filings.toolsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
| Introduction |
Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes to enhance the understanding of our operations and our present business environment. Components of management’s discussion and analysis of financial condition and results of operations include:
| • | Overview |
| • | Results of Operations |
| • | Non-GAAP Financial Measures |
| • | Liquidity and Capital Resources |
| • | Contractual Obligations |
| • | Off-Balance Sheet Arrangements |
| • | Recent Accounting Pronouncements |
| • | Critical Accounting Judgments and Estimates |
| Overview |
We are a global media and technology company with three primary businesses: Comcast Cable, NBCUniversal and Sky. We present our operations for (1) Comcast Cable in one reportable business segment, referred to as Cable Communications; (2) NBCUniversal in four reportable business segments: Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks (collectively, the “NBCUniversal segments”); and (3) Sky in one reportable business segment. Following October 9, 2018, Sky’s results of operations are included in our consolidated results of operations. For more information about our company’s operations, see Item 1: Business. Additionally, refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the fiscal year 2018 compared to fiscal year 2017.
| Consolidated Revenue, Net Income Attributable to Comcast Corporation and Adjusted EBITDA(a) |
| (in billions) |
| Revenue | Net Income Attributable to Comcast Corporation | Adjusted EBITDA |
| (a) | Adjusted EBITDA is a financial measure that is not defined by generally accepted accounting principles in the United States (“GAAP”). Refer to the “Non-GAAP Financial Measure” section on page 51 for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income attributable to Comcast Corporation to Adjusted EBITDA. |
| 32 | Comcast 2019 Annual Report on Form 10-K |
| 2019 Consolidated Operating Results by Segment(a) |
| Revenue | Adjusted EBITDA |
| (a) | Charts exclude the results of NBCUniversal Headquarters and Other, Corporate and Other, and eliminations. |
2019 Developments
The following are the more significant developments in our businesses during 2019:
Cable Communications Segment
| • | Revenue increased 3.7% to $58.1 billion, reflecting increases in high-speed internet, business services and wireless revenue, partially offset by declines in advertising, video and voice revenue |
| • | Adjusted EBITDA increased 7.3% to $23.3 billion |
| • | Operating margin increased from 38.7% to 40.1%, reflecting increases in revenue from high-speed internet and business services and decreases in losses in our wireless business, partially offset by higher technical and product support expenses |
| • | Capital expenditures decreased 10.5% to $6.9 billion, reflecting lower spending on scalable infrastructure and customer premise equipment, partially offset by an increase in support capital |
NBCUniversal Segments
| • | Total NBCUniversal revenue decreased 5.0% to $34.0 billion and total NBCUniversal Adjusted EBITDA increased 2.0% to $8.8 billion |
| • | Broadcast Television and Cable Networks segments revenue decreased 10.3% to $10.3 billion and 2.2% to $11.5 billion, respectively, reflecting the impact of our broadcasts of the 2018 PyeongChang Olympics and 2018 Super Bowl; excluding revenue associated with the 2018 PyeongChang Olympics and 2018 Super Bowl, Cable Networks and Broadcast Television segments revenue increased 1.0% and 0.1%, respectively, with the increase in Cable Networks primarily due to increases in distribution revenue, partially offset by decreases in content licensing revenue |
| • | Filmed Entertainment segment revenue decreased 9.2% to $6.5 billion, reflecting lower theatrical, home entertainment and other revenue, partially offset by an increase in content licensing |
| • | Theme Parks segment revenue increased 4.4% to $5.9 billion, reflecting increased guest spending and higher attendance in 2019 due, in part, to natural disasters that negatively impacted attendance in Japan in 2018 |
| • | Announced that Universal Orlando Resort is building an additional theme park named Universal’s Epic Universe |
Sky Segment
| • | Sky’s results of operations for the full year 2019 are included in our consolidated results, with revenue of $19.2 billion and Adjusted EBITDA of $3.1 billion |
| • | On a pro forma basis, Sky revenue decreased 3.0% to $19.2 billion. Excluding the impact of foreign currency, pro forma Sky revenue increased 1.7% primarily due to increases in content and direct-to-consumer revenues, partially offset by a decrease in advertising revenue |
| • | On a pro forma basis, Sky Adjusted EBITDA increased 7.1% to $3.1 billion. Excluding the impact of foreign currency, pro forma Sky Adjusted EBITDA increased 12.2% primarily due to contract termination costs and costs related to a settlement in the prior year period. |
| Comcast 2019 Annual Report on Form 10-K | 33 |
Other
| • | Corporate and Other revenue decreased 35.0% to $333 million primarily due to the sale of a controlling interest in our arena management-related businesses in the second quarter of 2018 |
| • | Corporate and Other Adjusted EBITDA losses increased 12.9% to $880 million primarily due to costs associated with the development of Peacock |
| • | Announced Peacock, our direct-to-consumer streaming service that will feature NBCUniversal content, which is expected to be launched in 2020 |
| • | Entered into a series of agreements in May 2019 with Disney, whereby Disney assumed full operational control of Hulu, LLC (“Hulu”) in exchange for certain put and call provisions regarding our ownership interest, and in August 2019, we received proceeds of $5.2 billion from a collateralized obligation secured by the proceeds guaranteed under the put and call provisions |
| • | Repaid $15.6 billion of debt, including senior notes and term loans, and net repayments of commercial paper, which were funded with cash on hand, proceeds from the collateralized obligation related to Hulu and proceeds from the $4.8 billion issuance of senior notes in November 2019 |
Competition
The results of operations of our reportable business segments are affected by competition, as all of our businesses operate in intensely competitive, consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services, and entertainment, news and information content to consumers. Technological changes are further intensifying and complicating the competitive landscape and challenging existing business models. In particular, consumers are increasingly turning to online sources for viewing and purchasing content, which has and likely will continue to reduce the number of our video customers and subscribers to our cable networks even as it makes high-speed internet services more important to consumers. In addition, the increasing number of entertainment choices available to consumers has intensified audience fragmentation and disaggregated the way that content traditionally has been viewed by consumers. This increase has caused and likely will continue to cause audience ratings declines at our programming channels.
For additional information on the competition our businesses face, see Item 1: Business and Item 1A: Risk Factors. Within the Business section, refer to the “Competition” discussion, and within the Risk Factors section, refer to the risk factors entitled “Our businesses operate in highly competitive and dynamic industries, and our businesses and results of operations could be adversely affected if we do not compete effectively.” and “Changes in consumer behavior driven by online video distribution platforms for viewing content continue to adversely affect our businesses and challenge existing business models.”
Seasonality and Cyclicality
Each of our businesses is subject to seasonal and cyclical variations. See Item 1: Business and refer to the “Seasonality and Cyclicality” discussion within that section for additional information.
| 34 | Comcast 2019 Annual Report on Form 10-K |
| Consolidated Operating Results |
| Year ended December 31 (in millions, except per share data) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | $ | 108,942 | $ | 94,507 | $ | 85,029 | 15.3 | % | 11.1 | % | |||
| Costs and Expenses: | |||||||||||||
| Programming and production | 34,440 | 29,692 | 25,355 | 16.0 | 17.1 | ||||||||
| Other operating and administrative | 32,807 | 28,094 | 25,449 | 16.8 | 10.4 | ||||||||
| Advertising, marketing and promotion | 7,617 | 7,036 | 6,519 | 8.2 | 7.9 | ||||||||
| Depreciation | 8,663 | 8,281 | 7,914 | 4.6 | 4.6 | ||||||||
| Amortization | 4,290 | 2,736 | 2,216 | 56.8 | 23.5 | ||||||||
| Other operating gains | — | (341 | ) | (442 | ) | NM | NM | ||||||
| Total costs and expenses | 87,817 | 75,498 | 67,011 | 16.3 | 12.7 | ||||||||
| Operating income | 21,125 | 19,009 | 18,018 | 11.1 | 5.5 | ||||||||
| Interest expense | (4,567 | ) | (3,542 | ) | (3,086 | ) | 28.9 | 14.8 | |||||
| Investment and other income (loss), net | 438 | (225 | ) | 421 | 294.6 | (153.4 | ) | ||||||
| Income before income taxes | 16,996 | 15,242 | 15,353 | 11.5 | (0.7 | ) | |||||||
| Income tax (expense) benefit | (3,673 | ) | (3,380 | ) | 7,569 | 8.7 | (144.7 | ) | |||||
| Net income | 13,323 | 11,862 | 22,922 | 12.3 | (48.2 | ) | |||||||
| Less: Net income attributable to noncontrolling interests and redeemable subsidiary preferred stock | 266 | 131 | 187 | 102.7 | (29.8 | ) | |||||||
| Net income attributable to Comcast Corporation | $ | 13,057 | $ | 11,731 | $ | 22,735 | 11.3 | % | (48.4 | )% | |||
| Basic earnings per common share attributable to Comcast Corporation shareholders | $ | 2.87 | $ | 2.56 | $ | 4.83 | 12.1 | % | (47.0 | )% | |||
| Diluted earnings per common share attributable to Comcast Corporation shareholders | $ | 2.83 | $ | 2.53 | $ | 4.75 | 11.9 | % | (46.7 | )% | |||
| Adjusted EBITDA(a) | $ | 34,258 | $ | 30,165 | $ | 27,956 | 13.6 | % | 7.9 | % |
All percentages are calculated based on actual amounts. Minor differences may exist due to rounding.
Percentage changes that are considered not meaningful are denoted with NM.
| (a) | Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measure” section on page 51 for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income attributable to Comcast Corporation to Adjusted EBITDA. |
The comparability of our consolidated results of operations was impacted by the Sky transaction in the fourth quarter of 2018. Sky’s results of operations are included in our consolidated financial statements following the October 9, 2018 acquisition date.
Consolidated Revenue
The following graph illustrates the contributions to the increases in consolidated revenue made by our Cable Communications, NBCUniversal and Sky segments, as well as by Corporate and Other activities including eliminations.
| Comcast 2019 Annual Report on Form 10-K | 35 |
The primary drivers of the change in revenue from 2018 to 2019 were as follows:
| • | Our acquisition of Sky in the fourth quarter of 2018, resulting in the inclusion of a full year of results for 2019 |
| • | Growth in our Cable Communications segment driven by increased revenue from residential high-speed internet, business services and wireless, partially offset by decreased revenue from advertising, video and voice |
| • | A decrease in NBCUniversal revenue primarily due to the absence of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl |
Revenue for our segments and other businesses are discussed separately below under the heading “Segment Operating Results.”
Consolidated Costs and Expenses
The following graph illustrates the contributions to the increases in consolidated operating costs and expenses, representing total costs and expenses excluding depreciation and amortization expense and other operating gains, made by our Cable Communications, NBCUniversal and Sky segments, as well as by Corporate and Other activities, including eliminations.
The primary drivers of the change in operating costs and expenses from 2018 to 2019 were as follows:
| • | Our acquisition of Sky in the fourth quarter of 2018, resulting in the inclusion of a full year of results for 2019 |
| • | A decrease in NBCUniversal programming and production expenses primarily due to the absence of expenses associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl |
| • | An increase in technical and product support costs in our Cable Communications segment |
Operating costs and expenses for our segments and our corporate operations, business development initiatives and other businesses are discussed separately below under the heading “Segment Operating Results.”
| Consolidated Depreciation and Amortization Expense | |||||||||||||
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Cable Communications | $ | 7,994 | $ | 8,262 | $ | 8,019 | (3.2 | )% | 3.0 | % | |||
| NBCUniversal | 2,129 | 2,108 | 2,041 | 0.9 | 3.3 | ||||||||
| Sky | 2,699 | 539 | — | NM | NM | ||||||||
| Corporate and Other | 131 | 108 | 70 | 21.4 | 56.3 | ||||||||
| Comcast Consolidated | $ | 12,953 | $ | 11,017 | $ | 10,130 | 17.6 | % | 8.8 | % |
Percentage changes that are considered not meaningful are denoted with NM.
Consolidated depreciation and amortization expense increased in 2019 primarily due to the acquisition of Sky in the fourth quarter of 2018, with a full year of expense included in our results of operations for 2019. Additionally, during the first quarter of 2019, we recorded adjustments to the purchase price allocation of Sky, primarily related to intangible assets and property and equipment. This change resulted in an adjustment recorded in the first quarter of 2019 related to the fourth quarter of 2018 that increased depreciation and amortization expense by $53 million.
| 36 | Comcast 2019 Annual Report on Form 10-K |
Cable Communications depreciation and amortization expense decreased due to lower spending on scalable infrastructure and customer premise equipment, partially offset by an increase in support capital. NBCUniversal depreciation and amortization expense was flat in 2019.
Amortization expense from acquisition-related intangible assets, such as customer relationships, totaled $2.0 billion, $1.1 billion and $824 million for 2019, 2018 and 2017, respectively. Amounts primarily relate to customer relationship intangible assets recorded in connection with the Sky transaction in the fourth quarter of 2018 (see Note 8 to Comcast’s consolidated financial statements) and the NBCUniversal transaction in 2011.
Consolidated Other Operating Gains
Consolidated other operating gains for 2018 included $200 million related to the sale of a controlling interest in our arena management-related businesses in Corporate and other (see Note 10 to Comcast’s consolidated financial statements) and $141 million related to the sale of a business in our Filmed Entertainment segment.
Consolidated Interest Expense
Interest expense increased in 2019 compared to 2018 primarily due to increases in our debt outstanding associated with the financing of and debt assumed in connection with the Sky transaction in the fourth quarter of 2018, as well as a $56 million charge related to the early redemption of debt that was recorded in the third quarter of 2019.
Consolidated Investment and Other Income (Loss), Net
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | ||||||
| Equity in net income (losses) of investees, net | $ | (505 | ) | $ | (364 | ) | $ | 107 | |
| Realized and unrealized gains (losses) on equity securities, net | 656 | (187 | ) | (17 | ) | ||||
| Other income (loss), net | 287 | 326 | 331 | ||||||
| Total investment and other income (loss), net | $ | 438 | $ | (225 | ) | $ | 421 |
Equity in Net Income (Losses) of Investees, Net
The change in equity in net income (losses) of investees, net in 2019 compared to 2018 was primarily due to our equity method investments in Hulu and Atairos Group, Inc. (“Atairos”). The losses at Hulu were primarily due to programming, advertising and marketing costs, and higher other administrative expenses. Atairos follows investment company accounting and records its investments at their fair values each reporting period with the net gains or losses reflected in its statement of income. We recognize our share of these gains and losses in equity in net income (losses) of investees, net. The income (losses) at Atairos were driven by fair value adjustments on its underlying investments. The table below summarizes the equity in net income (losses) of Hulu and Atairos in 2019, 2018 and 2017.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | ||||||
| Hulu | $ | (473 | ) | $ | (454 | ) | $ | (276 | ) |
| Atairos | $ | (64 | ) | $ | (31 | ) | $ | 281 |
Realized and Unrealized Gains (Losses) on Equity Securities, Net
The change in realized and unrealized gains (losses) on equity securities, net in 2019 compared to 2018 was primarily due to gains of $293 million related to our interest in Snap, which was sold in 2019, compared to losses of $268 million in 2018, and unrealized gains of $184 million related to our investment in Peloton Interactive, Inc. (“Peloton”).
Other Income (Loss), Net
The change in other income (loss), net in 2019 compared to 2018 was primarily due to the recognition of $219 million of gains related to the dilution of our Hulu ownership and $90 million of losses due to the impairment of an equity method investment. See Note 10 to Comcast’s consolidated financial statements and Note 9 to NBCUniversal’s consolidated financial statements for further information.
| Comcast 2019 Annual Report on Form 10-K | 37 |
| Consolidated Income Tax (Expense) Benefit |
Income tax (expense) benefit reflects an effective income tax rate that differs from the federal statutory rate primarily due to state and foreign income taxes and adjustments associated with uncertain tax positions. Our effective income tax rate in 2019 and 2018 was 21.6% and 22.2%, respectively.
In 2019, the effective income tax rate included $125 million of benefits related to state income tax adjustments recognized in the third quarter of 2019.
In 2018, the effective income tax rate included the effects of an income tax benefit of $244 million recognized during the fourth quarter of 2018 related to a reduction of our net deferred tax liability as a result of the acquisition of Sky and $128 million recognized during the first quarter of 2018 related to the enactment of additional federal tax legislation in 2018, partially offset by $148 million of income tax expense due to state and federal tax law changes that were enacted in the third quarter of 2018.
| Consolidated Net Income Attributable to Noncontrolling Interests and Redeemable Subsidiary Preferred Stock |
The increase in net income attributable to noncontrolling interests and redeemable subsidiary preferred stock in 2019 compared to 2018 was primarily due to an increase in the redemption value of one of our noncontrolling interests.
| Segment Operating Results |
Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use Adjusted EBITDA as the measure of profit or loss for our operating segments. Adjusted EBITDA is defined as net income attributable to Comcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. Adjusted EBITDA for our segments is not a non-GAAP financial measure. We reconcile the aggregate amount of Adjusted EBITDA for our reportable business segments to consolidated income before income taxes in the notes to our consolidated financial statements (see Note 2 to Comcast’s consolidated financial statements and NBCUniversal’s consolidated financial statements).
Beginning in the first quarter of 2019, Comcast Cable’s wireless phone service and certain other Cable-related business development initiatives are presented in the Cable Communications segment. Results were previously presented in Corporate and Other. Prior periods have been adjusted to reflect this presentation.
| 38 | Comcast 2019 Annual Report on Form 10-K |
| Cable Communications Segment Results of Operations |
| Revenue and Adjusted EBITDA | Residential Customer Relationships | |
| (in billions) | (in millions) |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | |||||||||||||
| Residential: | |||||||||||||
| High-speed internet | $ | 18,752 | $ | 17,144 | $ | 15,681 | 9.4 | % | 9.3 | % | |||
| Video | 22,270 | 22,455 | 22,874 | (0.8 | ) | (1.8 | ) | ||||||
| Voice | 3,879 | 3,960 | 4,090 | (2.1 | ) | (3.2 | ) | ||||||
| Wireless | 1,167 | 890 | 329 | 31.2 | 170.3 | ||||||||
| Business services | 7,795 | 7,129 | 6,437 | 9.3 | 10.7 | ||||||||
| Advertising | 2,465 | 2,795 | 2,450 | (11.8 | ) | 14.1 | |||||||
| Other | 1,754 | 1,660 | 1,538 | 5.7 | 7.9 | ||||||||
| Total revenue | 58,082 | 56,033 | 53,399 | 3.7 | 4.9 | ||||||||
| Operating costs and expenses | |||||||||||||
| Programming | 13,389 | 13,249 | 12,907 | 1.1 | 2.7 | ||||||||
| Technical and product support | 7,973 | 7,569 | 6,846 | 5.3 | 10.6 | ||||||||
| Customer service | 2,494 | 2,536 | 2,509 | (1.6 | ) | 1.1 | |||||||
| Advertising, marketing and promotion | 4,014 | 4,002 | 3,866 | 0.3 | 3.5 | ||||||||
| Franchise and other regulatory fees | 1,582 | 1,578 | 1,590 | 0.2 | (0.8 | ) | |||||||
| Other | 5,364 | 5,418 | 5,126 | (1.0 | ) | 5.7 | |||||||
| Total operating costs and expenses | 34,816 | 34,352 | 32,844 | 1.4 | 4.6 | ||||||||
| Adjusted EBITDA | $ | 23,266 | $ | 21,681 | $ | 20,555 | 7.3 | % | 5.5 | % |
| Comcast 2019 Annual Report on Form 10-K | 39 |
| Customer Metrics | ||||||||||||
| Net Additions | ||||||||||||
| (in thousands) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||
| Customer relationships | ||||||||||||
| Residential customer relationships | 29,149 | 28,109 | 27,185 | 1,040 | 925 | 651 | ||||||
| Business services customer relationships | 2,396 | 2,303 | 2,179 | 94 | 123 | 135 | ||||||
| Total customer relationships | 31,545 | 30,412 | 29,364 | 1,134 | 1,048 | 787 | ||||||
| Residential customer relationships mix | ||||||||||||
| One product customers | 10,247 | 9,015 | 8,174 | 1,232 | 840 | 418 | ||||||
| Two product customers | 8,923 | 8,992 | 9,018 | (69 | ) | (25 | ) | 221 | ||||
| Three or more product customers | 9,979 | 10,102 | 9,993 | (123 | ) | 110 | 13 | |||||
| High-speed internet | ||||||||||||
| Residential customers | 26,414 | 25,097 | 23,863 | 1,317 | 1,234 | 1,036 | ||||||
| Business services customers | 2,215 | 2,125 | 2,006 | 89 | 120 | 132 | ||||||
| Total high-speed internet customers | 28,629 | 27,222 | 25,869 | 1,406 | 1,353 | 1,168 | ||||||
| Video | ||||||||||||
| Residential customers | 20,288 | 20,959 | 21,303 | (671 | ) | (344 | ) | (186 | ) | |||
| Business services customers | 966 | 1,027 | 1,054 | (61 | ) | (27 | ) | 35 | ||||
| Total video customers | 21,254 | 21,986 | 22,357 | (733 | ) | (370 | ) | (151 | ) | |||
| Voice | ||||||||||||
| Residential customers | 9,934 | 10,153 | 10,316 | (218 | ) | (163 | ) | (231 | ) | |||
| Business services customers | 1,342 | 1,297 | 1,236 | 46 | 60 | 96 | ||||||
| Total voice customers | 11,276 | 11,449 | 11,552 | (173 | ) | (103 | ) | (135 | ) | |||
| Security and automation | ||||||||||||
| Security and automation customers | 1,375 | 1,317 | 1,131 | 59 | 186 | 239 | ||||||
| Wireless | ||||||||||||
| Wireless lines | 2,052 | 1,236 | 381 | 816 | 854 | 381 |
Customer metrics are presented based on actual amounts. Minor differences may exist due to rounding. Customer relationships represent the number of residential and business customers that subscribe to at least one of our services. One product, two product, and three or more product customers represent residential customers that subscribe to one, two, or three or more of our services, respectively. For MDUs, including buildings located on college campuses, whose residents have the ability to receive additional services, such as additional programming choices or our HD or DVR services, we count and report customers based on the number of potential billable relationships within each MDU. For MDUs whose residents are not able to receive additional services, the MDU is counted as a single customer. Residential high-speed internet and video customers as of December 31, 2019 included prepaid customers totaling approximately 196,000 and 7,000, respectively. Wireless lines represent the number of activated eligible wireless devices on customers’ accounts. Individual customer relationships may have multiple wireless lines.
| 2019 | 2018 | 2017 | |||||||
| Average monthly total revenue per customer relationship | $ | 156.24 | $ | 156.23 | $ | 153.60 | |||
| Average monthly Adjusted EBITDA per customer relationship | $ | 62.59 | $ | 60.45 | $ | 59.13 |
Average monthly total revenue per customer relationship is impacted by rate adjustments and changes in the types and levels of services received by our residential and business services customers, as well as changes in advertising revenue. While revenue from our residential high-speed internet, video and voice services are also impacted by changes in the allocation of revenue among services sold in a bundle, the allocation does not impact average monthly total revenue per customer relationship.
Each of our services has a different contribution to operating margin. We use average monthly Adjusted EBITDA per customer relationship to evaluate the profitability of our customer base across our service offerings. We believe this metric is useful particularly as we continue to focus on growing our higher-margin businesses, including residential high-speed internet and business services.
Cable Communications Segment – Revenue
We are a leading provider of high-speed internet, video, voice, wireless, and security and automation services to residential customers in the United States under the Xfinity brand; we also provide these and other services to business customers and sell advertising. We generate revenue primarily from residential and business customers that subscribe to our services, which we market individually and as bundled services. We also generate revenue from selling through our allocation of scheduled advertising time on cable networks that is received as part of distribution agreements with these networks to local, regional and national advertisers.
| 40 | Comcast 2019 Annual Report on Form 10-K |
High-Speed Internet
We offer high-speed internet services with downstream speeds that range up to 1 gigabit per second (“Gbps”) and fiber-based speeds that range up to 2 Gbps. We also deploy wireless gateways to customers that combine an internet and voice modem with a Wi-Fi router to deliver reliable internet speeds and enhanced coverage through an in-and-out-of-home Wi-Fi network. Customers with xFi-enabled wireless gateways may also personalize and manage their Wi-Fi network remotely, which includes viewing and changing their Wi-Fi password, identifying which devices are connected to their in-home network, setting parental controls and schedules, advanced security, as well as other features. We believe our customer base will continue to grow as consumers choose our high-speed internet service and seek higher-speed offerings.
Revenue increased in 2019 primarily due to an increase in the number of residential high-speed internet customers. The remaining increase in revenue in 2019 was due to an increase in average rates.
Video
We offer a broad variety of video services packages that may include premium networks, pay-per-view services and our On Demand service. Our video customers may also subscribe for additional fees to our HD and DVR services.
Revenue was flat in 2019 primarily due to a decline in the number of residential video customers, offset by an increase in average rates.
We have experienced, and expect that we will continue to experience, declines in the number of residential video customers due to competitive pressures, and we expect that our video revenue will continue to decline as a result of the competitive environment and shifting video consumption patterns. We believe our X1 platform helps us compete more effectively against this competition, and have also continued to employ sales and marketing programs, such as promotions, bundled service offerings and service offerings targeted at specific market segments.
Voice
We offer voice services that provide local and long-distance calling and other related features.
Revenue decreased in 2019 primarily due to a decline in the number of residential voice customers.
We expect that the number of residential voice customers and voice revenue will continue to decline.
Wireless
We offer wireless phone services to customers that may choose to pay for services on an unlimited data plan or per gigabyte of data used.
Revenue increased in 2019 primarily due to an increase in the number of customer lines.
Business Services
We offer a variety of products and services to businesses. Our service offerings for small business locations primarily include high-speed internet services, as well as voice and video services, that are similar to those provided to residential customers, as well as cloud-based cybersecurity services, wireless backup connectivity, advanced Wi-Fi solutions, video monitoring services and cloud-based services that provide file sharing, online backup and web conferencing, among other features. We also offer Ethernet network services that connect multiple locations and provide higher downstream and upstream speed options to medium-sized customers and larger enterprises, as well as advanced voice services, along with video solutions that serve hotels and other large venues. In addition, we provide cellular backhaul services to mobile network operators to help them manage their network bandwidth.
We have expanded our service offerings to include a software-defined networking product for medium-sized and enterprise customers. Larger enterprises may also receive support services related to Wi-Fi networks, router management, network security, business continuity risks and other services. These service offerings are primarily provided to Fortune 1000 companies and other large enterprises with multiple locations.
Revenue increased in 2019 primarily due to an increase in the number of customers receiving our services and an increase in average rates.
Advertising
As part of our distribution agreements with cable networks, we generally receive an allocation of scheduled advertising time that is sold through our advertising business to local, regional and national advertisers. In most cases, the available advertising units are sold by our sales force. In some cases, we work with representation firms as an extension of our sales force to sell a portion of the advertising units allocated to us. We also represent the advertising sales efforts of other multichannel video providers in some markets. In addition, we generate revenue from the sale of advertising on our digital platforms. We also provide technology, tools, data-driven services and marketplace solutions to customers in the media industry, which allow advertisers to more effectively
| Comcast 2019 Annual Report on Form 10-K | 41 |
engage with their target audiences. Revenue is affected by the strength of the advertising market, general economic conditions, and cyclicality related to political campaigns and issue-oriented advertising.
Revenue decreased in 2019 primarily due to a decrease in political advertising revenue. Excluding political advertising revenue, advertising revenue was consistent with the prior year.
In 2019, 5% of our advertising revenue was generated from our NBCUniversal segments, compared to 4% and 5% in 2018 and 2017, respectively. These amounts are eliminated in our consolidated financial statements but are included in the amounts presented above.
Other
Other revenue primarily includes revenue related to our security and automation services. We also receive revenue related to residential customer late fees and from other services, such as the licensing of our technology platforms to other multichannel video providers.
Revenue increased in 2019 primarily due to an increase in revenue from our security and automation services and the timing of the licensing of our technology platforms to other multichannel video providers.
Cable Communications Segment – Operating Costs and Expenses
Programming Expenses
Programming expenses, which represent our most significant operating expense, are the fees we incur to provide content to our customers. These expenses are affected by the programming license fees charged by content providers, the fees charged for retransmission of the signals from local broadcast television stations, the number of customers we serve and the amount of content we provide.
Programming expenses increased in 2019 primarily due to an increase in retransmission consent and sports programming fees, partially offset by a decline in the number of video subscribers.
We anticipate that our programming expenses will increase at rates higher than those experienced in 2019, due to the timing of contract renewals in 2020.
Technical and Product Support Expenses
Expenses include costs to complete service call and installation activities, as well as costs for network operations, product development, fulfillment and provisioning, as well as the cost of wireless handsets and tablets sold to customers and monthly wholesale wireless access fees.
Expenses increased in 2019 primarily due to expenses related to the continued development, deployment and support of our products and services, expenses related to the continued growth in business services, and increased costs associated with our wireless phone service. Wireless phone service costs increased primarily due to an increase in the number of lines.
Customer Service Expenses
Expenses include the personnel and other costs associated with handling the sale of services to customers and customer service activity.
Expenses decreased in 2019 primarily due to lower personnel costs as a result of decreased customer call activity.
Advertising, Marketing and Promotion Expenses
Expenses include the costs associated with attracting new customers and promoting our service offerings.
Expenses were flat in 2019 primarily due to an increase in spending associated with attracting new customers, offset by the absence of advertising expenses associated with the 2018 PyeongChang Olympics.
Franchise and Other Regulatory Fees
Franchise and other regulatory fees represent the fees we are required to pay to federal, state and local authorities under the terms of our cable franchise agreements.
Franchise and other regulatory fees were flat in 2019.
Other Expenses
Expenses primarily include personnel costs, advertising expenses, and building and facilities costs.
Other operating costs and expenses decreased in 2019 primarily due to increased costs incurred in the prior year as we continued to scale our wireless phone service, partially offset by higher personnel costs in the current year.
| 42 | Comcast 2019 Annual Report on Form 10-K |
Cable Communications Segment – Operating Margin
Our operating margin is Adjusted EBITDA as a percentage of revenue. The most significant operating costs and expenses are the programming expenses we incur to provide content to our video customers, which increased 1.1% in 2019.
Our operating margin was 40.1%, 38.7% and 38.5% in 2019, 2018 and 2017, respectively. We continue to focus on growing our higher-margin businesses, particularly residential high-speed internet and business services, and on improving losses related to our wireless phone service and overall operating cost management. Losses from our wireless phone service were $401 million, $743 million and $480 million in 2019, 2018 and 2017, respectively.
| NBCUniversal Segments Overview |
| 2019 NBCUniversal Segments Operating Results(a) |
| Revenue | Adjusted EBITDA |
(a) Charts exclude the results of NBCUniversal Headquarters, other, and eliminations.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | |||||||||||||
| Cable Networks | $ | 11,513 | $ | 11,773 | $ | 10,497 | (2.2 | )% | 12.2 | % | |||
| Broadcast Television | 10,261 | 11,439 | 9,563 | (10.3 | ) | 19.6 | |||||||
| Filmed Entertainment | 6,493 | 7,152 | 7,595 | (9.2 | ) | (5.8 | ) | ||||||
| Theme Parks | 5,933 | 5,683 | 5,443 | 4.4 | 4.4 | ||||||||
| Headquarters, other and eliminations | (233 | ) | (286 | ) | (262 | ) | NM | NM | |||||
| Total revenue | $ | 33,967 | $ | 35,761 | $ | 32,836 | (5.0 | )% | 8.9 | % | |||
| Adjusted EBITDA | |||||||||||||
| Cable Networks | $ | 4,444 | $ | 4,428 | $ | 4,053 | 0.4 | % | 9.3 | % | |||
| Broadcast Television | 1,730 | 1,657 | 1,251 | 4.4 | 32.5 | ||||||||
| Filmed Entertainment | 833 | 734 | 1,276 | 13.5 | (42.5 | ) | |||||||
| Theme Parks | 2,455 | 2,455 | 2,384 | — | 3.0 | ||||||||
| Headquarters, other and eliminations | (690 | ) | (676 | ) | (746 | ) | NM | NM | |||||
| Total Adjusted EBITDA | $ | 8,772 | $ | 8,598 | $ | 8,218 | 2.0 | % | 4.6 | % |
Percentage changes that are considered not meaningful are denoted with NM.
| Comcast 2019 Annual Report on Form 10-K | 43 |
| Cable Networks Segment Results of Operations |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | |||||||||||||
| Distribution | $ | 6,790 | $ | 6,826 | $ | 6,081 | (0.5 | )% | 12.3 | % | |||
| Advertising | 3,478 | 3,587 | 3,359 | (3.0 | ) | 6.8 | |||||||
| Content licensing and other | 1,245 | 1,360 | 1,057 | (8.5 | ) | 28.6 | |||||||
| Total revenue | 11,513 | 11,773 | 10,497 | (2.2 | ) | 12.2 | |||||||
| Operating costs and expenses | |||||||||||||
| Programming and production | 5,107 | 5,357 | 4,599 | (4.7 | ) | 16.5 | |||||||
| Other operating and administrative | 1,499 | 1,453 | 1,326 | 3.2 | 9.5 | ||||||||
| Advertising, marketing and promotion | 463 | 535 | 519 | (13.6 | ) | 3.2 | |||||||
| Total operating costs and expenses | 7,069 | 7,345 | 6,444 | (3.8 | ) | 14.0 | |||||||
| Adjusted EBITDA | $ | 4,444 | $ | 4,428 | $ | 4,053 | 0.4 | % | 9.3 | % |
Cable Networks Segment – Revenue
Distribution
Revenue is generated from the distribution of our cable network programming to traditional and virtual multichannel video providers and is affected by the number of subscribers receiving our cable networks and the fees we charge per subscriber.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Distribution | $ | 6,790 | $ | 6,826 | $ | 6,081 | (0.5 | )% | 12.3 | % | |||
| Distribution, excluding 2018 PyeongChang Olympics | 6,790 | 6,590 | 6,081 | 3.0 | 8.4 |
Revenue was flat in 2019 compared to 2018, which included the revenue associated with our broadcast of the 2018 PyeongChang Olympics. Excluding $236 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, distribution revenue increased in 2019 compared to 2018 primarily due to increases in the contractual rates charged under distribution agreements and the timing of contract renewals, partially offset by increased declines in the number of subscribers at our cable networks.
Advertising
Revenue is generated from the sale of advertising units sold on our cable networks and digital properties. Advertising revenue is primarily based on the price we charge for each advertising unit, which is generally based on audience ratings, the value of our viewer demographics to advertisers and the number of advertising units we can place in our cable networks’ programming schedules. Advertising revenue is affected by the audience ratings of our programming, the strength of the national advertising market and general economic conditions.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Advertising | $ | 3,478 | $ | 3,587 | $ | 3,359 | (3.0 | )% | 6.8 | % | |||
| Advertising, excluding 2018 PyeongChang Olympics | 3,478 | 3,445 | 3,359 | 1.0 | 2.6 |
Revenue decreased in 2019 primarily due to the absence of revenue associated with our broadcast of the 2018 PyeongChang Olympics. Excluding $142 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, advertising revenue increased reflecting higher prices for advertising units sold, partially offset by declines in audience ratings at our networks.
Content Licensing and Other
Revenue is generated primarily from the licensing of our owned programming in the United States and internationally to cable and broadcast networks and subscription video on demand services, as well as from the sale of our owned programming on DVDs and through digital distribution services such as iTunes. In addition, our cable television studio production operations generate revenue from programming the studio produces for third-party networks and for subscription video on demand services.
Revenue decreased in 2019 primarily due to the timing of content provided under our licensing agreements.
In 2019, 2018 and 2017, 15%, 14% and 15%, respectively, of our Cable Networks segment revenue was generated from our Cable Communications segment. These amounts are eliminated in Comcast’s consolidated financial statements but are included in the amounts presented above.
| 44 | Comcast 2019 Annual Report on Form 10-K |
Cable Networks Segment – Operating Costs and Expenses
Programming and Production Costs
Costs include the amortization of owned and acquired programming, sports rights, direct production costs, residual and participation payments, production overhead, costs associated with the distribution of our programming to third-party networks and other distribution platforms, and on-air talent costs.
Costs decreased in 2019 primarily due to the absence of costs associated with our broadcast of the 2018 PyeongChang Olympics.
Other Operating and Administrative Expenses
Other operating and administrative costs and expenses include salaries, employee benefits, rent and other overhead expenses.
Expenses increased in 2019 primarily due to higher employee-related costs and increases in costs associated with our various digital properties.
Advertising, Marketing and Promotion Expenses
Expenses consist primarily of the costs associated with promoting programming on our cable networks and digital properties.
Expenses decreased in 2019 primarily due to lower spending on marketing related to our programming and digital properties, as well as the absence of spending on marketing related to the 2018 PyeongChang Olympics.
| Broadcast Television Segment Results of Operations |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | |||||||||||||
| Advertising | $ | 5,712 | $ | 7,010 | $ | 5,654 | (18.5 | )% | 24.0 | % | |||
| Content licensing | 2,157 | 2,182 | 2,114 | (1.1 | ) | 3.2 | |||||||
| Distribution and other | 2,392 | 2,247 | 1,795 | 6.4 | 25.2 | ||||||||
| Total revenue | 10,261 | 11,439 | 9,563 | (10.3 | ) | 19.6 | |||||||
| Operating costs and expenses | |||||||||||||
| Programming and production | 6,547 | 7,789 | 6,440 | (15.9 | ) | 20.9 | |||||||
| Other operating and administrative | 1,564 | 1,547 | 1,391 | 1.1 | 11.1 | ||||||||
| Advertising, marketing and promotion | 420 | 446 | 481 | (5.9 | ) | (7.3 | ) | ||||||
| Total operating costs and expenses | 8,531 | 9,782 | 8,312 | (12.8 | ) | 17.7 | |||||||
| Adjusted EBITDA | $ | 1,730 | $ | 1,657 | $ | 1,251 | 4.4 | % | 32.5 | % |
Broadcast Television Segment – Revenue
Advertising
Revenue is generated from the sale of advertising units sold on our broadcast networks, owned local broadcast television stations and digital properties. Advertising revenue is primarily based on the price we charge for each advertising unit, which is generally based on audience ratings and the value of our viewer demographics to advertisers, and the number of advertising units we can place in our broadcast networks’ and owned local television stations’ programming schedules. Advertising revenue is affected by the strength of the national and local advertising markets, general economic conditions, cyclicality related to political campaigns and issue-oriented advertising, and the success and ratings of our programming.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Advertising | $ | 5,712 | $ | 7,010 | $ | 5,654 | (18.5 | )% | 24.0 | % | |||
| Advertising, excluding 2018 PyeongChang Olympics and 2018 Super Bowl | 5,712 | 5,929 | 5,654 | (3.7 | ) | 4.9 |
Revenue decreased in 2019 primarily due to the absence of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl. Excluding $1.1 billion of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl, advertising revenue decreased due to the absence of revenue associated with Telemundo’s broadcast of the 2018 FIFA World Cup RussiaTM, as well as the impact of continued declines in audience ratings, partially offset by higher pricing for advertising units sold.
| Comcast 2019 Annual Report on Form 10-K | 45 |
Content Licensing
Revenue is generated from the licensing of our owned programming in the United States and internationally to various distribution platforms, including to cable and broadcast networks, and to subscription video on demand services. In addition, our broadcast television studio production operations develop and produce original content that they license to broadcast networks, cable networks and local broadcast television stations owned by us and third parties, as well as to subscription video on demand services. The production and distribution costs related to our owned programming generally exceed the revenue generated from the initial network license, which means the subsequent licensing of our owned programming series following the initial network license is critical to their financial success.
Content licensing revenue decreased in 2019 primarily due to the timing of content provided under our licensing agreements.
Distribution and Other
We generate distribution and other revenue primarily from fees for retransmission consent of our owned local broadcast television stations and associated fees received from NBC-affiliated local broadcast television stations, as well as from the sale of our owned programming on DVDs and through digital distribution services. The sale of our owned programming is driven primarily by the popularity of our broadcast networks and programming series and therefore fluctuates based on consumer spending and acceptance. Distribution and other revenue also includes distribution revenue associated with our periodic broadcasts of the Olympic Games.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Distribution and other | $ | 2,392 | $ | 2,247 | $ | 1,795 | 6.4 | % | 25.2 | % | |||
| Distribution and other, excluding 2018 PyeongChang Olympics | 2,392 | 2,135 | 1,795 | 12.0 | 19.0 |
Revenue increased in 2019 primarily due to increases in fees recognized under our retransmission consent agreements, which was partially offset by the absence of $112 million of revenue resulting from our broadcast of the 2018 PyeongChang Olympics.
Broadcast Television Segment – Operating Costs and Expenses
Programming and Production Costs
Expenses relate to content that originates on our broadcast networks and owned local broadcast television stations, as well as owned content that is licensed to third parties. These costs include the amortization of owned and acquired programming costs, sports rights, direct production costs, residual and participation payments, production overhead, costs associated with the distribution of our programming to third-party networks and other distribution platforms, and on-air talent costs.
Expenses decreased in 2019 primarily due to the absence of costs associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl.
Other Operating and Administrative Expenses
Other operating and administrative costs and expenses include salaries, employee benefits, rent and other overhead expenses. Expenses increased in 2019 primarily due to increases in overhead expenses, partially offset by decreases in employee-related costs.
Advertising, Marketing and Promotion Expenses
Expenses consist primarily of the costs associated with promoting our owned and acquired television programming, as well as the marketing of DVDs and costs associated with our digital properties. These expenses decreased in 2019 primarily due to decreased spending on marketing related to our sports and local programming.
| 46 | Comcast 2019 Annual Report on Form 10-K |
| Filmed Entertainment Segment Results of Operations |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | |||||||||||||
| Theatrical | $ | 1,469 | $ | 2,111 | $ | 2,192 | (30.4 | )% | (3.7 | )% | |||
| Content licensing | 3,045 | 2,899 | 2,956 | 5.1 | (1.9 | ) | |||||||
| Home entertainment | 957 | 1,048 | 1,287 | (8.7 | ) | (18.6 | ) | ||||||
| Other | 1,022 | 1,094 | 1,160 | (6.7 | ) | (5.7 | ) | ||||||
| Total revenue | 6,493 | 7,152 | 7,595 | (9.2 | ) | (5.8 | ) | ||||||
| Operating costs and expenses | |||||||||||||
| Programming and production | 2,949 | 3,446 | 3,500 | (14.4 | ) | (1.5 | ) | ||||||
| Other operating and administrative | 1,131 | 1,189 | 1,260 | (4.9 | ) | (5.7 | ) | ||||||
| Advertising, marketing and promotion | 1,580 | 1,783 | 1,559 | (11.4 | ) | 14.3 | |||||||
| Total operating costs and expenses | 5,660 | 6,418 | 6,319 | (11.8 | ) | 1.6 | |||||||
| Adjusted EBITDA | $ | 833 | $ | 734 | $ | 1,276 | 13.5 | % | (42.5 | )% |
Filmed Entertainment Segment – Revenue
Theatrical
Revenue is generated from the worldwide theatrical release of our produced and acquired films for exhibition in movie theaters and is significantly affected by the timing of each release and the number of films we distribute, as well as their acceptance by audiences. Theatrical revenue is also affected by the number of exhibition screens, ticket prices, the percentage of ticket sale retention by the exhibitors and the popularity of competing films at the time our films are released. The success of a film in movie theaters is a significant factor in determining the revenue a film is likely to generate in succeeding distribution platforms.
Revenue decreased in 2019 primarily due to the strength and volume of releases in our 2018 film slate, partially offset by the releases in our 2019 film slate. The following key titles released in each respective fiscal year were contributors to the drivers of changes in theatrical revenue:
| Worldwide Theatrical Releases | |
| 2019 | 2018 |
| Fast & Furious: Hobbs & Shaw | Jurassic World: Fallen Kingdom |
| How to Train Your Dragon: The Hidden World | Dr. Seuss’ The Grinch |
| Secret Life of Pets 2 | Mamma Mia! Here We Go Again |
| Us | Fifty Shades Freed |
Content Licensing
Revenue is generated primarily from the licensing of our produced and acquired films to cable, broadcast and premium networks, and to subscription video on demand services.
Revenue increased in 2019 primarily due to the timing of when content was made available under licensing agreements.
Home Entertainment
Revenue is generated from the sale of our produced and acquired films on DVDs to retail stores and rental kiosks, and through digital distribution services and video on demand services provided by multichannel video providers. Revenue is significantly affected by the timing and number of our releases and their acceptance by consumers. Release dates are determined by several factors, including the timing of the exhibition of a film in movie theaters, holiday periods and the timing of competitive releases. The overall DVD market continues to experience declines due to the maturation of the DVD format from increasing shifts in consumer behavior toward digital distribution services and subscription rental services, both of which generate less revenue per transaction than DVD sales, as well as due to piracy.
| Comcast 2019 Annual Report on Form 10-K | 47 |
Revenue decreased in 2019 primarily due to higher sales of 2018 releases in the prior year period, partially offset by sales of 2019 releases in the current year period. The following key titles released in each respective fiscal year were contributors to the drivers of changes in home entertainment revenue:
| Home Entertainment Releases | |
| 2019 | 2018 |
| How to Train Your Dragon: The Hidden World | Jurassic World: Fallen Kingdom |
| Fast & Furious: Hobbs & Shaw | Fifty Shades Freed |
| Dr. Seuss’ The Grinch | Mamma Mia! Here We Go Again |
Other
Revenue is generated from Fandango, our movie ticketing and entertainment business, consumer products, the production and licensing of live stage plays, and the distribution of filmed entertainment produced by third parties.
Revenue decreased in 2019 primarily due to a decrease in revenue from consumer products and the absence of revenue associated with the sale of a business in 2018, partially offset by an increase in revenue from our movie ticketing and entertainment business.
Filmed Entertainment Segment – Operating Costs and Expenses
Programming and Production Costs
Expenses include the amortization of capitalized film production and acquisition costs, residual and participation payments, and distribution expenses. Residual payments represent amounts payable to individuals hired under collective bargaining agreements to work on productions and are calculated based on post-theatrical revenue. Participation payments are primarily based on film performance and represent contingent consideration payable to creative talent, to third parties that have entered into cofinancing agreements with us and to other parties involved in the production of a film. The costs associated with producing films have generally increased in recent years and may continue to increase in the future.
Expenses decreased in 2019 due to higher amortization of film production costs in 2018 compared to 2019.
Other Operating and Administrative Expenses
Expenses include salaries, employee benefits, rent and other overhead expenses.
Expenses decreased in 2019 primarily due to the absence of expenses associated with the sale of a business in 2018.
Advertising, Marketing and Promotion Expenses
Expenses consist primarily of expenses associated with advertising for our theatrical releases and the marketing of our films on DVDs and in digital formats. We incur significant marketing expenses before and throughout the release of a film in movie theaters. As a result, we typically incur losses on a film prior to and during the film’s exhibition in movie theaters and may not realize profits, if any, until the film generates home entertainment and content licensing revenue. The costs associated with marketing films have generally increased in recent years and may continue to increase in the future.
Expenses decreased in 2019 primarily due to higher spending on the marketing of releases in the prior year.
| Theme Parks Segment Results of Operations |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | $ | 5,933 | $ | 5,683 | $ | 5,443 | 4.4 | % | 4.4 | % | |||
| Operating costs and expenses | 3,478 | 3,228 | 3,059 | 7.7 | 5.5 | ||||||||
| Adjusted EBITDA | $ | 2,455 | $ | 2,455 | $ | 2,384 | — | % | 3.0 | % |
Theme Parks Segment – Revenue
Revenue is generated primarily from guest spending at Universal theme parks. Guest spending includes ticket sales and in-park spending on food, beverages and merchandise. Guest spending depends heavily on the general environment for travel and tourism, including consumer spending on travel and other recreational activities.
Revenue increased in 2019 due to increases in guest spending driven by new attractions, such as Hagrid’s Magical Creatures Motorbike AdventureTM in Orlando, and also higher attendance due, in part, to natural disasters that negatively impacted attendance in Japan in 2018.
| 48 | Comcast 2019 Annual Report on Form 10-K |
Theme Parks Segment – Operating Costs and Expenses
Expenses consist primarily of theme park operations, including repairs and maintenance and related administrative expenses; food, beverage and merchandise costs; labor costs; and sales and marketing costs.
Expenses increased in 2019 primarily due to higher costs to operate the parks and attractions.
| NBCUniversal Headquarters, Other and Eliminations |
Expenses incurred by our NBCUniversal businesses include overhead, personnel costs and costs associated with corporate initiatives. Expenses increased in 2019 primarily due to higher employee-related costs.
| Sky Segment Results of Operations |
Sky’s results of operations are included in our consolidated financial statements following the October 9, 2018 acquisition date, impacting the comparability of results of operations from fiscal year 2018 to fiscal year 2019, and as a result, actual growth rates are not meaningful.
The discussion below compares Sky’s actual results for 2019 to pro forma results for 2018. The pro forma segment information includes adjustments as if the Sky transaction occurred on January 1, 2017. Pro forma data is also adjusted for the effects of acquisition accounting and eliminating the costs and expenses directly related to the transaction, but does not include adjustments for costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the Sky business since January 1, 2017, nor of our future results.
| 2019 | 2018 | % Change 2018 to 2019 | ||||||||||||||||
| Year ended December 31 (in millions) | Actual | Actual October 9 to December 31 | Pro Forma Adjustments(a) | Pro Forma Combined | Pro Forma Combined Growth | Constant Currency Growth**(b)** | ||||||||||||
| Revenue | ||||||||||||||||||
| Direct-to-consumer | $ | 15,538 | $ | 3,632 | $ | 12,445 | $ | 16,077 | (3.4 | )% | 1.4 | % | ||||||
| Content | 1,432 | 304 | 944 | 1,248 | 14.7 | 19.7 | ||||||||||||
| Advertising | 2,249 | 651 | 1,838 | 2,489 | (9.6 | ) | (5.4 | ) | ||||||||||
| Total revenue | 19,219 | 4,587 | 15,227 | 19,814 | (3.0 | ) | 1.7 | |||||||||||
| Operating costs and expenses | ||||||||||||||||||
| Programming and production | 8,865 | 2,137 | 6,685 | 8,822 | 0.5 | 5.4 | ||||||||||||
| Direct network costs | 1,746 | 399 | 1,225 | 1,624 | 7.5 | 12.3 | ||||||||||||
| Other | 5,509 | 1,359 | 5,115 | 6,474 | (14.9 | ) | (10.8 | ) | ||||||||||
| Total operating costs and expenses | 16,120 | 3,895 | 13,025 | 16,920 | (4.7 | ) | (0.1 | ) | ||||||||||
| Adjusted EBITDA | $ | 3,099 | $ | 692 | $ | 2,202 | $ | 2,894 | 7.1 | % | 12.2 | % |
All percentages are calculated based on actual amounts. Minor differences may exist due to rounding.
| (a) | Pro forma amounts include the results of operations for Sky for the period January 1, 2018 through October 8, 2018, as well as acquisition accounting adjustments. |
| (b) | Constant currency growth is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section on page 51 for additional information, including our definition and our use of constant currency, and for a reconciliation of Sky’s constant currency growth rates. |
| Customer Metrics | ||||||||
| Net Additions | ||||||||
| 2019 | 2018 | 2019 | 2018 | |||||
| (in thousands) | Actual | Actual | Actual | Pro Forma | ||||
| Total customer relationships | 23,994 | 23,600 | 394 | 735 |
Sky customer relationships represent the number of residential retail customers that subscribe to at least one of Sky’s four primary services of video, high-speed internet, voice and wireless phone service. Commercial retail customers include hotels, bars, workplaces and restaurants with an active subscription for the purpose of providing Sky services to customers. Sky reports commercial customers based on the number of commercial agreements per venue in the U.K., a residential equivalent unit based upon the multiple of residential customer revenue in Italy and the number of active venues (bars and restaurants) or rooms (hotels and clinics) in Germany.
| Comcast 2019 Annual Report on Form 10-K | 49 |
| 2019 | 2018 | % Change 2018 to 2019 | ||||||||
| Actual | Pro Forma | Pro Forma Growth | Constant Currency Growth**(a)** | |||||||
| Average monthly direct-to-consumer revenue per customer relationship | $ | 54.41 | $ | 57.67 | (5.7 | )% | (1.0 | )% |
| (a) | Constant currency growth is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section on page 51 for additional information, including our definition and our use of constant currency, and for a reconciliation of Sky’s constant currency growth rates. |
Average monthly direct-to-consumer revenue per customer relationship is impacted by rate adjustments and changes in the types and levels of services received by Sky’s customers. Each of Sky’s services has a different contribution to Adjusted EBITDA.
Sky Segment – Revenue
Direct-to-Consumer
Revenue is derived from subscription and transactional revenue from residential and business customers. Subscription revenue includes revenue from residential and business subscribers to video, high-speed internet, voice and wireless phone services, including OTT subscriptions and income from set-top boxes, wireless phone handset and tablet sales, installation, service calls and warranties. Transactional revenue includes the purchase of physical and digital content, OTT daily and weekly passes, and pay-per-view programming.
Revenue decreased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue increased primarily due to increases in customer relationships, partially offset by decreases in average revenue per customer relationship.
Content
Revenue is derived from the distribution of Sky’s owned television channels on third-party platforms and the licensing of owned and acquired programming to third-party video providers.
Revenue increased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue increased reflecting the wholesaling of sports programming, including exclusive sports rights acquired in Italy and Germany and the monetization of Sky’s slate of original programming.
Advertising
Revenue is derived from the sale of advertising and sponsorships across Sky’s owned television channels and where it represents the sales efforts of third-party channels.
Revenue decreased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue decreased reflecting the impact of changes in legislation related to gambling advertisements in the U.K. and Italy that occurred in the third quarter of 2019, as well as overall market weakness.
Sky Segment – Operating Costs and Expenses
Programming and Production Costs
Expenses primarily relate to content originating on Sky’s channels. These costs include the amortization of owned and acquired programming costs, sports rights, direct production costs, residual and participation payments, production overhead, and on-air talent costs. These expenses also include the fees associated with programming distribution agreements for channels owned by third parties, which are generally based on the number of customers who are able to watch the programming and the platforms on which the content is provided.
Expenses were flat in 2019 compared to 2018. Excluding the impact of foreign currency, expenses increased primarily due to an increase in the cost of sports programming contracts.
Direct Network Costs
Expenses primarily include costs directly related to the supply of high-speed internet and voice services, including wireless phone services, to Sky’s customers. This includes call costs, monthly wholesale access fees and other variable costs associated with Sky’s network. In addition, it includes the cost of mobile handsets sold to customers.
Expenses increased in 2019 compared to 2018. Excluding the impact of foreign currency, expenses increased primarily due to increases in costs associated with Sky’s wireless phone service as a result of increases in the number of customers receiving the service.
| 50 | Comcast 2019 Annual Report on Form 10-K |
Other Expenses
Expenses include costs related to marketing, fees paid to third-party channels where Sky represents the advertising sales efforts, subscriber management, supply chain, transmission, technology, fixed networks and general administrative costs.
Expenses decreased in 2019 compared to 2018. Excluding the impact of foreign currency, expenses decreased primarily due to contract termination costs and costs related to a settlement in the prior year, and a favorable settlement in the current year.
We anticipate that expenses will increase in 2020 compared to 2019 due to the launch of high-speed internet service in Italy, as well as continued acceleration of Sky Q across all of our markets.
| Corporate and Other Results of Operations |
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | % Change 2018 to 2019 | % Change 2017 to 2018 | ||||||||
| Revenue | $ | 333 | $ | 513 | $ | 864 | (35.0 | )% | (40.7 | )% | |||
| Operating costs and expenses | 1,393 | 1,772 | 1,973 | (21.3 | ) | (10.2 | ) | ||||||
| Adjustment for legal settlement | — | (125 | ) | (250 | ) | NM | NM | ||||||
| Adjustment for Sky transaction-related costs | (180 | ) | (355 | ) | — | NM | NM | ||||||
| Adjusted EBITDA | $ | (880 | ) | $ | (779 | ) | $ | (859 | ) | (12.9 | )% | 9.3 | % |
Percentage changes that are considered not meaningful are denoted with NM.
Corporate and Other – Revenue
Revenue primarily relates to Comcast Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center arena in Philadelphia, Pennsylvania.
Revenue decreased in 2019 primarily due to the sale of a controlling interest in our arena management-related businesses in the second quarter of 2018.
Corporate and Other – Operating Costs and Expenses
Expenses primarily include overhead, personnel costs, the costs of other business initiatives, such as the development of Peacock and operating costs and expenses associated with Comcast Spectacor.
Expenses decreased in 2019 primarily due to costs directly related to the Sky transaction and a legal settlement in the prior year, as well as the absence of costs associated with our arena management-related businesses. The decrease was partially offset by an increase in other costs associated with the Sky transaction, including expenses resulting from the replacement of share-based compensation awards and costs related to integration activities, as well as start up costs associated with Peacock. Corporate and Other Adjusted EBITDA excludes Sky transaction-related costs and costs associated with a legal settlement.
We plan to launch Peacock in 2020 and expect to incur significant costs to develop and scale our direct-to-consumer streaming service.
| Non-GAAP Financial Measures |
Consolidated Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of certain of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, and by our investment activities, including the results of entities that we do not consolidate, as our management excludes these results when evaluating our operating performance. Our management and Board of Directors use this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. It is also a significant performance measure in our annual incentive compensation programs. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies.
We define Adjusted EBITDA as net income attributable to Comcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related
| Comcast 2019 Annual Report on Form 10-K | 51 |
to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance.
We reconcile consolidated Adjusted EBITDA to net income attributable to Comcast Corporation. This measure should not be considered a substitute for operating income (loss), net income (loss), net income (loss) attributable to Comcast Corporation, or net cash provided by operating activities that we have reported in accordance with GAAP.
| Reconciliation from Net Income Attributable to Comcast Corporation to Adjusted EBITDA | |||||||||
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | ||||||
| Net income attributable to Comcast Corporation | $ | 13,057 | $ | 11,731 | $ | 22,735 | |||
| Net income attributable to noncontrolling interests and redeemable subsidiary preferred stock | 266 | 131 | 187 | ||||||
| Income tax (benefit) expense | 3,673 | 3,380 | (7,569 | ) | |||||
| Investment and other (income) loss, net | (438 | ) | 225 | (421 | ) | ||||
| Interest expense | 4,567 | 3,542 | 3,086 | ||||||
| Depreciation | 8,663 | 8,281 | 7,914 | ||||||
| Amortization | 4,290 | 2,736 | 2,216 | ||||||
| Other operating gains | — | (341 | ) | (442 | ) | ||||
| Adjustment for Sky transaction-related costs | 180 | 355 | — | ||||||
| Adjustment for legal settlement | — | 125 | 250 | ||||||
| Adjusted EBITDA | $ | 34,258 | $ | 30,165 | $ | 27,956 |
Constant Currency
Constant currency and constant currency growth rates are non-GAAP financial measures that present our results of operations excluding the estimated effects of foreign currency exchange rate fluctuations. Certain of our businesses, including Sky, have operations outside the United States that are conducted in local currencies. As a result, the comparability of the financial results reported in U.S. dollars is affected by changes in foreign currency exchange rates. In our Sky segment, we use constant currency and constant currency growth rates to evaluate the underlying performance of the business, and we believe it is helpful for investors to present operating results on a comparable basis year over year to evaluate its underlying performance.
Constant currency and constant currency growth rates are calculated by comparing the prior year results adjusted to reflect the average exchange rates from the current year rather than the actual exchange rates that were in effect during the respective prior year.
| Reconciliation of Sky Constant Currency Growth Rates | ||||||||
| 2019 | 2018 | % Change 2018 to 2019 | ||||||
| Year ended December 31 (in millions, except per customer data) | Actual | Constant Currency | Constant Currency Growth | |||||
| Revenue | ||||||||
| Direct-to-consumer | $ | 15,538 | 15,326 | 1.4 | % | |||
| Content | 1,432 | 1,196 | 19.7 | |||||
| Advertising | 2,249 | 2,376 | (5.4 | ) | ||||
| Total revenue | 19,219 | 18,898 | 1.7 | |||||
| Operating costs and expenses | ||||||||
| Programming and production | 8,865 | 8,406 | 5.4 | |||||
| Direct network costs | 1,746 | 1,555 | 12.3 | |||||
| Other | 5,509 | 6,173 | (10.8 | ) | ||||
| Total operating costs and expenses | 16,120 | 16,134 | (0.1 | ) | ||||
| Adjusted EBITDA | $ | 3,099 | $ | 2,764 | 12.2 | % | ||
| Average monthly direct-to-consumer revenue per customer relationship | $ | 54.41 | $ | 54.98 | (1.0 | )% |
| 52 | Comcast 2019 Annual Report on Form 10-K |
| Liquidity and Capital Resources |
Our businesses generate significant cash flows from operating activities. We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements, including fixed charges, through our cash flows from operating activities; existing cash, cash equivalents and investments; available borrowings under our existing credit facilities; and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion of our cash flows in repaying our debt obligations, funding our capital expenditures, investing in business opportunities and returning capital to shareholders.
We maintain significant availability under our revolving credit facilities and our commercial paper programs to meet our short-term liquidity requirements. Our commercial paper programs provide a lower-cost source of borrowing to fund our short-term working capital requirements. See Note 7 to Comcast’s consolidated financial statements for additional information on our revolving credit facilities. As of December 31, 2019, amounts available under our revolving credit facilities, net of amounts outstanding under our commercial paper programs and outstanding letters of credit and bank guarantees, totaled $9.2 billion.
Comcast, NBCUniversal and Comcast Cable are subject to the covenants and restrictions set forth in the indentures governing our public debt securities and in the credit agreements governing the Comcast revolving credit facility. The financial covenant in the credit facility pertains to leverage, which is the ratio of debt to EBITDA, as defined in the credit facility. We test for compliance with this financial covenant on an ongoing basis. As of December 31, 2019, we met this financial covenant by a significant margin. We do not expect to have to reduce debt or improve operating results in order to continue to comply with this financial covenant. In addition, the Universal Studios Japan term loans contain certain financial covenants. As of December 31, 2019, Universal Studios Japan was in compliance with all of these covenants.
Operating Activities
| Components of Net Cash Provided by Operating Activities | |||||||||
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | ||||||
| Operating income | $ | 21,125 | $ | 19,009 | $ | 18,018 | |||
| Depreciation, amortization and other operating gains | 12,953 | 10,676 | 9,688 | ||||||
| Noncash share-based compensation | 1,021 | 826 | 751 | ||||||
| Changes in operating assets and liabilities | (2,335 | ) | (1,313 | ) | (546 | ) | |||
| Payments of interest | (4,254 | ) | (2,897 | ) | (2,820 | ) | |||
| Payments of income taxes | (3,231 | ) | (2,355 | ) | (4,057 | ) | |||
| Proceeds from investments and other | 418 | 351 | 227 | ||||||
| Net cash provided by operating activities | $ | 25,697 | $ | 24,297 | $ | 21,261 |
The variance in changes in operating assets and liabilities in 2019 compared to 2018 was primarily related to the timing of film and television costs and our broadcast of the 2018 Super Bowl at NBCUniversal, partially offset by the timing of collections on receivables and our broadcast of the 2018 PyeongChang Olympics.
The increase in interest payments in 2019 was primarily due to higher levels of debt outstanding, including the issuance of new debt in 2018 associated with the financing of the Sky transaction.
The increase in income tax payments in 2019 was primarily due to reduced tax payments in 2018 as a result of federal income tax overpayments in 2017.
Investing Activities
Net cash used in investing activities in 2019 consisted primarily of capital expenditures, purchases of investments, cash paid for intangible assets and the construction of Universal Beijing Resort. Net cash used in investing activities in 2018 consisted primarily of cash paid for acquisitions, cash paid for capital expenditures, cash paid for intangible assets and purchase of investments.
Capital Expenditures
Capital expenditures increased in 2019 primarily due to the acquisition of Sky in the fourth quarter of 2018, with a full year of capital expenditures for 2019. Sky capital expenditures totaled $768 million in 2019, reflecting the continued deployment of Sky Q and high-speed internet services.
Capital expenditures in our NBCUniversal segments increased 19.7% to $2.1 billion in 2019 primarily due to an increase in spending at our Universal theme parks, including construction of an additional theme park in Orlando, Florida.
Our most significant recurring investing activity has been capital expenditures in our Cable Communications segment, and we expect that this will continue in the future. Cable Communications’ capital expenditures decreased 10.5% in 2019 compared to
| Comcast 2019 Annual Report on Form 10-K | 53 |
2018 primarily due to lower spending on scalable infrastructure and customer premise equipment. The table below summarizes the capital expenditures we incurred in our Cable Communications segment in 2019, 2018 and 2017.
| Year ended December 31 (in millions) | 2019 | 2018 | 2017 | ||||||
| Customer premise equipment | $ | 2,659 | $ | 2,917 | $ | 3,337 | |||
| Scalable infrastructure | 2,000 | 2,555 | 2,369 | ||||||
| Line extensions | 1,392 | 1,484 | 1,367 | ||||||
| Support capital | 858 | 767 | 905 | ||||||
| Total | $ | 6,909 | $ | 7,723 | $ | 7,978 |
We expect our capital expenditures for 2020 will be focused on the continued investment in scalable infrastructure to increase network capacity in our Cable Communications segment; increased investment in line extensions for the expansion of both business services and residential; and the continued deployment of wireless gateways, our X1 platform, cloud DVR technology, Sky Q, and international OTT platforms. In addition, we expect to continue to invest in existing and new attractions at our Universal theme parks, including the additional theme park being constructed in Orlando, Florida. Capital expenditures for subsequent years will depend on numerous factors, including acquisitions, competition, changes in technology, regulatory changes, the timing and rate of deployment of new services, the capacity required for existing services, and the timing of new attractions at our theme parks.
Cash Paid for Intangible Assets
In 2019, cash paid for intangible assets increased primarily due to the acquisition of Sky in the fourth quarter of 2018, with a full year of expense included in our results of operations for 2019, and to a lesser extent, expenditures for software in our Cable Communications segment. Our Sky segment’s cash paid for intangible assets totaled $707 million in 2019 and consisted primarily of expenditures for software development related to Sky Q and high-speed internet services. In 2018, cash paid for intangible assets consisted primarily of expenditures for software in our Cable Communication segment, and to a lesser extent, expenditures for software in our NBCUniversal segments.
Acquisitions and Construction of Real Estate Properties
Acquisitions and construction of real estate properties primarily included the construction of the Comcast Technology Center in Philadelphia, Pennsylvania, which was completed in 2019.
Construction of Universal Beijing Resort
Construction of Universal Beijing Resort includes costs related to the construction of the Universal theme park and resort in Beijing, China. See Note 8 to Comcast’s consolidated financial statements and Note 7 to NBCUniversal’s consolidated financial statements for further information on Universal Beijing Resort.
Purchases of Investments
Purchases of investments in 2019 and 2018 were primarily related to capital contributions to Hulu and Atairos.
Other
Other investing activities in 2019 were primarily related to distributions received from equity method investments. Other investing activities in 2018 were primarily related to proceeds received from the sale of an investment and proceeds from the settlement of derivative contracts.
Financing Activities
Net cash used in financing activities in 2019 consisted primarily of repayments of debt, dividend payments and repurchases of common stock under our employee plans, partially offset by proceeds from issuance of senior notes and a collateralized obligation. Net cash provided by financing activities in 2018 consisted primarily of proceeds from borrowings, including the financing of the Sky acquisition, partially offset by repayments of debt, repurchases of common stock under our share repurchase program and employee plans, and dividend payments.
In 2019, we made debt repayments of $14.4 billion, including $6.1 billion of optional repayments of term loans due 2021 to 2023, $5.2 billion of senior notes due 2020 and $3.0 billion of senior notes due 2019.
In August 2019, we received proceeds of approximately $5.2 billion under a term loan facility due 2024 which is presented as a collateralized obligation, the principal amount of which is fully secured by the minimum guaranteed proceeds under the put/call provisions related to our investment in Hulu. In November 2019, we issued $1.6 billion of senior notes due 2030, $1.35 billion of senior notes due 2039 and $1.8 billion of senior notes due 2050. The proceeds from the collateralized obligation and the senior notes were used to repay debt. In 2019, we made borrowings of $728 million under the Universal Beijing Resort term loan.
| 54 | Comcast 2019 Annual Report on Form 10-K |
In 2019, we made net repayments of $673 million under our commercial paper programs and made net repayments of $615 million under Sky’s £1 billion revolving credit facility, which was terminated in February 2019.
In December 2019, we announced our election to exercise our option to redeem at par $1.49 billion of senior notes due 2046 in February 2020.
We have made, and may from time to time in the future make, optional repayments on our debt obligations, which may include repurchases or exchanges of our outstanding public notes and debentures, depending on various factors, such as market conditions. See Note 7 to Comcast’s consolidated financial statements and Note 6 to NBCUniversal’s consolidated financial statements for additional information on our financing activities.
Share Repurchases and Dividends
Effective January 1, 2017, our Board of Directors increased our share repurchase program authorization to $12 billion, which does not have an expiration date. As of December 31, 2019, $2 billion remained under this authorization. Under the authorization, we may repurchase shares in the open market or in private transactions. We have paused our share repurchase program in order to accelerate the reduction of indebtedness we incurred in connection with the acquisition of Sky, and no common shares were repurchased in 2019 under the authorization. Under our share repurchase program authorization, we repurchased a total of 140 million shares of Class A common stock for $5.0 billion in 2018, and 131 million shares of Class A Common stock for $5.0 billion in 2017.
Our Board of Directors declared quarterly dividends totaling $3.9 billion in 2019. We paid dividends of $3.7 billion in 2019. In January 2020, our Board of Directors approved a 10% increase in our dividend to $0.92 per share on an annualized basis. We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors.
The chart below summarizes our dividends paid in 2019, 2018 and 2017. In addition, we paid $504 million and $320 million in 2019 and 2018, respectively, related to employee taxes associated with the administration of our share-based compensation plans.
| Dividends Paid |
| (in billions) |
| Comcast 2019 Annual Report on Form 10-K | 55 |
| Contractual Obligations |
| Payment Due by Period | |||||||||||||||
| As of December 31, 2019 (in millions) | Total | Year 1 | Years 2-3 | Years 4-5 | More than 5 | ||||||||||
| Debt obligations(a) | $ | 103,100 | $ | 4,274 | $ | 14,535 | $ | 14,362 | $ | 69,929 | |||||
| Collateralized obligation(a)(b) | 5,166 | — | — | 5,166 | — | ||||||||||
| Capital lease obligations | 790 | 181 | 171 | 61 | 377 | ||||||||||
| Operating lease obligations | 5,626 | 877 | 1,460 | 1,046 | 2,243 | ||||||||||
| Purchase obligations(c) | 66,559 | 23,902 | 17,571 | 9,200 | 15,886 | ||||||||||
| Other long-term liabilities reflected on the balance sheet(d) | 6,493 | 2,011 | 1,353 | 1,044 | 2,085 | ||||||||||
| Total(e)(f) | $ | 187,734 | $ | 31,245 | $ | 35,090 | $ | 30,879 | $ | 90,520 |
Refer to Note 7 and Note 17 to Comcast’s consolidated financial statements.
| (a) | Excludes interest payments. |
| (b) | Collateralized obligation relates to a $5.2 billion term loan facility, the principal amount of which is fully secured by the minimum guaranteed proceeds under the put/call provisions related to our investment in Hulu. See Note 10 to Comcast’s consolidated financial statements. |
| (c) | Purchase obligations consist of agreements to purchase goods and services that are legally binding on us and specify all significant terms, including fixed or minimum quantities to be purchased and price provisions. Our purchase obligations related to Cable Communications and Sky include programming contracts with cable networks and local broadcast television stations; contracts with customer premise equipment manufacturers; contracts with communications vendors and multichannel video providers for which we provide advertising sales representation; contracts to acquire handsets and other equipment; and other contracts entered into in the normal course of business. Cable Communications’ and Sky’s programming contracts include amounts payable under fixed or minimum guaranteed commitments and do not represent the total fees that are expected to be paid under programming contracts, which we expect to be significantly higher because these contracts are generally based on the number of subscribers receiving the programming. Our purchase obligations related to NBCUniversal and Sky include commitments to acquire film and television programming, and broadcast rights relating to sporting events, such as the Olympics, as well as obligations under various creative talent agreements, including obligations to actors, producers and television personalities, and various other television commitments. Purchase obligations do not include contracts with immaterial future commitments. |
| (d) | Other long-term liabilities reflected on the balance sheet consist primarily of mandatorily redeemable subsidiary preferred shares; deferred compensation obligations; and postretirement, pension and postemployment benefit obligations. A contractual obligation with a carrying value of $1.1 billion is not included in the table above because it is uncertain if the arrangement will be settled. The contractual obligation involves an interest held by a third party in the revenue of certain theme parks. The arrangement provides the counterparty with the right to periodic payments associated with current period revenue and, beginning in June 2017, the option to require NBCUniversal to purchase the interest for cash in an amount based on a contractual formula. The contractual formula is based on an average of specified historical theme park revenue at the time of exercise, which amount could be significantly higher than the carrying value. As of December 31, 2019, the value of the contractual obligation was $1.8 billion, based on inputs to the contractual formula as of that date. See Note 17 to Comcast’s consolidated financial statements for additional information related to this arrangement. Liabilities for uncertain tax positions of $1.0 billion and the associated interest and penalties are not included in the table above because it is uncertain if or when these amounts will become payable. Our total recorded liability of $2.7 billion related to participations and residuals are also not included in the table above because we cannot make a reliable estimate of the period in which these obligations will be settled. |
| (e) | Our contractual obligations do not include our commitment to invest up to $5 billion at any one time as an investor in Atairos due to our inability to estimate the timing of this funding. As of December 31, 2019, our remaining commitment is $2.2 billion based on the capital calls received as of that date (see Note 10 to Comcast’s consolidated financial statements). |
| (f) | Total contractual obligations are made up of the following components. |
| (in millions) | |||
| Liabilities recorded on the balance sheet | $ | 124,760 | |
| Commitments not recorded on the balance sheet | 62,974 | ||
| Total | $ | 187,734 |
| Off-Balance Sheet Arrangements |
As of December 31, 2019, we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
| Recent Accounting Pronouncements |
See Note 9 to Comcast’s consolidated financial statements and Note 8 to NBCUniversal’s consolidated financial statements for additional information related to recent accounting pronouncements, including the impact of the adoption of the updated accounting guidance related to leases.
| 56 | Comcast 2019 Annual Report on Form 10-K |
| Critical Accounting Judgments and Estimates |
The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our judgments and related estimates associated with the valuation and impairment testing of goodwill and cable franchise rights, the accounting for film and television costs, and the valuation of acquisition-related assets and liabilities are critical in the preparation of our consolidated financial statements. Management has discussed the development and selection of these critical accounting judgments and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures relating to them, which are presented below. See Notes 4, 8 and 12 to Comcast’s consolidated financial statements.
Valuation and Impairment Testing of Goodwill and Cable Franchise Rights
We assess the recoverability of our goodwill and indefinite-lived intangible assets, including cable franchise rights, annually, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. The assessment of recoverability may first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed.
Goodwill
Goodwill results from business combinations and represents the excess amount of the consideration paid over the identifiable assets and liabilities recorded in the acquisition. We test goodwill for impairment at the reporting unit level and have concluded that our reporting units are generally the same as our reportable segments. We evaluate the determination of our reporting units periodically or whenever events or substantive changes in circumstances occur. When performing a quantitative assessment, we estimate the fair value of our reporting units primarily based on a discounted cash flow analysis that involves significant judgment, including market participant estimates of future cash flows expected to be generated by the business and the selection of discount rates. When analyzing the fair values indicated under discounted cash flow models, we also consider multiples of Adjusted EBITDA generated by the underlying assets, current market transactions and profitability information.
We performed a qualitative assessment for our reporting units in 2019. This assessment considered changes in our projected future cash flows and discount rates, recent market transactions and overall macroeconomic conditions. Based on this assessment, we concluded that it was more likely than not that the estimated fair values of our reporting units were higher than their carrying values and that the performance of a quantitative impairment test was not required. Assets and liabilities resulting from a business combination are initially recorded at fair value and the risk of goodwill impairment is reduced as the value of the businesses in a reporting unit increases and as the carrying value of the reporting unit decreases due to the amortization of the historical cost of acquired long-lived assets over time. Goodwill in our Cable Communications segment and our NBCUniversal segments has resulted from the combination of legacy businesses and newly acquired businesses and as a result, the fair values of the reporting units are significantly in excess of the respective carrying values. The goodwill in our Sky segment resulted from our acquisition of Sky in the fourth quarter of 2018. Given this was a recent transaction, the fair value is in close proximity to the carrying value of the Sky reporting unit.
Changes in market conditions, laws and regulations, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an impairment charge.
Cable Franchise Rights
Our cable franchise rights assets result from agreements we have with state and local governments that allow us to construct and operate a cable business within a specified geographic area. The value of a franchise is derived from the economic benefits we receive from the right to solicit new customers and to market additional services in a particular service area. The amounts we record for cable franchise rights are primarily a result of cable system acquisitions. Typically when we acquire a cable system, the most significant asset we record is the value of the cable franchise rights. Often these cable system acquisitions include multiple franchise areas. We currently serve approximately 6,400 franchise areas in the United States.
We have concluded that our cable franchise rights have an indefinite useful life since there are no legal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute to our cash flows. Accordingly, we do not amortize our cable franchise rights.
| Comcast 2019 Annual Report on Form 10-K | 57 |
For purposes of our impairment testing, we have grouped the recorded values of our various cable franchise rights into our three Cable Communications divisions or units of account. We evaluate the unit of account periodically to ensure our impairment testing is performed at an appropriate level.
When performing a quantitative assessment, we estimate the fair value of our cable franchise rights primarily based on a discounted cash flow analysis that involves significant judgment, including the estimate of future cash flows and the selection of discount rates. When analyzing the fair values indicated under the discounted cash flow models, we also consider multiples of Adjusted EBITDA generated by the underlying assets, current market transactions and profitability information.
In 2019, we performed a qualitative assessment of our cable franchise rights. At the time of our previous quantitative assessment in 2018, the estimated fair values of our franchise rights exceeded the carrying value of the Northeast, Central and West divisions by 29%, 46% and 58%, respectively. We also considered various factors that would affect the estimated fair values of our cable franchise rights in our qualitative assessment, including changes in our projected future cash flows associated with our Cable Communications segment; market transactions and macroeconomic conditions; discount rates; and changes in our market capitalization. Based on this assessment, we concluded that it was more likely than not that the estimated fair values of our cable franchise rights were higher than the carrying values and that the performance of a quantitative impairment test was not required.
Changes in market conditions, laws and regulations and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an impairment charge.
Film and Television Costs
We capitalize film and television production costs, including direct costs, production overhead, print costs, development costs and interest. We amortize capitalized film and television production costs, including acquired libraries, and accrue costs associated with participation and residual payments to programming and production expenses. We generally record the amortization and the accrued costs using the individual film forecast computation method, which amortizes the costs using the ratio of the current period’s revenue to estimated total remaining revenue from all sources (“ultimate revenue”). Estimates of ultimate revenue have a significant impact on how quickly capitalized costs are amortized and, therefore, are updated regularly.
Our estimates of ultimate revenue for films generally include revenue from all sources that are expected to be earned within 10 years from the date of a film’s initial release. These estimates are based on the historical performance of similar content, as well as factors unique to the content itself. The most sensitive factor affecting our estimate of ultimate revenue for a film intended for theatrical release is the film’s theatrical performance, as subsequent revenue from the licensing and sale of a film has historically exhibited a high correlation to its theatrical performance. Upon a film’s release, our estimates of revenue from succeeding markets, including from content licensing across multiple platforms and home entertainment sales, are revised based on historical relationships and an analysis of current market trends.
With respect to television series or other owned television programming, the most sensitive factor affecting our estimate of ultimate revenue is whether the series can be successfully licensed beyond its initial license. Initial estimates of ultimate revenue are limited to the amount of revenue contracted for each episode under the initial license. Once it is determined that a television series or other owned television programming can be licensed for subsequent platforms, revenue estimates for these platforms, such as U.S. and international syndication, home entertainment, and other distribution platforms, are included in ultimate revenue. Revenue estimates for produced episodes include revenue expected to be earned within 10 years of delivery of the initial episode or, if still in production, 5 years from the delivery of the most recent episode, if later.
We capitalize the costs of programming rights for content that we license but do not own at the earlier of when payments are made for the programming or when the license period begins and the content is made available for use. We amortize capitalized programming costs as the associated programs are broadcast. We recognize the costs of multiyear, live-event sports programming rights as the rights are utilized over the contract term based on estimated relative value. Estimated relative value is generally based on the ratio of the current period revenue to the estimated ultimate revenue or the terms of the contract. Advance payments for rights to multiyear, live-event sports programming are included in programming rights.
Capitalized film and television costs are subject to impairment testing when certain triggering events are identified. If the fair value of a production were to fall below its unamortized cost, we would record an adjustment for the amount by which the unamortized capitalized costs exceed the production’s fair value. The fair value assessment is generally based on estimated future discounted cash flows, which are supported by our internal forecasts. Adjustments to capitalized film production costs were not material in any of the periods presented.
| 58 | Comcast 2019 Annual Report on Form 10-K |
Fair Value of Acquisition-Related Assets and Liabilities
We allocate the purchase price of acquired businesses to tangible and intangible assets and liabilities based on their estimated fair values. In determining fair value, management is required to make estimates and assumptions that affect the recorded amounts. Management’s estimates of fair value are based on assumptions believed to be reasonable but that are inherently uncertain. As part of the estimation process, third-party valuation specialists are engaged to assist in the valuation of certain of these assets and liabilities.
Our judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and depreciation and amortization methods, have a material impact on our consolidated financial statements. For instance, the determination of asset lives impacts our results of operations as different types of assets have different useful lives and certain assets may be considered to have indefinite useful lives.
Intangible Assets
Intangible assets primarily consist of our estimates of fair value for finite-lived customer relationships and indefinite-lived trade names.
Customer relationships were valued using a discounted cash flow analysis that involves significant judgment, including the estimate of future cash flows and the selection of discount rates. This measure of fair value also requires considerable judgments about future events, including attrition, contract renewal estimates and technology changes.
In determining the estimated lives and method of amortization for finite-lived intangibles, we use a method and life that closely follows the undiscounted cash flows over the estimated life of the asset.
Trade names were valued using the relief-from-royalty method, a form of the income approach. This measure of fair value requires considerable judgment about the value a market participant would be willing to pay in order to achieve the benefits associated with the trade name.
Property and Equipment
Property and equipment includes customer premise equipment as well as network assets, real estate, and other machinery and equipment.
Property and equipment was valued using the reproduction and replacement cost approaches as well as a cost approach for real estate. The reproduction and replacement cost approaches measure the value of an asset by estimating the cost to acquire or construct comparable assets and adjust for the age and condition of the asset. The cost approach measures the value of real estate through an evaluation of recent, comparable transactions or current listings of available properties.
Contractual Obligations
Contractual obligations were adjusted to market rates using a combination of discounted cash flows and market assumptions, when available.
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