final - comcast
TRANSCRIPT
Running Head: Comcast
Dr. Arikan
MAN6721
Global Management Strategy
July 23, 2015
Florida Atlantic University
Courtney Fenwick
Eric Risi
Eric Rodriguez
Carl Schachter
Rocco Serrecchia
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Contents 1.0 History and Industry .............................................................................................................. 4
1.1 History ...................................................................................................................................... 4
1.2. Industry ................................................................................................................................... 5
1.3. Value Chain Diagram ............................................................................................................ 5
1.4. Major Competitors ................................................................................................................ 5
2.0. Industry Analysis ................................................................................................................... 6
2.1. Porter’s 5 Forces .................................................................................................................... 6
2.1.1. Force Assessed ..................................................................................................................... 6
2.1.2. Level of Attractiveness ..................................................................................................... 10
2.2. Key Industry Success Factors ............................................................................................. 11
2.3. Segmentation Analysis ......................................................................................................... 12
2.3.1 Key Segmentation Variables. ............................................................................................ 12
2.3.2. Key Success Factors .......................................................................................................... 12
4.0. External Analysis Summary Table..................................................................................... 18
5.0 Internal Analysis ................................................................................................................... 19
5.1. – 5.1.1.1. Competitor Analysis ............................................................................................ 19
5.1.1.2 Drivers of Cost................................................................................................................. 21
5.1.1.3 – 5.1.2. Performance Levels ........................................................................................... 23
5.2 Assessment of Strengths ....................................................................................................... 25
5.2.1. Firms Unique Factors ....................................................................................................... 25
5.2.2 Porters Value Chain .......................................................................................................... 26
5.2.3. VRIO Framework ............................................................................................................. 26
5.3-5.3.1. Assessment of Weaknesses:........................................................................................ 26
6.0 Business Strategy .................................................................................................................. 27
6.1 Competitors Strategy ............................................................................................................ 27
6.1.1 – 6.1.1.1. Generic Strategy................................................................................................. 27
6.1.1.2 Evaluating Firms Resources/competencies ................................................................... 29
6.1.2 Generic Business Strategy of Competitors ...................................................................... 30
6.1.2.1 Comparative Financials – Firms Competitors ............................................................. 30
6.1.3 Productivity Frontier ......................................................................................................... 31
6.2. – 6.2.2. Business Level Strategy Recommendations.......................................................... 32
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7.0. Corporate Strategy .............................................................................................................. 33
7.1. - 7.1.1.2. Current Corporate Level Strategies ................................................................... 34
7.1.2-7.1.2.3 Product Scope ........................................................................................................ 35
7.1.3 – 7.1.3.3. Geographic Scope............................................................................................... 35
7.2 Corporate Recommendations .............................................................................................. 35
7.2.1 – 7.2.1.2. Effects of Recommendation .............................................................................. 35
7.2.2 Risk & Implementation Difficulties ................................................................................. 37
Appendix Graphs ........................................................................................................................ 38
Bibliography ................................................................................. Error! Bookmark not defined.
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1.0 History and Industry
1.1 Comcast is a vertically integrated company headquartered at One Comcast Center in
Philadelphia, P.A., with its main line of business generated through the Cable Provider industry,
as related by CSImarket.com (Exhibit 1.2). Comcast is listed on the NASDAQ exchange and
classified as entertainment- diversified for its industry under the ticker symbol CSCMA in the
services sector, according to Yahoo Finance. Comcast operates many business units cross
functionally and promotionally with its most prolific being its cable communications, cable
networks, and broadcast television (Exhibit 1.3). Classified as a worldwide media and technology
company, Comcast businesses include cable communications, networks, broadcast television,
Film, and theme parks. Cable communications bundles video, high-speed internet, and telephone
for businesses and residential customers at different price points for mass customization. The
Network segment provides national cable stations with news, sports, entertainment, and
information both regionally and locally. Comcast provides international exposure through
operation of the Telemundo network. The theme park division also runs dining, retail, and
entertainment complexes to cross promote and market the film and theme park business units.
The cable provider industry has performed exceptionally well for Comcast throughout its 52
year history. The company website states (Exhibit 1.1 & 1.1.1) that Comcast was founded in 1963
through the purchase of a 1,200 subscriber cable system in Tupelo, Mississippi the company went
public just 9 years later in 1972. Comcast made various acquisitions through the years increasing
its national reach and subscriber base until it obtained a $1 billion investment from tech giant
Microsoft. The acquisition of AT&T broadband cable in 2001 expanding its reach by 6 states and
595,000 customers. This was followed in 2002 with the introduction of the HDTV format and
High-speed internet service and their reach extended to 38 states and D.C. In 2003 the DVR was
released to consumers and in 2009 Comcast increased its value proposition to consumers again
with high-speed wireless2go and 50mbps service. In 2011 they partnered with Samsung to bring
the Xfinity T.V. app to all of its mobile devices while G.E. and Comcast finalized their partnership
to form NBC Universal, LLC. The launch of its premier 305mbps high-speed internet service
enticed business clientele away from many other providers. 2013 saw Comcast purchase G.E.’s
49% stake in the NBC Universal joint venture for $16.7 billion along with the real estate located
at Rockefeller plaza, N.Y. (NBC studios) and Englewood Cliffs, N.J. (CNBC H.Q.) for $1.4
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billion. Comcast continued to bundle services with the release of its’ Business Hospitality package
which combines Ethernet, Internet, Video, and Voice services for a single rate. Its latest offering
focus is skewed towards the business customer with the release of ‘Upware’, which is a cloud
based B2B market for small businesses.
1.2. The focus of this report is on Comcast’s Cable Service Provider business which controls
40.3% of the North American market (IbisWorld.com) and earned $68.775 billion (64%) in
revenues for 2014 (Exhibit 5.2). In contrast, NBC Universal earned $25.428 billion (14%),
Broadcast generated $8.542 billion (12%), Film brought in $5.008 billion (7%), Theme Parks
brought $2.623 billion (4%), and Spectator earned $709 million from other operations including
arena operation and management related businesses (Exhibit 1.2).
1.3.
1.4. Comcast is the Cable Service Provider industry leader, according to IbisWorld.com, with
40.3% of the market. They are followed by Time Warner Cable (20.6%), Cox Enterprises (9.6%),
Charter Communications (8.4%), and Cablevision Systems (5.2%). Direct TV is the largest cable
service provider in the satellite delivery space (53.6%).
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2.0. Industry Analysis
CMCSA, is primarily known for being a “Cable Service Provider” (CSP) since the majority of
their revenue comes from cable networks ($8.38B) and broadcasting services ($9.3B) (Trefis,
2015). Cable service delivery requires industry competitors to transmit TV programming signals
to subscribing customers via fiber optic coaxial cables; subscribers pay monthly fees for cable
access as well as pay TV services. The cable service industry life cycle is in a mature stage, which
contributes to low revenue volatility for competitors within this industry. See Exhibit 2. Capital
intensity remains high due to significant investment in CAPEX in addition to substantial
production and programming costs. There is currently no industry assistance provided from the
federal government in regard to cable TV and broadcasting services, however there has been
menial support from local municipalities, but such cases are extremely rare. The CSP industry’s
level of concentration is moderate due to the small number of large incumbent firms in existence
such as Time Warner Cable, Cablevision, and Comcast. Levels of government regulation within
the CSP industry are high considering the jurisdictional reach of the FCC concerning cable TV
and associated communication services. The level of both technological change and barriers to
entry within the CSP industry are also high. Competing firms must move in lock step with the
innovation of video and communication technology. Also, increasing FCC compliance costs act
as natural barriers to entry whereas competitors lacking sustainable levels of capital will be
crowded out. Levels of industry globalization are low since infrastructure installation is lacking
within undeveloped regions such as Africa, Asia, and the Middle East. Competition is moderate
which can also be correlated to the small number of large incumbent firms that exist within the
industry (Kahn, 2015).
2.1. Porter’s 5 Forces
2.1.1. First of Porter’s five forces is the risk of entry by competitors, the overall strength of this
force is relatively low due to high capital requirements which act as barriers to entry for new
competitors. See Exhibit 2.1A. Economies of scale within this industry are moderate; this is due
to the fact that CSPs utilize standardized fiber optic and copper equipment required for the
distribution of their services. Absolute cost advantage amongst firms is relatively low due to the
commoditized nature of the services provided by CSPs along with the reduction of exclusive
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service provider content. The effectiveness of existing product differentiation is moderate
considering the similar nature of fiber optic coaxial equipment required for the distribution of cable
services. Ease of access to distribution is also moderate since significant coordination issues such
as relaying physical on-site service installation with regional network provider access currently
exist. Ease of access to supplies/raw materials is high since CSPs maintain relationships with the
small number of firms that produce adequate copper and fiber optic cable equipment. The
importance of proprietary knowledge is also high in regard to contractual partnerships with fleet
service distributors required for service installation and provision. The degree of buyer switching
costs is low due to the commoditized nature of bundled service package pricing averaging $95.79
amongst industry leaders. Legal barriers are high whereas regulations set by the FCC ranging as
far back as 1984 to monitor the pricing rates of cable service. The final factor of this force pertains
to the incumbents’ propensity to retaliate; this factor’s strength is moderate in regard to services
offered due to CSP industry competitors’ propensity to compete on price (Kahn, 2015).
The second of Porter’s five forces pertains to the level of industry rivalry; this force’s overall
strength is relatively moderate due to the following factors. The level of industry concentration is
moderate concerning the small number of large firms that compete within this industry. Diversity
of competitors is also moderate, primarily due to differences in content within portfolios of
production, however consumer demand/preference eliminates the need for exclusive content
access. Product differentiation is moderate since the level of service and equipment provided are
becoming commoditized and standardized respectively. Cost conditions are high considering
significant purchasing costs as well as significant CAPEX investment regarding the installation
and maintenance of infrastructure. See Exhibit 2.1B. The industry growth rate is low, which is
common in mature life cycle stages, however annual growth for the CSP industry consisted of
3.2% for 2010 through 2015 and an estimated 0.0% growth rate for 2015 to 2020 (Kahn, 2015).
Buyer switching costs are low since 2015 price levels for service bundles currently average an
annual price of $95.79 for 1.4 years potentially leading to annual customer savings ranging
between $5.80 and $14.20. See Exhibit D. Excess capacity for the CSP industry is moderate within
the U.S., however there is considerable potential opportunity for overseas expansion in Asia,
Africa, and the Middle East. The last factor of this force pertains to exit barriers for competitors;
this level is high due to the realization of significant sunk costs and heavy capital allocation into
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illiquid fixed assets along with long time horizons for realizing positive cash flows from investing
activity.
The third force pertains to the bargaining power of buyers; this force’s overall strength is low.
The buyer’s tendency to bargain is low since “residential” consumers possess relatively no
bargaining power in regard to the price of commoditized cable services along with dependency
upon regional service access. The cost of the focal industry’s product relative to the buyer’s total
cost is moderate due to significant production purchases as well as infrastructure maintenance
expenses (Annual Report, 2015). Product differentiation within the focal industry is relatively low
since services provided by competitors are quite similar in terms of cost and quality. Competition
between buyers is high, however there are relatively few choices of providers within the CSP
industry rendering the strength of consumer competition concerning service choice unsubstantial.
The buyer’s ability to bargain is low; again this is correlated to the absence of bargaining power
concerning commoditized services and provider access. The size and concentration of buyers
relative to firms within the focal industry are high due to the fact that the majority of US buyers
consist of residential clients that have become “increasingly dependent on TV, internet, and phone
services” (Kahn, 2015). Buyer switching costs are low since 2015 price levels for service bundles
currently average a monthly price of $95.79 for 1.4 years potentially leading to annual customer
savings ranging between $5.80 and $14.20. See Exhibit D. The buyer’s ability to backward
integrate is also low since the majority of buyers are residential consumers completely dependent
on CSP services and the costs associated with equipment required would exceed that of the
monthly subscription fee. The amount of the focal industry the buyers purchase is considerably
high due to “residential video” services consist of 46.6% products and services provided within
the CSP industry. See Exhibit E. The importance of the focal industry’s product on the quality of
the buyer’s product is high since consumers thoroughly depend upon speed and reliability of
service packages that include TV, internet, and phone services. The last factor of this force
concerns the level of information buyers have on the focal industry’s product, this factor is
moderate in strength since consumers can access information freely via the internet, however this
does little to improve the consumer’s bargaining position.
The fourth force concerns the bargaining power of suppliers; the overall strength of this force
is relatively low. The supplier’s tendency to bargain is high since CSPs rely on new high quality
content to be created in order to increase profitability from new releases. Physical equipment
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suppliers include firms such as: Cisco (telecommunication equipment), Hewlett Packard (cable
modems), NVIDIA (graphics cards), and Panasonic (digital cable boxes); viewable content
however, is supplied from production studios such as: NBC, HBO, Starz, and Viacom
(Spiderbook, 2015). Revenue coming from focal industry relative to the supplier’s total revenue is
moderate due to increasing shrinkage within “wholesale” content packaging demand compared to
current subscription volume (Kahn, 2015). Product differentiation within the supplier industry is
low since physical equipment required for fiber optic coaxial access is readily available, however
installation expenses can differ slightly amongst service “installers” for business customers.
Competition between suppliers is high due to the broad range of content “wholesalers” such as
HBO who then “package” viewable content for sale directly to CSPs who in turn provide access
to consumers via monthly subscription. Suppliers’ ability to bargain is moderate due to the overall
concentration of the CSP industry and the limited availability of high quality wholesale distribution
networks such as HBO, Showtime, Cinemax, and Starz. The size and concentration of suppliers
relative to firms within the focal industry is low, this is primarily due to the limited number of
independent content creators/providers within the networks whereas such networks as Bravo, USA
Network, SyFy, and E! are wholly owned by CMCSA. The focal industry’s switching costs
between suppliers is moderate, but possesses a declining trend in regards to content
creators/providers beginning to circumvent the “wholesale” broadcast portion of the supply chain
and sell to residential customers directly. The supplier’s ability to forward integrate is moderate
this can also be correlated to the previous reason of content creators/providers ability to circumvent
broadcast networks, the example of the HBO’s “HBO GO” app enabling consumer access on
multiple platforms illustrates this concept. The amount of supplier output sold to the focal industry
is high due to the significant amount syndicated programming as well as new content released for
current consumer viewing.
The importance of the supplier’s product on the quality of the focal industry’s product is also
high; this can be attributed to the increase in volume of consumers willing to pay for high quality
on-demand programming. The last factor concerning the overall strength of this force pertains to
the level of information firms within the focal industry have on the supplier’s product; this factor’s
strength is moderate since new content must be first be piloted and approved in order to justify the
purchasing cost associated with the production of the original content with respect to anticipated
subscriber “viewing” volume.
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The final force concerns substitute products, the overall strength of this force is relatively high
in comparison to the previous forces and this is primarily due to the high level of concentration
within the CSP industry. The availability of substitute products is high since incumbent firms
mainly compete on the price of their services rendered. See Exhibit D. Additionally, emerging
firms such as: Netflix, Amazon Prime Instant Video, and Hulu Plus offer similar video services at
a lower subscription price but do not include internet and voice services. Buyers’ propensity to
substitute is moderate due to the commoditization of TV, Internet, and phone services which is
also contingent upon the availability of service since CSPs predominantly cover highly populated
areas within the U.S. See Exhibit F. The final factor of this force concerns the relative price and
performance of substitutes; this factor’s strength is also high considering the commoditized nature
of CSP services rendered amongst industry competitors with respect to the low alternative pricing
of firms similar to Netflix. Additionally, there are no complementary products offered outside the
current portfolio of bundled service packages.
Each force can impact the overall profitability of the CSP industry. For example, the force
concerning risk of entry by competitors, this low ranking (1.5) places upward pressure on industry
profitability since potential entrants are effectively shut out, however high capital intensity for
current competitors must also be taken into consideration. The level of industry rivalry (3) is
moderate which places downward pressure on profitability since there are few large competitors
which results in high concentration and market saturation within the CSP industry. Bargaining
power of both buyers (1) and suppliers (2) are low, this places additional upward pressure on
industry profitability due to the considerable dependence of consumers on CSPs and content
providers & cable network’s increasing ability to circumvent broadcast companies which reduces
logistical operating expenses. The last force concerning the availability of substitute products is
high (4), several emerging firms such as: Netflix, Amazon Prime Instant Video, and Hulu Plus
offer similar video services at a lower subscription price. Also, the commoditization of CSP
services amongst current industry competitor’s places additional downward pressure on industry
profitability since competition is based on price. See exhibit G.
2.1.2. The overall attractiveness of the CSP industry is relatively low due to the aforementioned
reasons within the analysis of Porter’s five forces. Additionally, both opportunities and threats are
present within the competitive landscape of large incumbent firms such as: Comcast Corp. (40.3%)
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Time Warner Cable Inc. (20.6%), Cox Enterprises Inc. (9.6%), Charter Communications Inc.
(8.4%), Cablevision Systems Corp. (5.2%). See exhibit H. Given the mature and concentrated
nature of the CSP industry, potential opportunities would include future joint ventures,
partnerships, and increased M&A activity amongst leading incumbent firms. Threats however,
would include increased consolidation and reliance on the shrinking number of equipment
supplying firms. CSP competitors utilize few suppliers for digital setup boxes and network
equipment. “We purchase from a limited number of suppliers a significant number of set-top
boxes, network equipment and services that we use in providing our cable services” (Comcast's
Suppliers Performance, 2015). Additional threats would include: increasing risk of profitability
shrinkage due to content provider innovation in the form of Netflix, Hulu Plus, Amazon Prime
Instant Video, iTunes, and Google Play. Over time, firms such as these could be seen as potential
new entrants thus further decreasing industry profitability. Cable networks such as HBO and
Showtime must also be closely monitored in regard to their ability to circumvent broadcast
companies and CSPs to sell directly to consumers via distribution channels such as Apple TV,
Amazon Fire TV, and Roku.
2.2. CSP industry success can be attributed to the following five key factors: access to required
quality infrastructure, possessing an extensive distribution network, having access to niche
markets, complying with licensing regulation, and adopting to new technology quickly. To offer
quality service to consumers CSPs must be able to install and maintain the physical infrastructure
required to provide TV, Internet, and phone capabilities, this is achieved via exclusive access to
hard cable lines. Another factor consists the development and maintenance of a fully capable
digital cable network, thus allowing CSPs to cover a significant amount of residential and business
consumers. Maintaining a low “churn” rates amongst current subscribers and attracting new
subscribers is vital, thus understanding the target market as well as demographic pricing
preferences allows CSPs to access niche markets. Complying with federal and state licensing
regulation set by the FCC contributes to industry barriers to entry, this allows incumbent firms to
maintain their current market position as long as they can afford the ongoing cost of regulatory
compliance. The last success factor consists of the CSP’s ability to provide quality speed and
clarity throughout its portfolio of services; this also acts as a barrier to entry due to the capital-
intensive nature of adopting and using the most current technology. “To survive and prosper in an
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industry, a firm must meet two criteria: first, it must supply what customers want to buy; second,
it must survive competition” (Grant, 2013). CSPs exploit these factors in order to provide more
reliable cable, faster Internet speeds, and clearer phone services to residential and business
customers. By pricing quality services at an affordable rate, customer willingness to pay will
increase proportionately. See Exhibit I.
2.3. Segmentation Analysis
2.3.1. Within the CSP industry there are five main segments that account for industry revenue,
they include the following: cable segment, broadcast TV segment, cable network segment,
advertising segment, and filmed entertainment segment. The Cable segment revenues comprise
mostly of video, Internet, and phone services rendered primarily to residential and business
customers. See Exhibits J & K. CSPs collect revenues prior to rendering services to customers and
installation charges are realized once network connections are established. The Broadcast TV
segment generates revenue from advertising sales on broadcast networks, local TV stations, and
other digital media platforms. The licensing of original content through cable networks, broadcast
networks, video on-demand subscriptions, and programming distribution contracts accomplish
this. Cable network segment revenues are collected from network programming distribution,
advertising sales, and the licensing of original content to video on demand subscriptions. Revenues
from the advertising segment are recognized from commercials viewed. This is accomplished by
licensing “owned programming” in order to provide network ratings. Filmed entertainment
segment profitability can be attributed to the global distribution of produced and acquired film
titles. Also, the licensing of film titles as well as the sale of original content via Blu-ray, DVD, and
both standard & high definition platforms contribute to collected revenue (Comcast's Suppliers
Performance, 2015).
2.3.2. Success factors of the previous five segments include further installation and maintenance
of the fiber optic network infrastructure; without the expansion of this foundation, future revenue
growth will be hindered in terms of achieving economies of scale. See Exhibit L. The provision of
quality video, Internet, and voice services within niche markets such as “tech-savvy” millennials
also contribute to the attraction of new subscribers. Digital media expansion in the form of
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accessible online content via multiple platforms also contributes to broadcast TV profitability. The
creation of new content such as large production TV series contributes to further cable network
success. Advertising segment success can be attributed to the penetration of unexplored markets
such as access to “Smart-TV” marketplaces such as Apple TV and Roku. Further success of the
film entertainment segment can be attributed to the flexibility within media distribution via digital
marketplaces such as iTunes and Amazon. By capitalizing on opportunities such as these, CSP
industry competitors can achieve further economies of scope by implementing the use of versatile
digital media that can be consumed on multiple platforms.
2.3.3. From the previously mentioned segments, CMCSA competes within the following: cable
communications, cable networks, broadcast TV, filmed entertainment, and theme parks. See
Exhibit M. The cable communications segment consists of video, Internet, and voice service
subscriptions as well as sales generated from aired product advertisements; this segment is the
primary source from which CMCSA collects revenue. CMCSA also competes within the cable
network segment by distributing network programming, licensing original content, and sales
generated from the advertising of its cable network services. CMCSA’s broadcast TV segment
licenses its’ programming through cable networks, subscription services, and syndication.
Broadcast revenues are also collected from program distribution and broadcast advertising on local
TV stations. The filmed entertainment segment is composed of produced and acquired films, which
are then distributed to theaters for public release. CMCSA collects worldwide revenue from box
office, Blu-ray, DVD, and digital media sales. The final segment CMCSA competes in is theme
parks; the Orlando and Hollywood locations generate combined revenues of $2.6 million from
annual passes and regular ticket sales (Annual Report, 2015). See Exhibit N.
3.0. Macro Environmental Analysis
The Federal Communications Commission (FCC) has been the regulatory body covering the
cable industry since 1934 and has held jurisdiction over cable broadcast standards. The FCC
maintains compliance in technological standards, mostly in regards to service availability to
consumers and the coordination of telecommunication signals to prevent crossover interference.
The FCC has historically regulated basic cable rates whereas premium rates for expanded services
have been free of legislative oversight. According to Deloitte, this trend has been primarily
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responsible for the charging higher prices to one group of consumers in order to subsidize lower
prices for another group of basic cable rates paid by subscribers of premium services. This is
movement is known as cross subsidization. Under FCC social responsibility charter standards,
there is a requirement by franchising authorities that cable service accessibility be made available
to any group regardless of income.
Continued legislative action beyond cable has recently been developed in the form of the Data
Security and Breach Notification Act of 2013. Initially introduced by the Senate, this act mandates
that companies who retain an individuals’ personal information must provide suitable security
measures and provide full disclosure to its consumers in case that security is compromised.
Recently the FCC has come under scrutiny with its enforcement of the Net Neutrality Act, a
regulatory act over broadband internet services. The act is primarily based on the notion of treating
all internet use as equal, while reclassifying broadband internet as a public telecommunications
service instead of an information service. Rulings regarding this act will have an adverse impact
on the competitive environment for content providers, as their high-speed internet services would
become commoditized. The deregulation of internet services will also put a heavier financial
burden on content providers, as they would have to increase infrastructure expenditures to widen
the information highways to provide similar data speeds and accommodate increased traffic.
The FCC merger review authority has come under increased scrutiny as the commission
blocked the NBC Universal (NBCU) and Comcast merger of January 2011. Blocking of this
merger highlighted the foundation of the FCC’s power to protect not only the competitive
landscape from the formation of monopolies, but also the consumers interests as well from being
exposed to a monopolistic market structure of cable services. The main concern relating to the
blocking of this merger was the implementation of the FCC’s merger review authority and the
possible abuse of that power that can have adverse effects on consumers. The cause of this concern
may be drawn from the disparity between the way antitrust authorities and the FCC operate their
reviews through differing standards. Traditional antitrust authorities base review standards off
evidence-based standards during the merger review process whereas the FCC enforcement of its
standards have been ambiguous in effort to avoid the scrutiny associated with traditional antitrust
measures.
FCC merger reviews are more reflective of the standards set by the Communications Act of
1934, which conducts reviews with the public interest in mind. The FCC will base its review on
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four factors: (1) whether the transaction would create any violations of the communications
statutes; (2) whether the transaction would create any violations of the FCC’s rules; (3) whether
the trans- action would substantially frustrate or impair the FCC’s enforcement of the
communications statutes or their objectives; and (4) whether the transaction would yield
affirmative public interest benefits (FCC 1999).
The FCC conducts its analysis through a wider scope than antitrust law. Their reviews are based
on information provided from the merging partners that illustrate the benefits to the public interest
of the consumer and the promotion of industry competition. One issue with the FCC merger
evaluation is the vague nature of its analytical framework employed. Partners within a merger
must perform due diligence in an effort to construct feasible parameters within their negotiations.
Economic
The cable industry life cycle is classified as mature where revenue growth has primarily been
derived from primarily scale, cost cutting, and the bundling of services. According to Ibis World,
expected industry revenues should increase annually by 4.2% to an overall $115.9 billion annually.
Conversely, an expectation of increased marketing costs due to price wars stemming from a
competitive environment will decrease anticipated future profits. Growth in cable subscription
rates are sensitive to economic issues such as declines in disposable household incomes and
hampered by a high degree of market saturation. Recent movements in wage expenses have
decreased against revenues as companies have turned towards automation and outsourcing for their
customer service systems to reduce costs. This has led to a decline in specialized client service
representatives with an increase in the hiring of skilled personnel responsible for infrastructure
development and installations to maximize core competencies. Over the past five years the
industry average wage has been on the decline due to the lower compensation dedicated towards
this type of service-outsourced and specialization-focused personnel structure.
Globalization within this industry is low as the majority of market participants are U.S. based
and most of the revenues are derived from domestic markets. Satellite operators are primarily
responsible for the distribution of diversified international programming. At this time there is a
small contingent of foreign content distribution operations within the United States, thus creating
possible growth opportunities in globalization going forward.
Though the present economic environment in the U.S. displays steady behavior, profitability
can be adversely affected due to increased competition and programing costs. As of February 2015,
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consumer disposable incomes have steadily risen by .4% within the U.S. along with a .31%
increase in wages and salary disbursements to employees, according to CSIMarket.com. This
trend could trigger an upward movement in purchases in both mobile devices and broadband
services within the industry. As this movement continues, consumers utilizing their expanding
lines of disposable income the industry will see persistent revenue growth in services outside of
those available in traditional cable models such as upgrade purchases in premium broadband
services.
Sociological/Demographics
Populations within the US are composed of mainly three generations: baby boomers, generation
X, and millennials. Historically, baby boomers have been disinclined towards changes in
technology whereas members of the Generation X group show tendencies to adapt to new
technologies. As a group, millennials are the drivers and main supporters of technological changes.
As the number of baby boomers decrease over time, traditional cable subscriptions will trend
downward. This eventual shift towards decline in subscription based revenues will force
companies to search for new revenue streams tailored to the evolving preferences catering to the
demographic influences within domestic markets.
As the technological landscape migrates towards wireless and mobile platforms, the driver
behind this change will be the millennial generation demographic. This trend of a younger
demographic enjoying content on devices outside of a traditional television poses a major threat
to the cable industry. According to both Forbes and Deloitte, 56% of the TV and film viewing by
millennials aged 14-24yrs. is on computer, smart phone, tablet, or a gaming device — only 44%
is via TV. Older millennials (in the 24-30yr. age range) consume 47% of their film and TV content
on those alternative devices (Exhibit 3.1). This shift in trends for content consumption by younger
demographics of straying away from traditional cable services can be attributed to dissatisfaction
with current cable provider plan structures and pricing linked to bundling and collusion.
Environmental
The majority of industry participants attempt to persuade customers to embrace Eco-Bill
initiatives through the incentive of reduced monthly billing charges. Having the option of receiving
paperless billing empowers consumers to aide in the lessening of greenhouse emissions and
deforestation concerns across the nation. As reported by PayItGreen nearly 17,000 pounds of paper
are saved each year for every 50,000 customers who register for Eco-Bill. These positive trends
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continue with over 160,000 gallons of wastewater that are stopped from entering into rivers and
streams across America. Over 290,000 pounds of greenhouse gas emission are prevented and
nearly 50,000 square feet of forest are saved annually. The cost savings are passed down to the
consumer through lower monthly costs and expedited billing statements. The public focus and
concern through awareness about positive environmental impacts is why there is such an active
push for e-billing services.
Technology
The cable industry is facing a high level of change from a technological standpoint. Delivery
of voice, video, and data services take place within a uniform infrastructure. Increased internet
traffic has been the driver of developing fiber-optic networks. With the emergence of on demand
services and the introduction of the digital video recorder (DVR), consumers have come to expect
expanded technological capabilities as standard features from their cable providers. Companies
throughout the industry have invested heavily in technologies that have upgraded their content
delivery networks (CDN). Cable providers implement CDNs to deliver streaming content through
a centralized core network based on internet protocol (IP) technology. With the growing demand
and usage of internet access, leading firms in the industry have invested in infrastructure for
efficient content delivery from technologies beyond traditional television capabilities.
Trends within the technological sphere of cable service delivery are rapidly turning towards
mobile platforms of content distribution. Due to the development and introduction of the smart
phone and mobile tablet technologies, the movement of “cord cutting” among consumers has
posed a significant threat to the cable industry. According to Deloitte, “37% of U.S. consumers
today own the trio of tablets, laptops, and smart phones, a percentage that represents a 270%
increase since 2010” (Deloitte 2015). Internet streaming of content has also come into play,
allowing consumers to access preferred programming at their convenience on their mobile
technologies.
Through the initial threat of the introduction of these technologies, expanded opportunities are
presented as individual networks like HBO have created online subscription services for their
users. A new trend of increasing buyer power in the relationship with providers can be seen as
companies like HBO are finding new avenues to connect with their consumer’s demands. As
individual networks create new distribution routes, the current cable provider ‘bundle’ standard
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may soon be threatened. Subscribers are seeking to pay for preferred content rather than a package
which includes increasingly unwanted additions such as home phone service.
Streaming services for content also present a threat to the continued growth of traditional
advertising revenue sources as consumers can bypass commercials they typically would have to
view with cable. Cable providers must find a way to adapt to the maturing industry life cycle.
Whether they move forward in creating opportunities in production or become content rights
holders that expand beyond traditional distribution within the industry. As the role of content
distributor evolves with delivery being disseminated through the Internet, both content creation
and production have transitioned focus towards the viewer who utilizes streaming services for
continuous viewing of programs. Deloitte expands on the trend of the increasing long format
productions that will render programming schedules across cable providers obsolete. This type of
programming will engage the consumer, thus reducing the likelihood of the viewer losing interest
in the content itself. Costs of production can be covered by driving revenues from title ad
sponsorships. This will benefit content producers by getting the freedom to create long form
content that won’t be hindered by interruptions of commercialized inventory.
4.0. External Analysis Summary Table
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5.0 Internal Analysis
5.1. – 5.1.1.1.
Ratio metrics and analytics for Comcast Incorporated’s cable service provider segment are
listed in Exhibit 5.6 and is Comcast’s core business as measured by revenues according to
CSImarket.com and Comcast’s 10-K filing. (Exhibit 1.2, 1.3, & 5.6) It is important to note that
due to the highly consolidated nature of the cable service provider industry it is difficult to attain
an applicable industry average in many metrics using a simple average calculation. This
calculation is based mostly on the three largest companies that participate in this space. The
majority of the market is controlled by three companies; Comcast (CMCSA 40.3%), Time Warner
(TW 20.6%), and Direct T.V. (DTV 53.6%) including the satellite providers. The average is
skewed toward the major player’s performance measures. Industry leaders set the standard, while
smaller companies metrics generally trend in the opposite direction due to a lack of both scale and
differentiation. Large discrepancies in the range of data registers the average outside of the
ordinary distribution bands that would normally be expected. A simple average has been computed
among an industry peer group for the convenience of comparison, but is not applicable in all
instances.
Net Margin
Analysis of net margins for the comparative cohort group (Exhibit 5.4 & 6.5) shows that the
established leaders of the land based cable service providers, CMCSA and TW, are retaining the
greatest percentage of their revenues at 11.5% and 13.6% respectively. This can be attributed
mostly to scale advantages and a corporate focus on cost savings and efficiency which is built on
an extensive infrastructure investment spread over an extended time horizon. Smaller land based
cable industry service provider Cablevision (CV) has the worst net margin, at 2.76%, due to the
relative size of the company and intensive capital spending required to build infrastructure. CV
has incurred large amounts of debt to overcome the high barriers to entry in this consolidated and
mature industry. This is evidenced by the high amount of leverage being carried by CV and the
negative equity accumulated in order to gain a foothold in its’ northeast U.S. territory. In contrast,
Direct T.V. (DTV) which competes against CMCSA in the cable service provider industry, is able
to bypass some of these barriers due to the satellite signal delivery method. Breaking away from a
ground-based delivery system has allowed DTV to thrive. This can be attributed to both the relative
youth of the satellite provider industry and the benefit of being in the growth stage of the industry
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life cycle. DTV faces only one competitor in this space and does not have to contend with the
market saturation which limits the ground based providers. This allows DTV to trend differently
than its major competitors in many areas. DTV requires external financing (EFN) to expand and
possesses the ability to scale up quickly and accumulate positive equity. DTV is achieving 8.9%
net margins in comparison to a simple industry average of 9.2% and is trending positively with the
greatest Y-o-Y growth for both metrics in the peer group. (Exhibit 5.4 & 6.3)
Asset Turnover
Asset turnover ratios (Exhibit 5.3 & 5.4) reflect heavy investment in PP&E, large goodwill
balances due to numerous acquisitions from industry consolidation, and high investment costs of
technology and patents. The large and established land based providers CMCSA and TW have
identical asset turns of .44 (Exhibit 5.4 & 6.4) due to large goodwill and intangible asset holdings
on their balance sheets (Exhibit 5.1 & 6.10). Fixed assets as a percentage of total assets for each
firm are 19.4% and 15% respectively, evidencing the effect of scale on their infrastructure costs.
Goodwill and intangibles are 65% for CMCSA and 56.5% for TW (Exhibit 5.4 & 6.10) which is
partially a function of the goodwill accumulated over time from M&A activities in industry
consolidation. Smaller and more asset light firms like CV and DTV show much less accumulation
in these accounts as CV has asset turns of .97 and DTV generates 1.42 (Exhibit 5.4 & 6.4), owing
to less total assets carried on their balance sheets not hampering the performance of the metrics.
Even though CV and DTV produce less total revenues, they carry less intangible assets that do not
contribute to the bottom line by supporting revenue generation. This can be attributed to a lack of
ability to consolidate or participate in significant M&A activity over time. In the case of DTV, the
nature of having a signal beamed to a location requires less infrastructure support, and the ability
to have the customer shoulder some of the financial burden in the form of the receiving dish allows
for more efficiency in the firm’s assets’ ability to generate sales. Fixed asset turnover provides a
more precise picture of revenue generating asset performance (Exhibit 5.4 & 6.4) showing
CMCSA at 2.22, TW at 2.88, and CV with 2.14 turns. The lower cost structure from less
infrastructure spending becomes more evident as advantageous where DTV is producing fixed
asset turns of 4.95.
Total Debt to Revenue
The cable service provider industry is highly levered in nature. Due to industry consolidation,
common metrics like the leverage ratio (TD/TE) are inaccurate as CV and DTV have negative
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equity in the billions (Exhibit 5.4). Looking to total debt as a percentage of revenues (TD/REV)
(Exhibit 5.4 & 6.1) allows for a clearer picture of industry leverage norms versus cash flow
streams. Average industry leverage in the peer group for this metric is 141.6%. This illustrates the
capital intensive nature of the industry. DTV has the lowest TD/REV at 91.4% owing to its lack
of infrastructure spending and maintenance. Low competition supports the growing revenues of
the satellite provider industry and lessens the need for acquisitions through M&A. Land based
providers CMCSA (153.5%) and TW (140%) (Exhibit 5.4 & 6.1) are relatively correlated in
leverage due to the mature state of the industry combined with M &A activity for acquisitions to
consolidate in search of greater scale. The smallest provider CV carries 181.5% TD/REV and has
the highest leverage of the peer group from massive infrastructure spending to establish itself,
while suffering from a lack of scale.
Debt to Asset Ratio
Another measure of leverage is the debt to asset ratio (D/A) which tells how much debt a firm
carries per each dollar of assets. Comparisons show why CV and DTV have negative equity with
D/A ratios of 1.74 and 1.2 respectively (Exhibit 5.4 & 6.7). Every point over one eats away at
equity on the balance sheet. Larger firms CMCSA and TW once again benefit from maturity and
scale with relatively correlated ratios of .67 and .61 respectively. Nevertheless, this highlights the
capital intensive nature of the industry as a whole and the need for EFN to supply capital.
5.1.1.2
COGS
Cost of Goods Sold (COGS) (Exhibit 5.2, 5.4, & 6.8) are a major driver of the cost structure
in most industries. In the cable service provider industry, scale appears to have the greatest impact
on COGS due to an appreciable lack of inventory. CMCSA carries the lowest cost in the peer
group at 30.4%. Smaller companies suffer from much higher COGS, like DTV with 53.2% due to
the youth of the company, its need to gain consumer acceptance, lower revenues, and less reach.
DTV currently produces in just 30% of the revenues of CMCSA. CV has the second lowest COGS
at 48.5%, with just 4% of CMCSA’s revenues by size (Exhibit 5.4). The performance is attributed
to less infrastructure to support, fewer substations, and the inability to spread its cost over a larger
base. In this instance being small is a benefit as CV operates near the simple industry average of
47.5%. TW has a significant disadvantage to CMCSA with COGS of 58% from trying to compete
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with CMCSA without the benefits that scale provides as TW achieves only 46% of CMCSA’s
revenues. Most of the industry’s COGS stem from programming, production, infrastructure, and
PP&E as there is little, if any, inventory (Exhibit 5.2).
SG&A
CMCSA enormous size becomes a detriment regarding its selling and general administrative
expenses (SG&A), incurring 36.3% (Exhibit 5.2 & 5.4). The large cost of employing 139,000
workers (Exhibit 5.4) while spending on advertising and marketing to maintain and gain share in
a saturated market is a significant financial burden. TW fares much better in this metric with the
lowest SG&A of the peer group at 18.9% and just 34,000 employees or 24.5% that of CMCSA.
Advertising and marketing costs are the more significant burden for smaller companies instead of
wages, as they seek greater share and acceptance by consumers. These drivers propel higher
SG&A’s of 23.7% for CV and 22.6% for DTV. The industry simple average equates to 25.4%
(Exhibit 5.4 & 6.8)
Interest Expense
Due to the highly levered nature of the industry, interest expense on debt is a significant factor
when referencing cost structure. Tax benefits and breaks notwithstanding, CMCSA has the highest
expense on debt at $2.617 billion in 2014 (Exhibit 5.4 & 6.12). TW’s interest expense is also
proportionate to its size at $1.169 billion as TW produces 46% of the revenues of CMCSA and
carries a correlated 45% of the total interest cost of the industry leader. The high cost of
acquisitions, infrastructure, and PP&E spending are the main drivers of debt from EFN. CMCSA
and TW have a times interest earned (TIE) ratio of 5.7 and 5.1 respectively (Exhibit 5.4), showing
plenty of operating cash on hand to cover the interest payments but also showing a roughly 20%
reduction to the bottom line. Size benefits industry participants as revenues from large market
share show consolidation to be a major factor in the ability to cover the expense. CV is the worst
performer in this metric of the cohort group as it has disproportionately high leverage (181.5%)
and low revenues ($266 million) (Exhibit 5.4) compared to the industry leaders. A TIE ratio of 1.6
illustrates how much of a burden on CV’s operating income interest expense is. Undoubtedly this
is a result of CV’s inability to grow organically, thus the reliance on EFN and the high cost of
interest and repayment of loans. Conversely, DTV as a satellite provider in the growth stage of its
industry life cycle, having negative equity is merely a symptom of heavy financing necessary for
growth. DTV shows sufficient operating income to pay for these expenses as is demonstrated by
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its TIE ratio of 5.7 due to rapid appreciable increases in both revenue (3.6%) and net income (30%)
Y-o-Y (Exhibit 5.4 & 6.3).
5.1.1.3 – 5.1.2.
Revenue and Net Income (N/I) Growth (Y-o-Y 13’-14’)
Market consolidation and the resulting lack of competition is leaving land based cable service
providers fighting over many of the same customers for increases in market share. Revenue growth
for the largest providers has been relatively low, as befits a mature industry, with CMCSA growing
2.5% and TW contracting at -5.5% (Exhibit 5.4 & 6.3). CV has posted a 2.5 % increase due to the
nature of being a differentiated option with somewhat better customer service than the top two
providers. Growth gains for CV were overshadowed by a decline in N/I of -29.4% (Exhibit 6.5)
due to the aforementioned disproportionate interest expense. The growth potential for satellite T.V.
is apparent as revenue growth is up 3.67% Y-o-Y driven by increases in consumer acceptance and
expansion of reach. Another major benefit to DTV that shows upside is the N/I increase Y-o-Y of
30.1% (Exhibit 5.4, 6.3, & 6.5) due to a lower cost structure which drives its’ ROIC and increases
the ROIC-WACC spread. N/I rose for CMCSA by 10% due to scale benefits, slight increases in
efficiency, and benefits from slight increases in market share. TW also experienced N/I declines
of – 24.9% owing to revenue contraction (-5.5%), the lowest gross margins (42.6%), and the
highest cost structure (77%) (Exhibits 5.4, 6.3, 6.5, & 6.11). The saturated and mature nature of
the North American cable market is evidenced by one company experiencing gains while others
suffer declines.
ROI & ROA
ROA for land based providers is effectively driven by scale but hampered by intangible assets
and goodwill accumulation accounts on the balance sheet. CMCSA achieved 5.4% and TW 5.5%
in high correlation as these metrics show the weight and drag of non-revenue producing assets on
performance. Goodwill and intangibles comprise 65% and 56.5% of total assets on the balance
sheets for each company respectively (Exhibit 5.4, 6.9, & 6.10). CV’s smaller size and lack of
acquisitions in the industry shows disproportionately better results at 4% ROA with revenues only
3% the size of the industry leader CMCSA. This is a function of much lower accumulations of
non-revenue producing goodwill and intangibles on the balance sheet amounting to only 15.4% of
total assets (Exhibit 6.10). CV does however have the lowest ROI of the peer group due to large
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debt from EFN to build infrastructure to become competitive. DTV benefits from the growth stage
of the satellite industry as it has produced an ROI of 17.5% and an ROA of 12.4% (Exhibit 5.4 &
6.9). DTV’s intangible assets amount to only 19.3% of total assets (Exhibit 5.4 & 6.10) and are
mostly investments in patents and technology. ROI is being driven by the asset light nature and
lower cost structure of the satellite business as well as by the appreciable growth from platform
adoption by the consumer. ROA is similarly buoyed by the lack of non-revenue producing assets
on the balance sheet.
Scale helps to lower the impact of large fixed assets in the form of PP&E for the larger and
mature CMCSA (19.3%) and TW (15%) (Exhibit 6.10) as it can spread that fixed cost among
many more customers. CV (44.7%) has had to invest heavily in infrastructure just to compete in
the land based space and will have trouble achieving the scale necessary to diminish its fixed asset
costs due to the consolidated and saturated nature of the North American market. Conversely, the
lighter asset structure of satellite dissemination is spreading the lower cost structure over a growing
number of consumers as its reach broadens. DTV has still had to invest heavily to establish
infrastructure, pay for satellites, and invest in PP&E to fuel growth. It carries 26.4% of total assets
as fixed assets on its balance sheet, but expect that amount to decline steadily with continued
growth.
ROIC-WACC Spread
The return on capital less the cost of capital provides a more transparent view of investment
returns and shows how efficiently capital is being utilized by each company. Size works against
the industry leaders in this metric as CMCSA only generates 3.7% and TW 1.6% in returns (Exhibit
5.4 & 6.6). They are hampered by low growth, market saturation, commoditization, and a higher
average cost of capital than CV due to the higher cost of considerably more equity financing. CV
enjoys an 11.6% spread which is a function of greater revenue growth, lower financing costs from
primarily debt, a smaller asset base, and less non-revenue generating assets on the balance sheet.
DTV enjoyed the highest spread at 23.3% in 2014 (Exhibit 5.4 & 6.6) which is driven by rapid
growth in subscribers and revenue, a significantly lower cost structure, less non-revenue
generating assets on the balance sheet, and large increases in net margins.
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5.2
*See Appendix exhibit 5.0
5.2.1. Comcast’s competitive advantage is its vast U.S. infrastructure providing both
residential and business class services. Comcast is not significantly differentiated in price or
programming from other land based providers. Their superior infrastructure is the main
differentiation from its rivals allowing advantages of speed, reliability, and scale. Ample
capacity allows Comcast to provide high speed data transfer rates and stream the best quality
video and sound. The advantage of satellite provider Direct TV is a lower cost structure and
international content for Brazilian, Chinese, Filipino, Korean, Russian, and Vietnamese channel
packages. Satellite provider DTV is not vertically or backwards integrated and therefore neither
produces nor owns any content. Comcast has the capability to leverage NBC Global to duplicate
international programming across land connectivity with better consistency than the less reliable
satellite feeds. Time Warner, Comcast’s closest industry competitor, produces content but does
not have the extensive infrastructure that Comcast utilizes for scale benefits. Comcast stays
ahead of the technology curve through innovations like cloud based DVR’s, IP services, and an
updated fiber-optic network. Comcast’s management staff and adherence to corporate strategy
are significant differentiators. Their joint ventures, M&A activity, and new product offerings all
play crucial roles in the continued evolution and success of the cable service provider segment.
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5.2.2
*See Appendix exhibit 5.0 B
5.2.3.
*See Appendix exhibit 5.0 C
5.3-5.3.1. Assessment of Weaknesses
Comcast’s weaknesses include factors such as: cost of upgrading to a quality fiber-optic
infrastructure, large wage expenditures and upkeep costs to support infrastructure, limited access
to foreign markets, increasing FCC regulation costs, and possible stagnation of management
initiatives from failure to develop young talent. The lack of standardization in regard to copper
versus fiber-optic cables will require additional spending with the possibility of assuming more
debt. Limited local and regional access to cable and internet networks in rural areas, due to lack of
significant population, makes it hard to justify the high costs of reaching few additional
subscribers. Current advertising expenses are disproportionate to returns as market saturation
prevents significant increases in share and focus shifts to maintaining top of mind awareness.
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Fragmented audiences throughout the U.S., due to clustered subscriber bases, have become
accustomed to their service providers and the features they offer. Room for increases in employee
efficiency leading to SG&A cost reductions exist that can simultaneously lower costs, increase
cash flows to the bottom line, and raise customer service ratings. Large legal expenses incurred
from the inability to perform M&A activity, due to the highly consolidated nature of the cable
service provider industry, will make scale increases through acquisition more difficult as time goes
on. While CMCSA has a strong management team, the failure to recruit and acclimate new talent
to the company is just beginning to be addressed. This can pose a significant weakness if a few
key executives were to leave the company. As cost structures for more advanced data delivery
systems decrease disproportionately to the rising cost of laying cable, further advances in
technology may negate the advantage of land based reliability in the foreseeable future.
6.0 Business Strategy
6.1 CMCSA is slowly increasing its industry standing through a cost leadership approach.
This is achieved through cost cutting, focusing on scale from increased infrastructure and
industry consolidation to deliver fast and reliable service to the consumer. Due to the very
mature nature of the industry, cost cutting is the logical focus for increasing profit margins and
ROIC. CMCSA, a land based cable service provider, is in a mature industry teetering on the edge
of the decline stage of its industry life cycle. This is demonstrated by the consolidated state of the
industry, the need to lower costs, increase scale, the focus on efficiency, and the active search for
acquisitions to further consolidate or enter new markets. CMCSA’s focus is on increased
revenues and margins with little regard for customer service due to the oligarchic structure of the
cable distribution hierarchy. CMCSA leverages its technology platforms to create innovations
like Xfinity and cloud services to create more differentiation and willingness to pay in the minds
of consumers, making CMCSA a competitor with a dual advantage. (Exhibit 5.6)
6.1.1 – 6.1.1.1.
CMCSA’s strategy relies on scale and the delivery of reliable, speedy service to business and
residential subscribers. Differentiation through innovation is another way CMCSA attracts
customers. Subscribers are now relying more heavily on internet than ever before and CMCSA is
the leading provider with 15.3% market share according to Ibisworld.com. The prominent
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financial evidence for this strategy is in CMCSA’s cost structure. Combined operating costs for
CMCSA are 66.7% of revenues compared to the industry average of 72.9% (Exhibit 5.4 & 6.11).
TW has 77%, DTV 75.7%, and CV is the next lowest with 72.3% showing CMCSA’s
competitive strategy of cost cutting and efficiency to be a significant advantage. Low overhead
costs are a function of spreading the COGS and SG&A over a wide subscriber base. Scale also
helps to offset the significant expense of employee wages required to staff, service, and
maintenance CMCSA’s immense infrastructure and customer base. There is still room for
improvements in efficiency as CMCSA has disproportionately higher SG&A costs compared to
TW (Exhibit 5.4 & 6.8). CMCSA’s advertising expense amounts to approximately 7.4% of total
revenues (Exhibit 5.2) and is used to maintain market share, retain top of mind awareness, and
increase share versus its rivals.
Customers seem to be willing to pay more (Exhibit 5.6) for the reliability of land based cable
providers, CMCSA in particular, due to the consistency, speed, and reliability of connection
services versus the notoriously spotty satellite delivery method. Added value from differentiation
like Xfinity service, 50+mbps internet, and cloud services also attracts subscribers nationwide.
Low revenue growth (2.56%), steady margins (3.3% operating margin Y-o-Y) (Exhibit 5.3), and
an operational cost focus on decreasing COGS Y-o-Y from 2012-2013 (-1.3%) and 2013-2014 (-
.05%) (Exhibit 5.2). These are signs indicative of the mature nature of the industry with the
inevitability of shifting to the decline stage of the industry life cycle due to government
regulations disallowing opportunities for appreciable scale enhancement. The most recent
example is the rejection of the CMCSA and TW merger by the FCC. The presence of signs of
the state of the industry’s maturity like massive consolidation efforts, search for greater scale,
level of market saturation, and low ROIC-WACC spread show that new sources of revenue must
be found before margins disappear.
Considering the lack of any appreciable inventory, CMCSA short cash conversion cycle
(CCC) of 3.6 days, a 24.3% improvement Y-o-Y (Exhibit 5.3), become more efficient through
enhanced collection efforts to shorten days in receivables while extending payment terms for
longer days in payable. This will add excess liquidity and improve asset based metrics. CMCSA
can improve several of its performance measures, such as asset turnover and ROIC, by writing
down some of the goodwill and intangibles on its balance sheet while paying down LTD.
Carrying 65% of its total assets as goodwill and intangible non-revenue producing assets
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(Exhibit 5.4 & 6.10) is excessive when compared to the simple industry average of 39% or TW’s
level at 56.5%. Lowering its long term debt will reduce interest payments and add more income
to the bottom line as CMCSA is losing 17.6% of its operating cash flows to interest expenses
amounting to $2.617 billion in 2014 (Exhibit 5.2 & 6.12). Interest payment amounts have
doubled Y-o-Y since 2012 rising from 2.1% to 4.4%. CMCSA’s TIE ratio improvement of 8.8%
Y-o-Y to 5.7x (Exhibit 5.3) shows an operational cost cutting concentration and less attention to
capital structure costs as current portion of LTD due has grown 40% Y-o-Y amounting to $4.217
billion in 2014(Exhibit 5.1) while total LTD increased .02% (Exhibit 5.1). Another significant
way to improve efficiency and sustain CMCSA’s advantage would be to decrease the amount of
employee payrolls which would lower the disproportionate SG&A costs (36.2%) considerably
compared to the industry average of 25.4%. and TW’s 19% (Exhibit 5.4).
6.1.1.2 CMCSA controls enough market share (40.3%), generates enough revenues (60%
more than TW), and has achieved sufficient scale to sustain its current strategy and market
position as the industry leader for the foreseeable future (Mkt Cap 54% bigger than TW). There
are still several tools to cut costs at CMCSA disposal. These ways will help CMCSA improve
financial performance metrics to attract continued investment while providing steady returns for
stakeholders, barring a dramatic shift in technology. Debt reduction, goodwill write downs, and
increased employee efficiency are key to CMCSA continued success. CMCSA generates 60%
more revenue than next largest rival TW, yet its employees generate 61% less revenues per
person ($497K) than TW ($814K) (Exhibit 5.4). This disparity shows room for improvement by
CMCSA as the industry simple average is $708K or 30% more. Improving the ROIC-WACC
spread by reducing total LTD along with write downs of goodwill, some intangibles, and other
non-revenue contributing asset accumulations on the balance sheet would increase performance
measures tremendously and make CMCSA more attractive to investors for the long term.
Reductions to assets would force CMCSA to remove some debt from its balance sheet thereby
amplifying the positive effect. Immediate improvements would be seen in metrics such as ROIC,
asset turnover ratios, and leverage ratios. With current free cash flows to firm (FCFF) of $9.9
billion, the company is well positioned to make these changes to its structure without seeking
EFN.
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6.1.2 The highly consolidated nature of the cable service provider industry leaves the smaller
competitors falling in lock step with the industry leader as far as generic strategy is concerned.
The highly mature stage of the industry’s life cycle serves to further tie the generic business
strategies of the smaller companies to the leader. The need to achieve scale, cut costs, increase
efficiencies, and make acquisitions in search of new revenue streams and markets becomes an
increasingly more pressing issue over time. These drivers of performance are necessary to
achieve the goals of increased margins, shareholder value, and FCFF. This is evidenced by high
industry concentration, similar debt loads, and relatively common metrics throughout the land
based providers. The divergence in strategic approach comes from the satellite providers as
evidenced by DTV, the market leader (53.6%) and one of only two companies in that space. The
ability for satellite providers to claim market share from the land based providers in North
America is limited only by technology. Providing reliable connectivity, differentiated
programming, internet, and phone would completely change the industry. The lower cost
structure and lack of infrastructure investment result in savings that can be passed on to the
subscriber to undercut the land based provider pricing structure. The opportunities for growth in
that industry are magnified by high barriers to entry, low competition, and an industry life cycle
still in the growth stage. This presents a clear and present danger to the market share of the land
based providers.
6.1.2.1 The ability of DTV to have its customers share the cost burden of infrastructure
through the purchase of the satellite receiving dish, combined with lower PP&E requirements
from the lack of need for substations and wires to disseminate signal, shows significant cost
structure advantages that traditional land based providers cannot match. Evidence of this is
displayed by a significantly higher ROIC-WACC spread of 23.3% (Exhibit 5.4 & 6.6). The
lower fixed asset structure is currently above the industry leaders at 26.4%, but DTV is only 30%
the size of CMCSA by market cap and the ratio will decline rapidly as the company expands.
DTV has more than double the fixed asset turns of CMCSA at 4.95 compared to 2.22 (Exhibit
5.4 &6.10) and its intangible assets constitute mainly patents and technology that help produce
revenue with little goodwill on the balance sheet. The lower debt load of 91.4% (Exhibit 5.4,
6.1, & 6.2) incurred by younger company DTV will similarly decline as the company grows,
which it has done at a much faster rate than land based providers in both revenue 3.67% and
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income 30.1% Y-o-Y (Exhibit 5.4, 6.3, &6.5). Though DTV has lower employee payrolls, the
cost savings through efficiency is offset by growth-stage advertising spending. SG&A spending
of DTV is still below the simple industry average at 22.6% and well below CMCSA’s 36.3%.
DTV also produces the highest sales per employee of the peer group at $1.043 million which
further highlights their efficiency. The lower cost structure, more efficient operations, and better
growth performance of the satellite provider industry will only increase as time goes forward.
Savings and efficiency will be magnified as technology improves and scale is achieved. The land
based providers are relatively correlated in most metrics of comparison as CMCSA and TW
combined control 61% of the market, and none of the other companies in the space control more
than 9% share individually. CMCSA stands out as the cost leader through scale. The saturation
of the market creates a positive sum game. As CMCSA gains subscribers and increases revenues,
TW and CV appear to stagnate or lose ground in revenue and N/I growth (Exhibit 6.3). The land
based competition is driven by the same motivators as CMCSA in the mature stage of the
industry. They seek scale, cost efficiency, and acquisitions to increase share or to enter new
markets through emergent technology. Relatively similar ROI, ROA, fixed asset turnover, and
levels of leverage (Exhibit 6.1, 6.2, 6.4, 6.5, 6.9, & 6.11) show conformity while differences
occur mainly due to lack of scale or size. This is displayed by the ROIC-WACC spread, total
asset turns, and negative equity on the books of the smaller companies in the land based provider
industry (Exhibit 5.4, 6.6, & 6.7). Pricing in the industry remains relatively constant throughout
each region of the nation suggesting collusion to ensure that a price war does not occur. A price
war would deflate already low margins, drive the smaller providers out of business in both land
and satellite, and create a monopolistic industry.
6.1.3 CMCSA is on the forefront of the productivity frontier, skewed to differentiation because
it creates a willingness to pay beyond what other land based providers are able to achieve.
CMCSA offers cutting edge technology, reliability, and speed. While its customer service is
rated the worst of all companies in America, the oligarichal structure of the cable provider
industry leaves few options for traditional cable service. Offers, such as bundling, initially helped
consumers to feel as if they were getting more value for their money. That veil is starting to lift
as savvy consumers are searching for ways to only pay for what they desire in a-la-carte fashion.
TW is further back from the frontier than CMCSA since it cannot achieve the scale necessary to
Comcast Page 32
compete with the industry leader which is twice TW’s size by market share. CV is firmly stuck
in the middle offering neither differentiation or cost leadership and greatly lacking in the scale
necessary to compete in this consolidated and mature industry. In contrast, DTV is on the
productivity frontier skewed heavily toward cost leadership. The lack of need for extensive
infrastructure, highly efficient employee structure, and the use of partnerships to provide similar
bundling services as its rivals without the burden of carrying the costs in-house give the satellite
providers a large cost advantage (Exhibit 6.13 & 6.15).
Advances in technology will undoubtedly require land based traditional cable service
providers to make a signigficant shift in the way content is distributed, as the cost for
dissemination continues to fall and margins disappear. Through innovation and the leveraging of
its extensive and reliable network, CMCSA should be able to pivot to a pipeline distribution
model focusing more on internet services as it continues to upgrade its network to fiber-optics
from dated coaxil cable. Vertical integration into content productionn and the ability to divy out
content catered to individual tastes will help to sustain CMCSA as the industry leader for the
foreseeable future. Other land based providers will likely retain their similar standings in relation
to CMCSA or dissappear entirely as the nature of the industry will experience a fundamental
change from established norms.
6.2. – 6.2.2.
Recommendation 1.
CMCSA should focus on its competitive advantage of infrastructure by accelerating the
upgrading of their network to fiber-optic capacities. Enhanced speed and reliability combined
with the ability to manage any excess capacity in the industry will ensure that CMCSA has a
preeminent position in the internet provider space. This will lower the threat of substitutes and
new entrants as it increases the already significant cost barriers to compete. Technologically,
CMCSA will be able to stay in the forefront of new developments by providing the best
streaming capability for the latest innovations such as virtual reality and IP systems. Enhanced
pipelines will enable them to adhere to the net neutrality requirements passed by the government.
By expanding their massive network CMCSA will ensure rivals are unable to match the scope of
their services. CMCSA will become more differentiated as consumers will seek the network with
the most capacity in order to handle the information flow demands of new technology, increasing
Comcast Page 33
their willingness to pay for such services (Exhibit 5.6). The main risk to this course of action is
the projected cost of the upgrades both in installation and materials. CMCSA has FCFF that are
more than sufficient to undertake this project currently, but that may decrease over time as
margins shrink and increased scale becomes harder to achieve.
Recommendation 2.
By decreasing the excessive amount of SG&A spending through employee consolidation,
CMCSA can turn its competitive advantage through scale in its favor. By enhancing its cost
leadership position, CMCSA can make it harder for other firms to compete and for new entrants
to appear. The ability to combine tasks across multiple departments can increase efficiency as
well as afford more cash flow to the bottom line. Increased FCFF wil l support innovation
research, enhancements to infrastructure, and increase the skilled nature of the workforce. Better
trained employees will provide better service and produce more. Possible risks could be
increased employee turnover from resistance to shouldering more workload and the probability
that the fewer, more highly trained employees will require higher salaries.
Recommendation 3.
Increased willingness to pay can be derived from a direct increase in subscriber satisfaction
with customer service. CMCSA is notorious for having below average service of any company in
the U.S and this causes discontent and attrition. The increasing prevalence of substitutes shows
CMCSA should focus more on the customer to sustain its subscriber base and encourage
retention allowing easier promotion of IP and branded services. Better customer service would
serve the 80/20 rule as fixing 20% of the problems will appease 80% of the customers and
increase the willingness to pay for services in the process. Excess employees can be transitioned
to internal customer service processes without the need for new hires, while enhancing efficiency
across departments, and decreasing costs. The efficiency benefits of shuffling workers and
enhancing workflows within the company will help to change the culture within CMCSA and
better serve the focused market. Some risks include the challenge of changing public perception
and the cost involved with reorganization and insourcing.
7.0. Corporate Strategy
Media production and distribution requires a high amount of cooperation and commitment from
suppliers and buyers to reach the end consumer. This industry has a multitude of layers and
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partnerships. The television distribution component in Florida alone is comprised of 10 networks,
61 stations, and 1,395 channels. (Global Computing, n/d)
7.1. - 7.1.1.2.
Comcast’s relationships fall primarily on the far extremes of the vertical relationship map. Since
its inception, Comcast has built its business through joint ventures, acquisitions, and divestitures.
It eventually consolidated many smaller regional businesses, achieving vertical integration of
complimentary and connected services. Comcast’s roots stem from a technology provider named
Jerrold Electronics. The purchase of American Cable Systems in 1963 and the subsequent
acquisition of Storecast in 1965 combined to form the first iteration of Comcast. Over the next 50
years, the newly formed Comcast Inc. made strategic moves to position themselves as the largest
cable provider in the United States. Between 1999 and 2009, Comcast acquired more than $144.5
billion worth of businesses, which included content producer NBC Universal and data distributor
AT&T Cable and AT&T Broadband. (Comcast, 2015) These strategic acquisitions increased the
control they had across the value chain. NBC provides access to production, content, and
broadcasting capabilities, whereas AT&T affords horizontal growth and scale benefits. According
to the vertical relationship matrix (Exhibit 7.3), long-term contracts in the lower left region of the
chart have been an important part of their service stability. Comcast seldom falls within the center
region.
Comcast’s competitive strategy is focused towards increased infrastructure and backwards
integration. They regularly divest products or business lines that are not profitable or do not align
with their business structure. A notable instance being Comcast’s divestiture of its stake in QVC
for $7.7 billion in 2003, an investment totaling $1.7 billion between 1986 and 1995. (Comcast,
2015) This shows an understanding and focus on their value chain activities, which enhance
distribution through backwards integration. Asset acquisitions such as these produce medium to
long-term commitments to their investments and help reduce the possibility of contract issues
across the supply chain. As noted earlier, government regulation from the FCC resulted in the
rejection of Comcast’s attempted merger with Time Warner. This illustrates the level of scope,
scale, and industry consolidation that Comcast has reached with their integration and control
spanning different segments of the media industry. It is likely that future attempts at mergers and
acquisitions will result in close inspection of the details and impacts of the proposed deal.
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7.1.2-7.1.2.3
Comcast services encompass a wide range of the media and entertainment business. Their
traditional home television distribution model has grown to include internet, phone, and security
services that interconnect through mobile devices. The expanded network not only serves
residential needs, it is also utilized for business class services that cater to the growing amount of
home based businesses and telecommuters. Further up the media chain are Comcast’s broadcast
television, network stations, and movie production. An ancillary business segment acquired from
the merger of NBC was Universal Theme Parks in Hollywood California and in Orlando Florida.
(Comcast, 2015) These entertainment facilities increase brand exposure but do not provide any
direct services to the primary business model or value chain. Other assets include large amounts
of intellectual property and archived media production under the umbrella of the various business
divisions. Their distribution channels, including home and business communications, require a
substantial amount of technology to create and deliver content to the end consumer. One estimate
states that it would cost over $140 Billion to build out and be able to compete with Comcast’s
infrastructure. (Yarow, 2012) Some examples of partnerships have been with companies like
Cisco, Motorola, and Scientific Atlantic to produce end user control devices such as DVR’s,
routers, and cable boxes.
7.1.3 – 7.1.3.3. Geographic Scope
Comcast’s subscriber base of 27 million members establishes them as the largest CSP in the
U.S. This translates to roughly 40% of the industry’s market share. In comparison, the next three
largest providers Time Warner, Cox Enterprises, and Charter hold an aggregate of 38.6%,
according to Ibisworld.com. In addition to their U.S. coverage, the underutilized NBC Global,
which only accounts for 8% of Comcast’s revenue, has nearly 200 television divisions across more
than 30 countries worldwide. (SEC, n/d) (Exhibit 7.1)
7.2 Corporate Recommendations
7.2.1 – 7.2.1.2.
With the Time Warner acquisition blocked by the FCC, (Trefis, 2015) Comcast’s focus should
be on aggressively increasing their fiber infrastructure. For more than a decade Comcast has been
working with Level 3 Communications, (Comcast, 2004) a global fiber and business class service
provider who, as of last year, purchased TW Telecom (Level 3, 2014) strengthening their U.S.
Comcast Page 36
fiber footprint. Strategic alliances allow Comcast the ability to leverage an already strong network
in conjunction with Level 3 to enhance existing capacity while increasing internet traffic speeds.
Alternatively, keeping with Comcast’s strategic heritage, they could attempt to acquire Level 3.
The proposed TW deal would have cost around $45 Billion (Ramachandran, 2014) and as of July
14, 2015 L3 had a market cap of $18.65 Billion. (Yahoo, 2015) A premium offer of 20% above
Level 3’s current market value would be half of what Comcast was offering to buy TW. A move
like this would extend Comcast’s business class services globally and provide an accelerated U.S.
fiber infrastructure build out. (Exhibit 7.2) Purchasing Level 3 instead of contracting out services
would reduce some future asset-specificity problems and negotiation struggles for Comcast.
As evidence has shown, broadcast television demand is, and most likely will continue to,
diminish in place of on-demand and mobile viewing. (Zulueta, 2014) Comcast should continue
their acquisitions of network content creators and consider developing their own network affiliates.
They also need to take advantage of the NBC global network through larger offerings, distribution,
and aggregation of these stations. Cross selling global content to multinational subscribers will
increase differentiation capabilities, closing the gap between Comcast and satellite providers that
lay claim to differentiation due to international content.
A more aggressive pursuit of the development and deployment of its Internet Protocol TV
solution, Xcalibur/Viper service, will better position Comcast as customers migrate towards
Smart-TV’s and other viewing technology. The need for traditional cable boxes will decline,
decreasing the expenses associated with repairs, licensing, and support. The removal of converter
devices will help increase bottom line profitability. Eventually the software-based connectivity to
media could remove the need for subscribers to be within Comcast’s land based delivery network
and allow Comcast to generate revenue while their customers travel or utilizing the infrastructure
of other carriers.
Comcast should divest the operations of its theme parks and license out the intellectual property
similar to the Universal Parks in Japan and Singapore, as this segment of the business is unaligned
with their core competencies. Per Comcast’s 10-k, “theme parks are subject to various regulations,
including laws and regulations regarding environmental protection, privacy and data protection,
consumer product safety and theme park operations, such as health, sanitation, safety and fire
standards, and liquor licenses.” Other conditions that also influence attendance are weather,
consumer disposable income, and exchange rate risk.
Comcast Page 37
7.2.2. Traditional network infrastructure build outs are costly, (Yarlow, 2012) take time to create,
and require regulatory approval. Acquisitions of existing infrastructure are also costly and subject
to scrutiny by regulators. The lack of build time allows for concentration on integration of
personnel and services. The fiber network infrastructure is reaching a maturity point where
acquisitions of existing firms will most likely be favored over the traditional make models. (Reed,
2015) Other risk factors are companies like FPL and Earthlink (Reed, 2015), who utilize fiber
connectivity services and have primarily been in the B2B segment and have access to large
amounts of unused fiber. Unused capacity could allow for new entrants into the television content
service provider space.
Comcast is poised for steady growth through their use of vertical integration, continued
innovation, business strategies, and access to additional underutilized assets. Infrastructure and
product scope continue to provide Comcast a strong advantage against their direct competitors.
With the new paradigm and evolutionary shift in the cable television industry, companies will have
to find new sources of revenue. The use of traditional broadcast cable television is steadily
declining. The established format of channel bundling for cable programming dissemination will
evolve into streaming, on-demand, global, and a-la-carte subscriptions. Producers of content will
become the new direct suppliers of programming, utilizing the internet over cable distribution.
Programming time constraints and limitations on availability by region will no longer affect
subscribers. Companies like Comcast that own content and have excess capacity can cater to
consumers internet data transfer needs and are prepared for future shifts in the industry. Planning
and foresight through backwards integration will allow Comcast to prosper over the smaller
industry firms with less infrastructure, resources, and capabilities. Comcast’s infrastructure,
partnerships, and global expansion capabilities, combined with extensive resources, will provide
the foundation for future growth.
Comcast Page 38
Appendix
1.1
*Comcast.com
1.2 Corporate Segments
*CSImarket.com
Comcast Page 39
1.2.1
*CSImarket.com
1.3 Value Chain
1.4 Top Competitors
Comcast`48%
Time Warner25%
Cox Enterprise
11%
Charter10%
Cablevision6%
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2.1
2.1 A
2.1. B
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2.1 C
Cable Service Provider Price Contract (Yrs.)
Comcast XFINITY $99.00 2
Time Warner Cable $89.99 1
Cablevision OPTIMUM $89.99 1
Charter Communications $109.99 1
AT&T U-VERSE $89.99 2
Average: $95.79 1.4
2.1 D
2.1 F
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2.1 G External Industry Analysis
2.1 H
2.1 I
What do
customers want?
(Analysis of
demand)
How do firms
survive
competition?
(Analysis of
Competition)
Key Success
Factors
Cable Service
Providers
Affordability,
reliability,
consistency,
clarity, &
velocity.
Commoditized
service, price
competition, high
fixed costs, high
entry & exit
barriers,
substantial
capital
availability
Infrastructure
access, extensive
distribution
networks, niche
market access,
regulatory
compliance, &
technological
adaptability.
0
1
2
3
4
5
Risk of Entry byCompetitors(1.5)
Industry Rivalry (3)
Bargaining Power ofBuyers (1)
Bargaining Power ofSuppliers (2)
Substitute Products (4)
Porter's 5 Forces
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2.1 J
2.1 K
2.1 L
Comcast Page 44
2.1 N
3.0 Macro Environmental Analysis
3.1 Macro Environmental Analysis Continued
Comcast Page 45
4.1 Macro Environment
5.0. Resource Based Strategy Framework
012345
Political - Legal Mergers,Net Neutrality
Economic DisposableIncome Consumer…
Socio-Cultural StreamingServices
Technological HD TVS,Streaming Content
Demographic Targetedads/ Millenials
Ecological E-Billing
Dimensions of the Macro Environmnet
Comcast Page 46
5.0. B Porters Value Chain
5.0. C VRIO Framework
Comcast Page 47
5.1 Balance Sheet
Consolidated Balance Sheet (USD $) Exhibit
5.1 Dec. 31, 2014 Dec. 31, 2013
Common
Size 2014
Common
Size 2013
Change Y-
o-Y
Current Assets:
Cash and cash equivalents $3,910,000,000 $1,718,000,000 2.45% 1.08% 126.84%
Investments [Current] 602,000,000 3,573,000,000 0.38% 2.25% -83.21%
Receivables, net 6,321,000,000 6,376,000,000 3.97% 4.01% -1.19%
Programming rights 839,000,000 928,000,000 0.53% 0.58% -9.89%
Other current assets 1,859,000,000 1,480,000,000 1.17% 0.93% 25.19%
Total current assets 13,531,000,000 14,075,000,000 8.49% 8.86% -4.18%
Film and television costs 5,727,000,000 4,994,000,000 3.59% 3.14% 14.30%
Investments 3,135,000,000 3,770,000,000 1.97% 2.37% -17.12%
Property and equipment, net 30,953,000,000 29,840,000,000 19.43% 18.79% 3.39%
Franchise rights 59,364,000,000 59,364,000,000 37.26% 37.38% -0.33%
Goodwill 27,316,000,000 27,098,000,000 17.14% 17.06% 0.47%
Other intangible assets, net 16,980,000,000 17,329,000,000 10.66% 10.91% -2.34%
Other noncurrent assets, net 2,333,000,000 2,343,000,000 1.46% 1.48% -0.76%
Total assets 159,339,000,000 158,813,000,000 100.00% 100.00% 0.33%
Current Liabilities:
Accounts payable and accrued expenses
related to trade creditors 5,638,000,000 5,528,000,000 32.38% 29.23% 10.79%
Accrued participations and residuals 1,347,000,000 1,239,000,000 7.74% 6.55% 18.10%
Deferred revenue 915,000,000 898,000,000 5.26% 4.75% 10.68%
Accrued expenses and other current liabilities 5,293,000,000 7,967,000,000 30.40% 42.13% -27.83%
Current portion of long-term debt 4,217,000,000 3,280,000,000 24.22% 17.34% 39.66%
Total current liabilities 17,410,000,000 18,912,000,000 100.00% 100.00% -7.94%
Long-term debt, less current portion 44,017,000,000 44,567,000,000 49.53% 50.16% -1.25%
Deferred income taxes 32,959,000,000 31,935,000,000 37.09% 35.95% 3.19%
Other noncurrent liabilities 10,819,000,000 11,384,000,000 12.18% 12.81% -4.98%
Commitments and contingencies
Redeemable non-controlling interests and
redeemable subsidiary preferred stock 1,066,000,000 957,000,000 1.20% 1.08% 11.37%
Total LTD 88,861,000,000 88,843,000,000 100.00% 100.00% 0.02%
Total Debt 106,271,000,000 107,755,000,000 -1.38%
Equity:
Preferred stock - authorized, 20,000,000
shares; issued, zero 0 0
Common stock 30,000,000 30,000,000
Additional paid-in capital 38,805,000,000 38,890,000,000
Comcast Page 48
Retained earnings 21,539,000,000 19,235,000,000 11.98%
Treasury stock, 365,460,750 Class A common
shares and 70,934,764 Class A Special
common shares -7,517,000,000 -7,517,000,000
Accumulated other comprehensive income
(loss) -146,000,000 56,000,000
Total Comcast Corporation shareholders'
equity 52,711,000,000 50,694,000,000
Non-controlling interests 357,000,000 364,000,000
Total equity 53,068,000,000 51,058,000,000 3.94%
Total liabilities and equity 159,339,000,000 158,813,000,000 0.33%
5.2. Income Statement
Consolidated Statement of Income (USD $)
12 Months Ended
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012 Common
Size 2014
Common
Size 2013
Common Size
2012
Change
Y-o-Y
13'-14'
Change
Y-o-Y
12'-13'
Revenue
$68,775,000,000 $64,657,000,000 $62,570,000,000 6.37% 3.34%
Costs and Expenses:
Programming and production (COGS)
20,912,000,000 19,670,000,000 19,929,000,000 30.41% 30.42% 31.85% -0.05% -1.30%
Other operating and administrative (SG&A)
19,862,000,000 18,584,000,000 17,833,000,000 28.88% 28.74% 28.50% 0.48% 4.21%
Advertising, marketing and promotion (SG&A)
5,078,000,000 4,969,000,000 4,831,000,000 7.38% 7.69% 7.72% -3.93% 2.86%
Combined SG&A
24,940,000,000 23,553,000,000 22,664,000,000 36.26% 36.43% 36.22% -0.45% 3.92%
Depreciation
6,337,000,000 6,254,000,000 6,150,000,000
Amortization
1,682,000,000 1,617,000,000 1,648,000,000 11.66% 12.17% 12.46% -4.22% -1.88%
Total costs and expenses
53,871,000,000 51,094,000,000 50,391,000,000 78.33% 79.02% 80.54% -0.88% 1.40%
Operating income EBIT
14,904,000,000 13,563,000,000 12,179,000,000 21.67% 20.98% 19.46% 3.31% 11.36%
NOPAT
10,273,178,339 8,706,433,198 8,251,170,213 18.00% 5.52%
Other Income (Expense):
Interest expense
-2,617,000,000 -2,574,000,000 -2,521,000,000 3.81% 3.98% 4.03% 4.42% 2.10%
Investment income (loss), net
296,000,000 576,000,000 219,000,000
Equity in net income (losses) of investees, net
97,000,000 -86,000,000 959,000,000
Other income (expense), net
-215,000,000 -364,000,000 773,000,000
Non-operating income (expense)
-2,439,000,000 -2,448,000,000 -570,000,000
Income before income taxes EBT
12,465,000,000 11,115,000,000 11,609,000,000 18.12% 17.19% 18.55% 5.43% -4.26%
Income tax expense
-3,873,000,000 -3,980,000,000 -3,744,000,000
Net income
8,592,000,000 7,135,000,000 7,865,000,000 12.49% 11.04% 12.57% 13.21% -9.28%
Net (income) loss attributable to non-controlling interests and redeemable subsidiary preferred stock -212,000,000 -319,000,000 -1,662,000,000 -16.36%
Net income attributable to Parent
8,380,000,000 6,816,000,000 6,203,000,000
Basic earnings per common share attributable to Comcast Corporation shareholders $3.24 $2.60 $2.32
Diluted earnings per common share attributable to Comcast Corporation shareholders $3.20 $2.56 $2.28
Dividends declared per common share
$0.90 $0.78 $0.65 $0.15 $0.20
Effective Tax Rate
31.07% 35.81% 32.25%
Comcast Page 49
5.3 Ratio Analysis
Comcast & NBC
Universal Common
Ratio Analysis 2014 2013 Change Y-o-Y
13'-14'
Liquidity Ratios
Cash 0.26 0.28 -7.37%
Current 0.78 0.74 4.43%
Quick 0.62 0.62 0.86%
Turnover Ratios
Receivables
Turnover 10.88 10.14 7.29%
Days in Receivables 33.55 35.99 -6.80%
Payables Turnover 12.20 11.70 4.29%
Days in Payables 29.92 31.21 -4.12%
CCC (Days) 3.62 4.79 -24.28%
Fixed Asset Turnover 2.22 2.17 2.54%
Total Asset Turnover 0.43 0.41 6.02%
Leverage Ratios
Total Debt Ratio D/A 0.67 0.68 -1.70%
D/E Ratio 2.00 2.11 -5.11%
Equity Multiplier 3.00 3.11 -3.47%
TE/TA 0.33 0.32 3.59%
LTD Ratio 0.63 0.64 -1.41%
LTD to Total Asset 0.56 0.56 -0.31%
TIE Ratio 5.70 5.27 8.08%
Cash Coverage Ratio 8.76 8.33 5.19%
Debt to Capital 0.67 0.68 -1.70%
Profitability Ratios
Operating Margin 21.67% 20.98% 3.31%
Net Margin 12.49% 11.04% 13.21%
ROA 5.39% 4.49% 20.02%
ROE 16.19% 13.97% 15.86%
ROIC 6.61% 5.54% 19.26%
NWC -
3,879,000,000 -4,837,000,000 19.81%
FCFF 9,914,178,339
Comcast Page 50
5.4 Industry Competitor Analysis
Current Industry Stats 2015 Comcast Time Warner Cable Vision Direct TV - Satellite
Industry Simple
Ave.
At-A-Glance
Mkt Cap (millions)
$
157,552
$
72,781
$
6,718
$
47,354
$
71,101
Revenues (millions)
$
69,220
$
27,683
$
6,500
$
33,548
$
34,238
N/I (millions)
$
8,568
$
3,505
$
266
$
2,925
$
3,816
Employees 139,000 34,000 13,656 32,150 54,702
Sales/Emp $497,986 $814,206 $475,991 $1,043,484
$
707,916.75
Profitability
Gross Margin 69.40% 42.64% 50.71% 43.22% 51.49%
Net Margin 11.53% 13.61% 2.76% 8.96% 9.22%
ROE 16.31% 14.05%
N/A -$5b
equity N/A -$4.9b equity 15.18%
ROI 6.05% 6.40% 5.34% 17.46% 8.81%
ROA 5.40% 5.54% 3.98% 12.38% 6.83%
Growth
Revenue Y-o-Y 2.56% -5.54% 2.49% 3.67% 0.80%
N/I Y-o-Y 10.05% -24.92% -29.44% 30.12% -3.55%
Operating income 21.67% 21.84% 14.62% 15.42% 18.39%
COGS 30.41% 58.02% 48.55% 53.16% 47.53%
SG&A 36.26% 18.97% 23.74% 22.58% 25.39%
Total COGS & SGA 66.67% 76.99% 72.29% 75.74% 72.92%
Valuation
P/E 18.94 21.57 25.62 16.34 20.62
P/Sales 2.3 2.67 1.05 1.42 1.86
P/Cash Flow 15.88 28.94 15.42 15.01 18.81
P/Book 3.02 2.96 N/A N/A 2.99
Financial Strength
D/E Ratio 0.91 0.93 N/A N/A 0.92
Quick Ratio 0.22 0.25 0.77 0.57 0.45
Leverage Ratio 2.06 1.57 N/A N/A 1.82
STD (millions)
$
17,410
$
9,204
$
1,750
$
6,959
$
8,831
LTD (millions)
$
88,861
$
29,579
$
10,047
$
23,713
$
38,050
Total Debt (millions)
$
106,271
$
38,783
$
11,797
$
30,672
$
46,881
STD/REV 25.15% 33.25% 26.92% 20.74% 26.52%
LTD/REV 128.37% 106.85% 154.57% 70.68% 115.12%
TD/REV 153.53% 140.10% 181.49% 91.43% 141.64%
TIE 5.70 5.11 1.59 5.71 4.53
Interest Expense (millions)
$
2,617
$
1,169
$
576
$
898
$
1,315.00
Comcast Page 51
Efficiency
Quick 0.25 0.37 0.84 0.51 0.49
WC -0.76 1.55 1.11 1.06 0.74
Asset Turnover 0.44 0.44 0.97 1.42 0.82
Fixed Asset Turn Ratio 2.22 2.88 2.14 4.95 3.05
Debt/Asset (Total debt Ratio) 0.67 0.61 1.74 1.20 1.05
FA/TA 19.43% 15.01% 44.73% 26.40% 26.39%
Goodwill & Intangible/TA 65.06% 56.49% 15.38% 19.34% 39.07%
Combined FA, Goodwill, & Intangibles/TA 84% 72% 60% 46%
Performance - 7/8/15
1 Day 0.64% -0.01% 0.98% 0.27% 0.47%
5 Day 3.94% -0.05% 3.80% 1.61% 2.33%
30 Day 6.51% 2.91% 3.28% 2.84% 3.89%
90 Day 7.39% 2.45% 35.42% 8.81% 13.52%
YTD 9% 2.87% 19.70% 8.78% 10.09%
Altman Z-Score 1.76 1.53 0.67 2.67 1.66
ROIC-WACC 3.73% 1.63% 11.65% 23.29% 10.08%
Comcast Page 52
5.5 Cash Flows
Consolidated Statement of Cash Flows (USD $) 12 Months Ended
Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2012
Operating Activities
Net income $8,592,000,000 $7,135,000,000 $7,865,000,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,019,000,000 7,871,000,000 7,798,000,000
Share-based compensation 513,000,000 419,000,000 371,000,000
Noncash interest expense (income), net 180,000,000 167,000,000 193,000,000
Equity in net (income) losses of investees, net -97,000,000 86,000,000 -959,000,000
Cash received from investees 104,000,000 120,000,000 195,000,000
Net (gain) loss on investment activity and other 4,000,000 -169,000,000 -1,062,000,000
Deferred income taxes 1,165,000,000 16,000,000 139,000,000
Changes in operating assets and liabilities, net of
effects of acquisitions and divestitures:
Current and noncurrent receivables, net -33,000,000 -721,000,000 -823,000,000
Film and television costs, net -562,000,000 44,000,000 22,000,000
Accounts payable and accrued expenses related to trade
creditors 153,000,000 -667,000,000 366,000,000
Other operating assets and liabilities -1,093,000,000 -141,000,000 749,000,000
Net cash provided by operating activities 16,945,000,000 14,160,000,000 14,854,000,000
Investing Activities
Capital expenditures -7,420,000,000 -6,596,000,000 -5,714,000,000
Cash paid for intangible assets -1,122,000,000 -1,009,000,000 -923,000,000
Acquisitions and construction of real estate properties
-43,000,000 -1,904,000,000 0
Acquisitions, net of cash acquired -477,000,000 -99,000,000 -90,000,000
Proceeds from sales of businesses and investments 666,000,000 1,083,000,000 3,102,000,000
Return of capital from investees 25,000,000 149,000,000 2,362,000,000
Purchases of investments -191,000,000 -1,223,000,000 -297,000,000
Other -171,000,000 85,000,000 74,000,000
Net cash provided by (used in) investing activities -8,733,000,000 -9,514,000,000 -1,486,000,000
Financing Activities
Proceeds from (repayments of) short-term borrowings,
net -504,000,000 1,345,000,000 -544,000,000
Proceeds from borrowings 4,182,000,000 2,933,000,000 4,544,000,000
Repurchases and repayments of debt -3,175,000,000 -2,444,000,000 -2,881,000,000
Repurchases and retirements of common stock -4,251,000,000 -2,000,000,000 -3,000,000,000
Dividends paid -2,254,000,000 -1,964,000,000 -1,608,000,000
Issuances of common stock 35,000,000 40,000,000 233,000,000
Purchase of NBC Universal non-controlling common
equity interest 0 -10,761,000,000 0
Comcast Page 53
Distributions to non-controlling interests and dividends
for redeemable subsidiary preferred stock -220,000,000 -215,000,000 -691,000,000
Settlement of Station Venture liability 0 -602,000,000 0
Other 167,000,000 -211,000,000 -90,000,000
Net cash provided by (used in) financing activities -6,020,000,000 -13,879,000,000 -4,037,000,000
Increase (decrease) in cash and cash equivalents 2,192,000,000 -9,233,000,000 9,331,000,000
Cash and cash equivalents, beginning of year 1,718,000,000 10,951,000,000 1,620,000,000
Cash and cash equivalents, end of year 3,910,000,000 1,718,000,000 10,951,000,000
5.6
6.1 TD/REV
153.53%140.10%
181.49%
91.43%
0.00%
50.00%
100.00%
150.00%
200.00%
Comcast Time Warner Cable Vision Direct TV - Satellite
TD/REV - Exhibit 6.1
Comcast Page 54
6.11 COGS + SG&A
6.12 Interest Expense
6.13 Current Productivity Frontier
66.67%
76.99%72.29%
75.74%72.92%
60.00%
65.00%
70.00%
75.00%
80.00%
Comcast Time Warner Cable Vision Direct TV -Satellite
IndustrySimple Ave.
Combined COGS + SG&A - Exhibit 6.11
$2,617
$1,169
$576 $898
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Comcast Time Warner Cable Vision Direct TV - Satellite
Interest Expense (millions)Exhibit6.12
Comcast Page 55
6.1.5 Future Productivity Frontier
6.2 STD vs LTD
6.3 Revenue vs N/I Growth
0.00%20.00%40.00%60.00%80.00%
100.00%120.00%140.00%160.00%180.00%
Comcast TimeWarner
Cable Vision Direct TV -Satellite
STD v. LTD - Exhibit 6.2
STD/REV
LTD/REV
2.56%
-5.54%
2.49% 3.67%10.05%
-24.92%-29.44%
30.12%
-50.00%
0.00%
50.00%
Comcast Time Warner Cable Vision Direct TV -Satellite
Revenue v. N/I Growth Exhibit 6.3
Revenue Y-o-Y N/I Y-o-Y
Comcast Page 56
6.4 Total Asset vs Fixed Asset
6.5 Gross vs Net
6.6 WACC Spread
6.7 Debt/Asset
0.44 0.44 0.97 1.422.22 2.88 2.144.95
Comcast Time Warner Cable Vision Direct TV - Satellite
Total Asset v. Fixed Asset Turns -Exhibit 6.4
Asset Turnover Fixed Asset Turn Ratio
0.00%20.00%40.00%60.00%80.00%
Margins - Gross V. NetExhibit 6.5
Gross Margin
Net Margin
3.73% 1.63%11.65%
23.29%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Comcast TimeWarner
CableVision
Direct TV -Satellite
ROIC-WACC SpreadExhibit 6.6
0.67 0.611.74
1.200.00
1.00
2.00
Comcast TimeWarner
Cable Vision Direct TV -Satellite
Debt/Asset -Exhibit 6.7
Comcast Page 57
6.8 COGS vs SG&A
6.9 ROI vs ROA
6.10 Fixed vs Intangible
30.41%
58.02%48.55% 53.16%
36.26%
18.97% 23.74% 22.58%0.00%
20.00%
40.00%
60.00%
80.00%
Comcast Time Warner Cable Vision Direct TV - Satellite
COGS v. SG&A - Exhibit 6.8
COGS
SG&A
6.05% 6.40%5.34%
17.46%
5.40% 5.54%3.98%
12.38%
0.00%
5.00%
10.00%
15.00%
20.00%
Comcast Time Warner Cable Vision Direct TV - Satellite
ROI v. ROA - Exhibit 6.9
ROI ROA
19.43% 15.01%
44.73%
26.40%
65.06%56.49%
15.38% 19.34%
Comcast Time Warner Cable Vision Direct TV - Satellite
Fixed v. Intangible - % of T/AExhibit 6.10
FA/TA Goodwill & Intangible/TA
Comcast Page 58
6.11 Cogs + SG&A
Exhibit 7.1:
66.67%
76.99%
72.29%
75.74%72.92%
60.00%
65.00%
70.00%
75.00%
80.00%
Comcast TimeWarner
CableVision
Direct TV -Satellite
IndustrySimple
Ave.
Combined COGS + SG&A -Exhibit 6.11
Comcast Page 59
Exhibit 7.2
Exhibit 7.3
Comcast Page 60
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