Comcast Corporation (CMCSA) Earnings Call Transcript & Summary

You have super fandom there, obviously. So moving on to -- you mentioned the YouTube relationship. And we're seeing the relationship between media companies and large tech platforms continuing to evolve. So as you move towards -- the whole industry moves more towards rebundling, aggregation, can you talk about what drove the decision to partner with a platform like YouTube?

So I've been in media most of my career, both pay television as well as just the broader media business. And I think if you've been in this industry long enough, you see trends. And so for me, I see a lot of similarity with the streaming market with what I saw with pay television. It feels like back into the future. And so if you rewind the clock, go back 10 years, people were cutting the cord, and they were subscribing to streaming services with the belief that they were going to save money. And so you sign up for a streaming service, but then you quickly realize one streaming service is not going to give you the video calories because the average consumer watches 5 to 6 hours of media a day. So you subscribe to 3, 4 or 5 streaming services. The cost of content has not gone down. It's only gone up. Sports rights have only gone up. And so it was inevitable that retail prices for streaming services would have to go up. That would likely move the market to bundling. The more you get, the better the price. I actually spoke about this back in 2019 where -- before we even launched Peacock, where I said the great unbundling of pay television is likely just going to give rise to the great rebundling of streaming. I think we're in that moment right now. So when we were building Peacock, we were very intentional because doing bundle deals is actually not very complicated. Doing bundling deals where you're getting the right wholesale economics is actually much more difficult because if you don't thread the needle right, then you could be cannibalizing high-ARPU direct-to-consumer subs for what I would say are low-calorie bundled subs. And so we were not going to do that. And so we had spent years really focused on building what I would describe as a healthy base of subscribers on Peacock, taking maximum share of video wallet out of the market by really focusing on our direct-to-consumer business. And we are still focused on growing the direct-to-consumer business. We also wanted to give ourselves time to build our portfolio of content. The one thing that I feel always held the cable bundle together was sports. And so if you're trying to extract maximum wholesale economics through bundling, sports is typically one of the best levers for you to do that. And so 12 months ago, we hit an inflection point on our growth where we activated the second phase of our strategy, which was to start leaning more into strategic wholesale bundles, and we did a deal with Apple. We did the deal with Walmart. We started leaning into channel arrangements, primarily for the ad-free version of Peacock because there's not -- it's only 20% of our subscriber base. And so what you're looking for is incrementality. How do I continue to drive incrementality in a way that also generates positive consumer lifetime value. I think the -- excuse me, I think the YouTube deal is just a manifestation of where we are in this phase of our growth. What was attractive about YouTube is that so much of our content is consumed on YouTube as clips. So you've got viewers that are familiar with our IP, whether it's SNL or whether it's Late Night, but they don't necessarily subscribe to Peacock. So we saw YouTube as an opportunity to partner, to grow the engagement, grow incremental subscribers. This is a way for us to, I think, continue to scale Peacock, but do it in a way that I think is going to be a win-win because YouTube is also a platform that's continuing to grow engagement. And as I said earlier, we're continuing to focus on how do we grow engagement. And so partnering with YouTube, I think, is going to be a mechanism for how we could do that. There's a couple of pieces to the deal that are kind of just worth unpacking at a very high level. The first is this partnership is going to take Peacock Premium, which is the ad tier of Peacock, and it's bundling it with one of the tiers of YouTube Premium. But that is going to add millions of subscribers to Peacock. This could make Peacock one of the top domestic streamers once we launch this with YouTube. The second piece of the deal was to extend the cable and broadcast linear portfolio with YouTube TV. This was critical to us because YouTube TV is the fastest-growing pay TV provider. And by extending the linear portfolio, we're providing stability into the future for the continued growth and health of NBC and Bravo and our cable networks. The third piece was to expand the relationship around advertising with YouTube, both on data as well as deeper integrations with FreeWheel. If we want to monetize our advertising inventory better, this was a critical piece, and we feel really good that the partnership with YouTube is going to allow us to monetize our advertising in a way that's consistent with how we've been going to market with Peacock and NBC to date. And then the fourth is that it provides us a path to continued growth internationally. We have a few smaller streaming services, which we don't talk a lot about publicly. One of them is Hayu, which is predominantly the Bravo unscripted programming which we distribute internationally as a subscription service, and the other is a service called Universal Plus, which is predominantly in LatAm and soon will be in parts of Asia, which is primarily comprised of library, Universal film and TV. And so this partnership allows for bundling of those services with YouTube Premium internationally in select markets, which is going to give us another path for growth. And so we feel excited about this deal. We think YouTube is going to be a great partner. But at the same time, kind of back to where I started, I think as an independent company, we are, I think, able to be more innovative in how we could structure deals. And so what we've done with YouTube, I think, is an example of the type of deals that we would like to do with others as we're looking at continued growth and opportunities into the future.

There's so many aspects of this. I'd love to dive deeper but we don't have the time. I mean the Walmart relationship, there's just so many -- so much to unpack there, but thank you for that.

Well, the thing that's critical about it, Jessica, is that the YouTube agreement doesn't change any of the deals we've done in the market. We're still doing bundled deals. We're still doing various wholesale arrangements. We still have channel arrangements. We're obviously still going to aggressively lean into direct-to-consumer. I think that's one of the elegant aspects of this relationship is that it allows us to build off of what we've done in a material way, but it also allows us to continue to evaluate and look for additional partnerships in the future as well.

No, no. Obviously, it's a massive scaling up of existing assets. But you mentioned the international component. So maybe we can talk a little bit about, Sky is now becoming part of the independent NBCUniversal. How do you think about the international opportunity? Sky was always felt like a little bit of a stepchild, like no attention, but now where does it fit in the NBCU portfolio?

I think Sky, under Dana Strong, I think it represents a really big opportunity for the new NBCUniversal. It gives us more optionality. When you look at NBCUniversal, I think this is stating the obvious, but we are a global company. I mean, NBCUniversal distributes its films internationally, our theme parks are global. We license our content in every major market around the world. We've got linear cable networks that we distribute globally. I just talked about some of our smaller streaming services with Hayu and Universal+. I think Sky becoming part of our portfolio just expand the aperture of opportunity. They have a strong brand. They have deep customer relationships. They've got local expertise. They've got production expertise in sports and news. There's a lot of similarities with NBCUniversal in the Media Group, and what Sky is doing that I think is just going to allow us to be more opportunistic. What I sometimes gets lost is that when you look at the relationship with Sky through the lens of technology and product, the tech stack that we've built for Peacock is the same tech stack and product that Sky uses for the distribution of their streaming service, NOW TV. It's the same tech stack that we've actually scaled in dozens of other countries around the world. And so when Sky does an acquisition with ITV, which we think is going to add significant scale and additional reach digitally for Sky, it also provides different opportunities when how we look at technology and how do we continue driving investment in technology, but get the economies of scale and the benefit. And so when you kind of project out into the future, I feel like we're really well positioned to continue to leverage the playbook that we have in the market. If we believe licensing is going to give us a better return, we're going to lean into licensing on a market-by-market basis. If we think there's opportunity to build streaming, then we're going to lean into doing that, just like I talked about with YouTube. And if we see opportunities for partnership or acquisition like Sky is doing with ITV, then we're going to lean into that. And so maybe this is another example where we've zigged while others have zagged. But make no mistake about it, like our focus is we're looking at this through the lens of getting the best return for our content. And I think we've been very disciplined. We feel good about how we've been able to monetize our content on an international level.

So a couple of areas we need to cover. Sports is one. And you've now had meaningful experience with the NBA on NBC and Peacock. Can you tell us what you've learned so far about the audience advertising demand, subscriber engagement? Are the early results consistent with the assumption you made when you entered into the agreement? Let's start with that.

Well, so we're a year into the NBA partnership, and we couldn't be more excited and happy with the performance. We're pacing ahead of our internal model. The NBA has brought new audiences on to the platform, new advertisers onto the platform. It also filled a very strategic objective of ours, which is we wanted to build continuity for Sunday, right? So we've got NFL, NBA, MLB, we now have a premium lineup throughout the year, which is really critical as you're continuing to build audiences. I think that when you break down the performance of the NBA, if you look at the regular season, we were averaging about 2.8 million viewers. That's roughly double what the NBA was generating for comparable games prior season. The playoffs were over 7 million viewers. The Western Conference finals were -- across NBC and Peacock were the highest rated in 2 decades. And so I give a lot of credit to our sports team, Rick Cordella, Sam Flood. The team that I feel brought the premiumness back for the NBA on NBC and for Peacock, and that's, in turn, brought dozens of advertisers onto the platform. 60% are buying across NBC and Peacock because they want that broader reach. And so we feel good about our ability to continue monetizing the deal. The other aspect of the NBA was the audience. And so the NBA has brought a younger, more diverse audience onto the platform. They're more mobile-centric. 25% are engaging with the product features that we've built for the NBA, which is critical for building that loyalty. About 3/4 of NBA viewers are watching entertainment. Actually, the majority of their entertainment -- of their consumption is entertainment content. And so when I was talking earlier about the interplay between sports to drive acquisition and monetization and then entertainment driving retention and engagement, that flywheel is effectively what's happening with the NBA partnership. And so we feel good about the continued momentum and our ability to continue to get the right return from that partnership.

All right. And obviously, sports has been critical for you guys, but I have to cover a couple of more topics, advertising. Can you give us an update on what you're seeing in the advertising environment today? Where do you see the biggest opportunity for NBCUniversal to take share as viewing continues to move towards streaming and as we discussed live programming?

So I would say that the advertising market is a bit more cautious this year than what we saw in the prior year, but that's really a result of just the macroeconomic environment that we're all navigating through. I think the team under Mark Marshall has done a fantastic job, and we're actually seeing growth in pharma, in financial services, in technology. The advertisers still want broad reach. And we don't sell as Peacock or as NBC or as cable. We sell as one platform, and we've been in the market that way for many years. And I think that, that just plays to our strengths. I think the other aspect that we're seeing in advertising is a real premium that's being put at the moment around live and sports. The Winter Olympics was -- The Milano Cortina Winter Olympics was the highest grossing advertising Winter Olympics we've had in our history. This summer with the World Cup, we had about 120 sponsors that spent double what we saw in 2022. And so we're -- this was probably -- sports and streaming was probably 30% of our advertising business pre-COVID. It's now 60% of our advertising business. So you're going to see us continue to lean into sports and live events is the tip of the spear for where we continue to see growth. Another area is programmatic. That's a business that didn't exist for NBCUniversal 5 years ago. It's now $1 billion and growing. It's also allowing us to further expand the aperture of sponsors and longer-tail sponsors that we can bring on to the platform. And so we're very bullish on that. And I think the other area I would focus on is AI. How do we use AI to create more contextual and personalized advertising. And so -- and here would be an example. Imagine you're watching a show and there's a scene where a family is eating pizza for dinner. And we can use AI to scan the content, look at the metadata and then dynamically insert an ad coming into the break for Pizza Hut or for Domino's. Well, now you're blurring the lines between content and advertising in a way that feels very endemic. That, I think, is a better experience for the consumer, but that also could unlock future opportunities for how we can look at premiums around our inventory to drive additional monetization.

Right, right. I just want to -- one last question on advertising a little deeper. You've increasingly partnered with third-party data, technology and commerce companies to improve targeting, measurement and advertising outcomes. So how important are these partnerships to differentiate NBCU's advertising platform? What capabilities do you believe you need to remain -- like that you need to keep to remain proprietary?

So when you look at advertisers today, I mean, they're much more sophisticated. They want independent measurement. They want to understand that the investments in their advertising are yielding the business outcomes. And they want better control around their -- optimization of their campaigns. I think partnering with third parties is critical. Like we partner with various companies like a VideoAmp or an iSpot. This gives us the ability to have additional analytics and data, which is incredibly valuable for our clients. At the same time, I do think that there are certain aspects that should be proprietary, like our Performance Insights Hub is our platform. And so we take proprietary data, the tools that we've built on our Performance Insights Hub, and then we co-mingle that with the third-party data and insights that we're able to gather. And so now we can provide that to our clients where they can make real-time optimizations to get the best return on their campaigns. And so I think you have to have a balance where the proprietary technology gives us much more control over the product road map and the tools, which can become differentiators for us versus others. But the third-party relationships allow us to enhance the analytics and the performance to ensure that our clients are getting the maximum return on their investment with us.

Okay. We've time for one last topic, which we have to ask the AI question. So when you're thinking about the next 5 years, do you think of Peacock primarily as a streaming service or something broader? And what roles to areas like AI, personalization, which we really didn't get into that much, but personalization, gaming, interactive experiences play into that evolution.

As we only have a few minutes left. I could spend hours talking to you about this. And so I'll try to be concise, but I'm pretty passionate about that question actually. I think that if you were to look 4 or 5 years into the future, I think we're going to say the definition of streaming is going to feel pretty antiquated. I -- if you look at streaming services today, there's more similarity than differences in the experience. The content is organized in rows, you use artwork. It's not that different than Blockbuster a couple of decades ago where people would walk around the perimeter of the store trying to find something to watch. And so I think there is a tremendous opportunity to reimagine the experience for streaming. How do you super-serve fans? And I think you look at evolving streaming into becoming more of an entertainment platform. And so here's an example of what I mean. If you take a show like Love Island, this summer, which was the #1 show, as I mentioned, there are actually certain weeks of the year where the #1 app in the app store was not ChatGPT. It was the Love Island app. I mean this show was a phenomenon. And so what would happen is 6 days a week, people would tune into Peacock at 9:00 Eastern Time, they would watch Love Island. And at the end of an episode, we do what every streaming service does, which is we use an algorithm to say, "Oh, well, you like this show, you might like that show." But what we found is that at the end of the episode, many of those fans didn't want to watch another show like they wanted to continue engaging with Love Island. So what happens? They leave our platform. They go to social media. They're looking for clips, for games, for podcasts. And that is engagement that we built, but we're not monetizing because we're not really providing that level of experience outside the premiumness of the content. And so we've started to look at this several years ago around, well, what does it mean to be an entertainment platform. And so if you stick with Love Island as an example, 30% of the engagement of Love Island was on mobile devices. This is a demographic that's very comfortable with vertical video because they're using social media platforms of vertical video. So we built and introduced vertical video 18 months ago. So now you can watch clips in vertical video, live events in vertical video. We're even producing micro dramas for vertical video. And so we're not creating the behavior. We're tapping into the behavior, but we're moving that engagement back to our platform. Gaming is another area where obviously it's exploding because that's where people are spending more of their time. And so we invested in gaming. So you could watch Wheel of Fortune and Jeopardy! on Peacock or you can play the game on Peacock. We even partnered with Wolf Games to produce a game of Law & Order. You could watch Law & Order or you can actually be the detective and try to solve the crime. We're actually introducing something in later in the -- couple of months called the Bravoverse, where we're using AI to scan thousands and thousands of hours of Bravo library to then create personalized playlists based on the shows you like and the Bravo celebrities you like. And now you can get a new way to experience Bravo and go down the Bravo wormhole, but we can recreate versions of that for SNL or we can create a version of that for The Office, other franchises that have deep catalogs and fandoms. And so you're starting to think differently about ways that you could drive engagement where when you finish an episode, it's not the end, it's the beginning. And then we can introduce more ways for you to engage and give you more things that you love and continue to drive growth and monetization.

There are so many things that you just said, the fandom of -- you have so many titles that have in insane, well intense, however, you wanted to say.

Passionate.

Passionate fans. You have so many titles and then microdramas is the whole area -- another area we didn't even remotely get into. There's just so much opportunity. So anyway, very exciting. Thank you so much for being with us today. Really appreciate it.

Thank you. It's a pleasure.

Thank you.