capitalization of $42.9 billion. Its 52-week high of $18.10 was reached in January.

Viacom (NASDAQ:VIA) too saw a surge in its earnings. Q3 revenues of $3.32 billion fell 3% over the year and just missed the Street’s expected revenues of $3.28 billion. The company’s cost control measures helped to drive EPS to $0.69, significantly higher than the Street’s expected EPS of $0.57.

By segment, media networks revenues were flat at $2.12 billion. The 10% growth in affiliate sales business was offset by lower advertising and ancillary revenues.  During the quarter, ad sales dropped 4% in the United States, compared with the 6% decline in ad sales in Q2. Ancillary revenues fell 3% for the quarter, driven by lower sales of home entertainment and consumer products, which offset the strong revenues generated by the launch of The Beatles: Rock Band game. Film studio revenues fell 6% over the year following a 21% fall in DVD sales.

They continue to invest in content and recently acquired the Teenage Mutant Ninja Turtles franchise for $60 million. Viacom is looking to leveraging this asset across Nickelodeon’s platforms globally on television, in consumer product, online, and on the big screen for Paramount. It is because of this focus on content that Paramount, the second largest studio in the United Sates, “is on track to deliver the highest average domestic box office per picture as any major studio this year.” Viacom also won multiple awards, and their channels took six prime-time Emmy Awards during the quarter. MTV’s Video Awards show also broke records on air and online.

Viacom is working to improve Paramount’s profitability and is identifying efficiencies in the home entertainment sector. The company recently announced the extension of its agreement with Technicolor, which enables Technicolor to master, replicate, package, and distribute SD DVD and BluRay formats for Paramount. Through the agreement, Paramount has streamlined its infrastructure and has managed to take infrastructure costs out of its system permanently. In addition, the new Technicolor agreement will integrate Paramount marketing groups for both theatrical and home entertainment, thus establishing more continuity in the marketing of films throughout multiple windows.

Viacom is also expanding its offering of iPhone applications and is building on the success of apps such as the SpongeBob Tickler, which has already sold over a million downloads. They have new apps scheduled for launch in the coming months based on hit shows such iCarly and VH1’s “I Love the 80s.”

Viacom is also expecting to see growth in its downloadable content business. The company has already have more than 900 songs available for download and expect the number to cross 1,000 by the year-end. Consumers have already paid for more than 60 million downloads to date.

The stock is trading at $31.52, taking its market capitalization to $18.1 billion.

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