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Comcast (CMCSA) is a 49-year-old family company that morphed into a media behemoth with the 2011 purchase of NBCUniversal. On the eve of the Olympics, Roberts spoke with Bloomberg Businessweek Chairman Norman Pearlstine about the future of media and relations with 30 Rock.
Why should I be a Comcast subscriber, rather than just getting by with Netflix (NFLX)?
We provide a breadth of live and catch-up content—what we define as this season’s content, none of which is available in the Netflix rerun world. So from broadcast television to sports to news to the Grammys, the Olympics, this season’s episodes of The Voice—all of those pieces of content and thousands of hours per month are not available on Netflix. So with all the press about cord-cutting, facts would say that [Netflix] has really been more additive. There are more multichannel video subscribers today than there were a year ago. People want more control, more choice, and more personalization.
If you look into the future, what is it that I’m going to be able to do in my relationship with Comcast, and what will you be able to bill me for?
I believe television will change more in the next five years than in the last 50. This will be really great for consumers. At Comcast we hope to help shape this future with the innovation we are driving through technology and our smart people. We are going to have a suite of products that you subscribe to—television, high-speed Internet, phone, home security, energy management, maybe even health care—and we are going to have many customers that are going to buy those products directly from us. So the way we are managing the company is to aggressively improve every one of our products while at the same time keeping our eye on maintaining a state-of-the-art network that powers everything we do.
What is it like to be working with Verizon in the wireless space?
It’s been great so far, and I think it will remain so. We created a 50/50 joint venture to try to innovate where wireless and wired products come together—and they just work without you having to do all sorts of control and set up and commands. We want to make it as seamless and as easy for consumers as possible.
I’m a little surprised, knowing how important the name Comcast has been for now almost 50 years, that Xfinity [the brand name for bundled TV, phone, and Internet services] has become much more prominent in terms of your marketing to consumers.
Well, my father [founder Ralph Roberts] was more for the change than you would think, and maybe even more than I was initially. … We were in a marketing meeting about all of our new products and our folks said, “You know, we really are in a different place now than our 50-year history would suggest, and we need to come up with a new consumer name.” Verizon (VZ) had just come out with FiOS, and AT&T (T) had U-verse. We came up with a couple of options, and then our marketing people came in and said, “What do you think of Xfinity?” Comcast is still the marquee name for our company, but I think it really was an opportunity to say, “You know what? We need to communicate to consumers that something has changed.”
What is it about the deal to buy 51 percent of NBCUniversal that made sense? Because around the same time that you were announcing the deal with GE (GE), Time Warner (TWX) was spinning off Time Warner Cable (TWC).
In our case, one of my earliest experiences working in the company was being asked to be on Ted Turner’s board, and I saw that the value creation from owning networks was stunning—new channels, international opportunities, synergy, many things that Turner Broadcasting built for decades. At the same time, John Malone built many wonderful businesses by being both in content and distribution. We had started to invest in content with E!, with the Golf Channel, Comcast SportsNet, and QVC. Every time we put a dollar of our shareholders’ money in, we got $5 or $10 back, and in the case of QVC, we got $8 billion back on a $300 million investment.
So when we looked at NBCUniversal, we saw opportunity. Due to the financial crisis of 2008, advertising was going backwards, but we had a fundamental belief that NBC, CNBC, MSNBC, USA, Syfy, Bravo, Universal Studios, and the theme parks were some of the most cherished brands in American entertainment and news. We created a very unique financial structure that allowed GE to remain for several years as a 49 percent owner, but gave us a 51 percent stake and a 50 percent incentive bonus. So if we could grow the value, we would capture almost 75 percent of it, and the total cash outlay was just a little over $6 billion for all of those wonderful growing yet historic assets.
Also, we thought it was a good time to be a buyer, if you believed in America and that our economy would come back. We also believed that there were real synergies between content and distribution, but we told our investors, “assume zero.” We think we can get an accretive, double-digit rate of return on our investment for the company.
Is there a clear path for achieving 100 percent ownership?
Yes. The structure basically articulates that two and a half years from now we can purchase half of GE’s interest, and in six years we can purchase the remaining part. We’re assuming both parties want that to happen. So it really allowed us to create two balance sheets. Comcast Cable continues to have wonderful free cash flow. As capital spending has come down every year for the last four years as a percentage of revenue, we have been able to reinstitute a dividend and to accelerate our stock buybacks. On the other balance sheet, at NBCUniversal, we are building up cash to be ready to buy out GE and to lever that balance sheet to two and a half or so times debt to cash flow, so that when you put it all together, there should not be any impairment to our ability to continue to return capital to shareholders while buying out the remaining 49 percent of GE’s interest. So NBCUniversal’s cash flow hopefully funds itself over time.
Has the ownership of NBC changed your own personal viewing habits?
Probably. I have to confess, I grew up watching a lot of cable. I now share that with broadcast. I always have loved films and watch a lot of movies. I try to make sure I see most of everything that we make at Universal Studios.
Do you watch Bravo?
I watch some Bravo.
Do you have a favorite housewife?
Do you get involved in decisions at the network level? If Savannah replaces Ann, do you make that call?
I knew about it ahead of time, but I do not make that call. I have tremendous confidence in [NBCUniversal CEO] Steve Burke, who worked 12 years for Disney (DIS) and 12 years for Comcast and grew up in broadcast television with his dad. [Daniel Burke was a former president and CEO of Capital Cities/ABC.] So I have the utmost confidence in Steve’s leadership and the team he relies on. I want all the key folks to know I’m involved and I care, but there should be one leader, and Steve is making those hard calls.
Six billion of cash went into the acquisition. You will spend more than $4 billion on the Olympics between now and 2020. Can you explain that?
While most sports rights have increased dramatically, we paid a 1 percent increase over the prior Olympics for a decade of content and also received all media and technology rights to the Olympics for the next 10 years in the U.S. This means we have the rights to put Olympic content on all devices in and out of the home and even on devices that haven’t yet been invented. And we expect to make a profit on the new Games. For the London Olympics, we have completely transformed the way consumers will view the content with every single sporting event being streamed live, also packaged for prime time, and shown across our cable networks. By way of comparison, for the Atlanta Olympics in 1996, the NBC network broadcast just 176.5 hours. For London, we’re now going to have over 5,500 hours spanning across nine networks, two specialty channels, and the first-ever 3-D platform. Telemundo alone will broadcast 173 hours of Spanish-language coverage. It’s really exciting to be in a position to deliver the best content experience ever to consumers with these games.
How do you make the decision about when to push away from older technologies and jump into funding newer ones?
I don’t think anybody can know when the perfect inflection moment occurs, but for our company it’s occurred. We were the first cable company or phone company to go all digital, and most of our customers now are digital. We invented a very small little box, maybe the size of a smartphone, and have distributed 25 million of them to customers’ homes. It took us a couple of years. But that allowed us to have a lot more bandwidth to go from analog video to digital. We also went to something called DOCSIS 3.0, which allowed us to have the fastest high-speed Internet in the country. We made the bet that we don’t want to hold on too long to the past. The best way for us to get there first was to rip that Band-Aid and go all digital to invest in more broadband. We used our laboratories and the industry’s labs to trial 100 megabits a second of speed. Last year in Chicago, I demonstrated a billion bits a second on our own network. We dealt with lots of negativity questioning what the rate of return would be. All of that is in our past. We made the bet, and now we’re seeing the rewards.
In each of the last seven quarters, we’ve added more new broadband subscribers than the previous quarter. So the pace of change at our company is accelerating, and there has never been a more exciting time to work here. One of the things we’re working on is getting that message not just to consumers, but to people coming out of college who are thinking about their career. We are telling them, “You can work at Comcast NBCUniversal.” We’re creating job rotations across the company where someone could work at 30 Rock as an intern and then work in strategy or product development at cable, or they could go to the movie studio and then to the theme parks. There is no more exciting company in media or technology that touches all parts of where the future is going than Comcast. For the next 10 years, hiring great young talent might be the single most important thing that we can do.
You started as a family business. You now have 125,000 or so full-time employees, plus more if you include the NBCUniversal contract employees. How do you keep that sense of family?
It’s the most important part of what I do, thinking about the culture of the company. What do we stand for? What are our values, and how do you communicate that to today’s employees? Steve really helped figure this out for the company when we bought AT&T Broadband. We had to go into 15 cities in America, major markets like Chicago, San Francisco, and Atlanta, and say, “Congratulations, you’re no longer AT&T. You’re Comcast.” At that time, nobody had heard of Comcast in those cities. We realized that two out of every three employees who work at the company didn’t work for Comcast 18 months ago. So we went to every market. We shut the business down in that city for a day. In some places, we had 5,000 people at an employee event, and we did the best we could to talk about what the company stood for.
My dad would come on stage and talk about what it means to have started a company and in the next generation watch it become one of the largest media companies today. … Only in America! When we bought NBCUniversal, all the employees, close to 25,000, were gathered together by video presence to meet Steve Burke, my father, and me. Again, at the very end of the meeting, my dad came on stage to talk to everyone, and there were not many dry eyes when he finished. He said, “We’re going to try to build something great. We’re going to invest. We won’t always be perfect. We’ll make mistakes. We’ve got to remain true to certain core values, but we’re like a family, albeit pretty large. Like any family, you are allowed to have a little fight with each other, but in the end it’s this family, and we’re all hoping to do well.”
Part of the family tradition of NBC, going back to Johnny Carson’s days, is lampooning the CEO. And as a follower of 30 Rock, I have seen the tradition continue. How do you feel about that?
I did something between signing and closing that Steve thought was a little crazy. I said, “Let’s go visit the set of 30 Rock just to say, ‘Hey, here we are, and we love the show!’ ” We did that, the two of us. And he was right. I’ve been paying for it ever since.