Comcast (CMCSA +0.98%) has been having an OK year given current circumstances. New high-speed internet customers have been propping up results during the pandemic, which has gone a long way toward offsetting a painful period for the NBC Universal segment -- which has been impacted by the closure of its theme parks, cancellation of sporting events, and delays in movie releases.
But, as indicated by Comcast's management, NBCU could reverse course in 2021 in grand fashion.
Image source: Getty Images.
Universal Studios is an unprofitable burden -- for now
Nearly 60% of Comcast's revenue and over three-quarters of profit are derived from its cable communications segment (which houses internet services). And while this area has been performing well overall in 2020, NBCU still accounts for enough of the Comcast pie to have a substantial negative impact. That was on display during Q3 2020, the typically busy summer months that were supposed to have the added bonus of the Tokyo Summer Olympics broadcast this year. Things obviously didn't go as planned this year, and Comcast's media and entertainment division had a rough go of it in Q3.
|
NBC Universal Segment |
Q3 2020 Revenue |
YOY Change |
Q3 2020 Adjusted EBITDA |
YOY Change |
|---|---|---|---|---|
|
Cable networks |
$2.74 billion |
(1.3%) |
$870 million |
(8.9%) |
|
Broadcast TV |
$2.41 billion |
8.3% |
$436 million |
29% |
|
Filmed entertainment |
$1.28 billion |
(25%) |
$300 million |
53% |
|
Theme parks |
$311 million |
(81%) |
($203 million) |
N/A |
EBITDA = earnings before interest, tax, depreciation, and amortization. Data source: Comcast.
Theme parks are the glaring problem here amid an otherwise decent performance (profitability-wise) everywhere else at NBCU. Theme parks swung from a $731 million adjusted EBITDA gain last year to a $203 million loss this past summer, accounting for nearly all of the NBCU adjusted EBITDA declines during Q3.
However, CEO Brian Roberts indicated things may quickly reverse course next year. Roberts had this to say on the earnings call:
Where we continue to see the most pressure from COVID, is in our theme parks, which were the single biggest drag in the quarter. In fact, excluding this segment NBCUniversal EBITDA would have grown by 9% year-over-year. While it will take some time for the parks to return to historical levels, we have made substantial progress. Universal Orlando and Osaka are operating at limited but growing attendance. And while we don't know when Hollywood might reopen, we remain very bullish on the parks long-term. I am very excited for next year's launch of our frankly incredible new theme park in Beijing.
Put simply, while theme park operations are limited at the moment -- and completely shuttered in California -- the first Universal park in China is still on track to open in the first half of next year. This could be a lucrative market for NBCU. For example, the Fast & Furious movie franchise has been a stable breadwinner in the Middle Kingdom for years, and a park featuring content from the films could draw quite the crowd. And at some point, vacationers will start to trickle back to Universal Studios everywhere else.
Put another way, it can't get much worse than it has been, and any incremental sales from theme parks will have a dramatic affect on the NBCU segment's bottom line.
Segment strength in spite of headwinds
Besides a rally in theme parks, Comcast has other tricks up its sleeve that could start generating returns in 2021. Much like fellow entertainer Disney (DIS 0.85%), NBCU recently restructured its TV businesses. Roberts explained:
In essence, we've done away with the concept of creating a piece of work for a specific network. Our priority is to invest in and create the absolute best content, and ensure that we maximize monetization by choosing the most effective method of distribution, whether it's broadcast, cable networks, Peacock, sales to a third party, or some combination of all four.
Broadcast and cable monetization have been doing just fine despite the challenges this year, but adding Peacock to the mix should help. Debuting nationwide in July, Comcast revealed it had 22 million subscribers, with many more likely on the way since the company recently inked a new deal to get the streaming service on Roku's (ROKU +2.49%) platform. It's yet another way for the TV show- and movie-making division to monetize its content going forward.
Toss in a return of new feature films from a starved global theater industry, and the filmed entertainment segment could also see a rebound in sales in 2021. Compared with theme parks, movies are a minority share of the NBCU operation, but they have been impacted enough to make their pain felt even at the much larger Comcast level overall. With the coming of a new year, though, I expect Comcast's media and entertainment business to have a meaningful recovery and start contributing again to an otherwise-stalwart operation.
