Comcast Waits On NBC Merger; Viacom Focuses On International Expansion

Cord cutters are troubling the U.S. cable television market: A recent report by SNL Kagan indicates that the total number of TV subscribers for cable, satellite, and telecom operators fell by 119,000 in Q3 compared with a gain of 346,000 subscribers a year ago. While telecom and satellite providers did get more subscribers, cable television providers saw the subscribers’ base falling by 741,000. This is the largest decline in subscribers in 30 years.

Comcast’s Financials
Comcast (NASDAQ:CMCSA) alone lost 275,000 basic cable subscribers during the quarter. Yet the company managed to surpass market expectations. Q3 revenues of $9.5 billion were 7.3% higher than a year ago and exceeded the market’s projected revenues of $9.36 billion. Cable segment revenues grew 7% over the year to $9 billion driven by 27% growth in advertising revenues. EPS of $0.32 was also better than the Street’s projected EPS of $0.30. Comcast repurchased 17.5 million shares for $300 million in the quarter.

Comcast’s Xfinity TV
Comcast recently released Xfinity TV, their version of the online on demand service. All of the company’s digital video customers will have access to Xfinity’s online library of over 150,000 shows. They also released the Xfinity iPad app, which is a free app that lets users browse and view content besides acting as a remote to program their DVR devices. The application has been rolled out for the iPad, but Comcast is already developing an app for Android, BlackBerry, and other smartphones, tablets, and computers.

Comcast–NBC Merger
The company is hopeful that regulatory issues regarding the NBC merger will be resolved soon; the deal is already costing Comcast big money. During the quarter, they incurred an additional $21 million in costs on the transaction. To pay for the merger, Comcast also raised £625 million (~$ 1.0 billion) in a bond sale. This was Comcast’s first such sale in pound sterling. If the deal goes through, Comcast will have control of the television network NBC, broadcast stations, MSNBC and USA Network, and a partial share of Hulu.

Comcast’s stock is trading at $20.38 with a market capitalization of $57.2 billion. It touched a 52-week high of $21.19 earlier this month.

Viacom’s Financials
Viacom’s Q3 revenues grew 5% over the year to $3.33 billion driven by growth in Media Networks and Filmed Entertainment. EPS of $0.75 grew 6% over the previous year’s $0.71. The Street was expecting revenues of $3.3 billion with EPS of $0.68.

Media Networks revenues grew 8% over the year to $2.13 billion with Worldwide Advertising revenues growing 7% over the year and domestic ad revenues 8% in the quarter. Worldwide affiliate revenues increased 10% to $799 million and ancillary revenues increased 1% in the quarter to $160 million. Filmed Entertainment revenues grew 1% in the quarter to $1.23 billion driven by 18% growth in television license fees and a 3% improvement in theatrical revenues.  However, worldwide Home Entertainment revenues of $406 million fell 13% over the year.

Viacom changed their fiscal year end to September 30th from this year. For the year, the company reported revenues of $9.34 billion with EPS of $1.88.

Viacom Plans to Sell Harmonix
Viacom recently decided to discontinue operations for Harmonix, the developer of their Rock Band series and Dance Central. Viacom had purchased Harmonix in 2006 for $175 million and had helped MTV to develop a gaming platform. However, despite positive reviews for the game, Viacom feels that the division was not in line with their core strategy of developing branded content. According to analysts, music games are generally are not expected to do well this year, with sales dropping to $500 million for the year compared with $1.7 billion in 2008.

Viacom’s Growth Strategy
Viacom is focusing on international expansion and is targeting central and eastern Europe, the Middle East, Asia, and Africa. In India, they already have a strong presence through Colors, a general entertainment Hindi-language channel. Earlier this year, they had purchased a 9% stake in Rotana, a major TV and radio network in the Middle East. Earlier this quarter, Nick acquired Winx Club TV rights for the U.S. and the pay-TV rights for Latin America, Canada, the United Kingdom, Australia, New Zealand, and Benelux. Winx Club features the adventures of six fairies and is popular with young girls around the world. The new partnership gives Nickelodeon, the number-one global brand for kids, access to the existing Winx Club TV series and two theatrical films.

The stock is trading at $44.13 with a market capitalization to $22.9 billion. It touched a 52-week high of $45.68 earlier this month.