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Comcast a better home for NBCU than AT&T is for Time Warner?

Comcast revenue share Q3 2016

Comcast’s investment in X1 is paying off. Not only has it delivered the first Q3 subscriber gain in 10 years, but it will also deliver the first net year gain for the full year in 10 years.

The Q3 2016 video results

As in the second quarter, Comcast turned in very good results in Q3. Video subscribers increased 0.8% (up 32,000, to 22.4M.) However modest the increase, it is worth celebrating. This is the first time video subscribers have increased in the third quarter for 10 years.

Comcast Sub growth 2016

The subscriber results have been very good this year. It looks like the company will finish 2016 with 200,000+ more video customers than at the end of 2015. This will be the first time the company has grown video subscribers on an annual basis since 2006.

Video revenue increased even faster, up 4.5% year-over-year, to reach $5.6B. Average video revenue per subscriber is now $83.1 a month, up $3 over Q3 2015. This increase is well ahead of inflation, which is forecast to be 1.4% this year.

Other Q3 2016 highlights

I’ve talked before about how important NBCU has become to Comcast’s revenue performance. Q3 certainly reinforces that point. NBCU revenue grew an amazing 28% to reach $9.2B. In one quarter, NBCU’s share of Comcast’s total revenue grew from 37% to 43%. Meanwhile, video revenue’s share fell from 29% to 26%. If NBCU continues to grow at this pace, by this time next year it will be generating more than half of Comcast’s revenue!

Broadband subscribers continued growing at 6%, the same as in Q2, to reach 24.3M. Broadband revenue grew faster, at nearly 9% year-over-year, to reach $3.4B. The only black eye for Comcast is in the area of phone service, where it gained just 2,000 subscribers. Revenue actually fell for the first time, down 2.4% year over year. That said, Comcast is planning to introduce its own wireless phone service next year, heavily leveraging its WIFI network.

Comparing Comcast to AT&T

With the announcement of its intention to purchase Time Warner Inc., it’s clear that AT&T is trying to emulate the Comcast model in its market footprint. But will AT&T be a better home for Time Warner Inc. than Comcast is for NBCU?

AT&T is a much more diversified company than Comcast. It had third quarter revenues of $41B. The entertainment group is roughly equivalent to Comcast, absent NBCU. The entertainment group represents just under a third ($12B) of total revenue for AT&T. Business services is the biggest money earner for AT&T, bringing in $17.8B (43% of revenue.) Wireless services generated $8.3B in revenues in Q3 from 54M subscribers.

There are 25.3M video subscribers, of which 20.8M are DirecTV customers. The company has ceased development of U-verse TV and is pushing those subscribers to switch to DirecTV. This seems to be going well, with satellite gaining 320,000 subs and U-verse TV loosing 323,000. The average DirecTV subscriber is paying $120 per month, much higher than the average Comcast video subscriber.

If the deal to buy Time Warner Inc is ratified, the content giant will add around $7B to the entertainment groups quarterly earnings. That will bring revenues to around $20B for the entertainment group, versus Comcast’s $21B.

Can AT&T replicate Comcast’s success with NBCU?

When Comcast took complete control of NBCU in 2013, the content giant was valued at $39B. Since then, Comcast has done an outstanding job helping NBCU expand its business and grow revenue. NBCU is worth far more today than it was in 2013.

AT&T will pay $85.4B for Time Warner. It will also have to expend a great deal of resources to help Time Warner return to robust growth. However, Time Warner will be a much smaller part of AT&T’s overall business than NBCU was when Comcast took control. It could be that Time Warner will not only fail to receive the attention it needs, but also distract AT&T from its main businesses.

Why it matters

Comcast has turned in another good quarter. NBCU grew revenues 28% year-over-year, providing the best performance of all Comcast’s businesses.

Comcast has done an excellent job growing NBCU since it took control in 2013.

AT&T’s entertainment group is similar in size and composition to Comcast, but is only a third of the telecom giant’s business.

Will AT&T give the same level of attention to Time Warner as Comcast has given to NBCU?

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