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NBCU will 'flex' promotional power for OTT service Peacock amid competition

As NBCUniversal Media LLC gears up for the launch of Peacock next April, the free ad-supported video-on-demand service will benefit from inclusion on parent company Comcast Corp.'s streaming offering for internet-only customers.

NBCU CEO Steve Burke told analysts on the Oct. 24 earnings call that Peacock "will be front and center" on Xfinity Flex, which is included with an Xfinity Internet-only subscription. "It's not only an opportunity for Peacock, but it's a great opportunity for Flex to be able to give a lot of great NBC programming shows like 'The Office' to people at no additional charge."

Burke's comments also came in the context of promotional activity swirling around the direct-to-consumer launches for Apple Inc.'s Apple TV+ and The Walt Disney Co.'s Disney + next month. Additionally, AT&T Inc.'s HBO Max is expected to benefit from promotional support when it debuts next spring.

"This is a moment in time and a lot of people are being very, very aggressive about it," Burke said, adding such activity will occur until there is "an inevitable" market slowdown.

Asked if the bundling of Peacock on Flex could accelerate declines in the traditional video ecosystem, Burke said the "trajectory is pretty clear" as the market is "evolving." Flex is going to have "a targeted focus toward the high-speed Internet-only segment ... We think this is the right step and the right thing for that segment," he said. Comcast initially charged a $5 monthly fee for Flex before switching gears in September. It now offers the service for free.

In terms of product and strategy around Peacock, Burke emphasized NBCU is not chasing Netflix Inc. By leveraging Comcast and Sky’s 55 million subscribers and NBCU as the major TV ad sales outlets in the U.S., he said additional spending on Peacock will be minimized and "we're going to get to cruising altitude much more quickly than a subscription service."

He said Peacock will feature a mix of originals, exclusive acquisitions and a lot of nonexclusive content. Burke noted NBCU will buck the trend in which other media conglomerates are using in-house programming to fuel their direct-to-consumer offerings. To that end, NBCU will keep selling content to other companies, including films in the premium window.

Burke noted that NBCU will "use the [Tokyo Summer] Olympics as a sort of an afterburner" to drive awareness for Peacock, and the platform will "add content pretty significantly throughout 2020."

NBCU's third-quarter revenue decreased 3.5% to almost $8.30 billion from nearly $8.60 billion. Adjusted EBITDA edged up 1.6% to $2.09 billion year over year.

Cable networks revenue dropped 2.8% to $2.77 billion, as content licensing and other revenue fell 27.2%, while distribution revenue grew 1.6%, owing to contractual rate hikes and the timing of renewals, partially countered by a subscriber decline. Ad revenues were consistent with the prior-year period, behind higher rates, offset by audience erosion. Adjusted EBITDA dipped 0.4% to $955.0 million.

Broadcast television revenue was off 9.1% to $2.23 billion. Ad revenue retreated 12.1%, largely tied to lower revenue generated by Telemundo (US)'s coverage of the 2019 FIFA Women's World Cup, when compared to the men's competition the year before. Content licensing declined 17.0%, reflective of the timing of content agreements. Distribution and other revenue advanced 5.8%, owing to higher retransmission-consent fees. Adjusted EBITDA rose 5.1% to $338 million as the unit recorded lower production costs.

As for filmed entertainment, the unit faced difficult comparisons, relative to the performance of "Jurassic World: Fallen Kingdom" in the third quarter of 2018, as revenue receded 6.2% to $1.71 billion. The success of the latest installment of the dinosaur franchise in the year-earlier period resulted in a 28.5% decline in home entertainment revenue and an 8.8% slide in theatrical revenue. Adjusted EBITDA decreased 8.7% to $195.0 million.

The theme park unit registered a 6.8% revenue gain to $1.63 billion.

Parent Comcast reported an overall 21.2% revenue rise in the third quarter to $26.83 billion, with net income attributable to the company of $3.22 billion, or 70 cents per share, up from $2.89 billion, or 62 cents per share, in the year-ago quarter.

The S&P Global Market Intelligence consensus GAAP estimate for the quarter was 67 cents.