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Comcast (NASDAQ:CMCSA)

Q4 2011 Earnings Call

February 15, 2012 8:30 am ET

Executives

Marlene S. Dooner - Senior Vice President of Investor Relations

Brian L. Roberts - Chairman, Chief Executive Officer, President and Director of Comcast Holdings Corporation

Michael J. Angelakis - Vice Chairman and Chief Financial Officer

Neil Smit - Executive Vice President, Chief Executive Officer of Comcast Cable and President of Comcast Cable

Stephen B. Burke - Executive Vice President, Chief Executive Officer of NBCUniversal Holdings & NBCUniversal and President of NBCUniversal Holdings & NBCUniversal

Analysts

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

John C. Hodulik - UBS Investment Bank, Research Division

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

Benjamin Swinburne - Morgan Stanley, Research Division

James M. Ratcliffe - Barclays Capital, Research Division

Stefan Anninger - Crédit Suisse AG, Research Division

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to Comcast's Fourth Quarter and Full Year 2011 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded. I would now turn the call over to Senior Vice President, Investor Relations, Ms. Marlene Dooner. Please go ahead, Ms. Dooner.

Marlene S. Dooner

Thank you, operator, and welcome, everyone, to our fourth quarter and full year 2011 earnings call. Joining me on the call are Brian Roberts; Michael Angelakis; Steve Burke; and Neil Smit. As we have done in the past, Brian and Michael will make formal remarks, and Steve and Neil will also be available for Q&A.

As always, let me refer you to Slide #2, which contains our Safe Harbor disclaimer, and remind you that this conference call may include forward-looking statements subject to certain risks and uncertainties. In addition, in this call, we will refer to certain non-GAAP financial measures. Please refer to our 8-K for the reconciliation of non-GAAP financial measures to GAAP.

With that, let me turn the call to Brian Roberts for his comments. Brian?

Brian L. Roberts

Thanks, Marlene, and good morning, everyone. I'm delighted to begin 2012 with this first call. Just thinking back a year ago, we were closing the NBCUniversal deal. We were making major management changes, bringing Neil Smit to fully run Comcast Cable, Steve Burke was beginning his first year at NBCUniversal, and it was a really, really important year for 2011 that had a lot go well. I'm thrilled to tell you that I think virtually across the board, our 2011 performance, as you can see in these fourth quarter's results and throughout the year, is right where we had hoped to be, and in some cases substantially better.

And based on all of that, we're very pleased today to be increasing our dividend by 44% to $0.65 per share on an annual basis and that our board has approved a new $6.5 billion stock buyback program under which we plan to increase our repurchases of stock by 40% to $3 billion this year. Now the way we come to those conclusions of the optimism and good feelings we have about the company is based on the financial results.

So let me start with Cable, which had an outstanding year, capped by a great fourth quarter of improving customer metrics combined with healthy financial results. In the fourth quarter, Video customer losses declined to 17,000, our best quarterly Video performance in almost 5 years. And for the full year, we reduced Video customer losses by nearly 40%. We also added 336,000 High-Speed Internet customers in the quarter, a 15% increase and marked the sixth year in a row of adding more than 1 million high-speed data customers.

I really believe these improvements are sustainable because they are the result of our scale and our intensified focus on service and innovation, all of which come together in our wonderful XFINITY brand message of product innovation and a better customer experience. Our major technical initiatives of DOCSIS 3.0, all digital, a content delivery network that works on all platforms is now complete, and we have leveraged these investments to deliver more innovation faster than ever before.

So in 2011, we introduced more new products and features than the prior 2 years combined. And our product roadmap for 2012 is just as exciting, and it includes a broader rollout of the Xcalibur platform, which we're rebranding to X1, including our cloud-based guide to hundreds of thousands of customers this year across multiple markets. We'll be expanding our Home Security business in many, many markets virtually nationwide, an expansion of Wi-Fi to several new markets and a lot of content, which will be On Demand and on all devices. And we also recently began to jointly market our services with Verizon Wireless, and we hope to expand the marketing footprint and working on new innovative products this year with Verizon Wireless. And we continue to expand choices and offerings for our customers, and we've taken important steps in our programming agreements and our relationship with the program suppliers, extending terms, expanding rights, going longer and having broader On Demand lineups and more flexibility to deliver this content to more devices in and out of the home than ever before. So all in all, our Cable business is in terrific shape today, our competitive position continues to get stronger, and we are leading with XFINITY in an innovation, and I believe we are in a solid position for the future.

Let me now switch to NBCUniversal, where in 2011, we successfully completed our integration, but we also had such a busy year with many important investment decisions. Some of these investments are already paying off, and others will pay off over time. We invested in new shows in both Cable Networks and on our Broadcast networks. We invested in our own stations. We extended the NHL and PGA rights, purchased 100% of the Orlando theme parks, have some exciting film franchises launching in 2012. We invested to extend the Harry Potter franchise in several of our Theme Parks. We also brought together all of our company's capabilities and successful bids for the Olympics, for the Spanish-language rights for FIFA World Cup soccer, and we extended the all-important Sunday night football franchise with the NFL. In each case, we secured important rights for many years, and we got more content to be used over many new platforms, putting us on a path to make these investments profitable over time and to significantly strengthen the business.

In the first year, we've also had some early successes that validate our belief that we can create real value with our combination of distribution and content businesses. We launched Project Symphony, concentrating first on cross-promotion, which had real success with The Voice in early 2011 and again just last week with the Super Bowl, The Voice and Smash. The Super Bowl and all of last week was critically important to the company, both from an execution standpoint and from just purely the largest audience in American television history.

And just one example of how well the company is working together was around Smash, where once again, we showed that NBC can promote its own shows on all of its platforms, but also along with Comcast was able in the Comcast markets to generate over 20% higher ratings than elsewhere in the average of the country. So we're a new and different and, frankly, I think, unique company, full of enthusiasm and optimism for what we can achieve in Cable at NBCUniversal and what we can now build together. So it's with that great start for 2012 that we're focused on maintaining the momentum, continuing to drive operating and financial excellence, and building value for our shareholders.

Let me now pass to Michael to cover the fourth quarter and full year results in detail.

Michael J. Angelakis

Thank you, Brian. We are very pleased with our fourth quarter and full year results for 2011, which reflect profitable growth and the fundamental strength of our businesses. Based on our confidence in the ongoing performance of the company and as Brian just mentioned, we are increasing our total return of capital to shareholders in 2012 by 45%. We'll address our financial strategy a bit later, but now let's discuss our business performance for 2011 in more detail.

For the full year of 2011, consolidated revenue increased 47.2% to $55.8 billion, and operating cash flow increased 25.8% to $18.4 billion, reflecting strong organic growth in the Cable business as well as consolidating the acquisitions of NBCUniversal on January 28 and the remaining 50% of Universal Orlando on July 1.

Free cash flow for the full year, which excludes the impact of the economic stimulus, increased 30.1% to $7 billion, primarily reflecting growth in operating cash flow, which includes NBCUniversal, and partially offset by increases in working capital, higher cash-paid interest, capital expenditures and intangible asset expenditures. Free cash flow per share increased 31.9% to $2.52 per share in 2011. For the year, our Cable free cash flow accounted for $5.2 billion or 75% of the total, while NBCUniversal contributed $1.8 billion or 25% of consolidated free cash flow. Earnings per share for the full year grew 16.3% to $1.50 per share from $1.29 per share in 2010. Excluding NBCUniversal transaction-related costs and other nonrecurring items, our EPS increased 20.6% to $1.58 compared to $1.31 in 2010. Please refer to Slide 5.

Let's take a look at the pro forma results of our Cable and NBCUniversal businesses. Pro forma results are presented as if the NBCUniversal and the Universal Orlando transactions were both effective on January 1, 2010. We believe the pro forma presentation provides a more meaningful comparison of the operating performance of the businesses. In addition, we adjust operating cash flow to incorporate the effects of acquisition accounting and eliminate the costs and expenses directly related to the NBCUniversal transaction. In total, during 2011, these adjustments, which are detailed on Table 6 of our press release, impacted NBCUniversal operating cash flow by $340 million. Our purchase accounting adjustments are now complete, so year-over-year comparisons should be a bit easier going forward.

In 2011, Cable Communications revenue increased 5.3% to $37.2 billion and represented 65% of our consolidated revenue, while Cable operating cash flow grew 6.9% to $15.3 billion and represented 82% of our consolidated operating cash flow.

For the full year, NBCUniversal generated revenue of $21.1 billion, an increase of 3.7%. This growth reflects the inclusion of $782 million of revenue from the Olympics in 2010. So on an apples-to-apples basis, revenue increased 7.8%.

Operating cash flow increased 2.3% to $3.8 billion. Again, excluding the Olympics in 2010 and the acquisition-related accounting revisions in cost in 2011, NBCUniversal's operating cash flow increased 5.2%. These results reflect strong performance at the Cable Networks and Theme Parks, which are offset by weaker performance at Broadcast and Film.

For the full year, consolidated revenue increased 4.7% to $57.7 billion. Again, excluding the impact of the Olympics in 2010, pro forma consolidated revenue increased 6.2%. Consolidated pro forma operating cash flow increased 6.2% to $18.7 billion, and excluding the Olympics and the acquisition-related accounting revisions in cost that I just described, full year operating cash flow increased 6.8%.

Please refer to the next slide, and let's review Cable Communications results in more detail.

In 2011, our Cable segment reported strong financial results and customer growth with substantial year-over-year improvements. For the full year of 2011, Cable Communications revenue increased 5.3% to $37.2 billion, reflecting growth in our recurring residential business and continued strength in Business Services, partially offset by lower political advertising.

The Cable business has performed well and has had consistent results. Excluding advertising, Cable revenue increased 5.6% for the full year, which is consistent with the growth rate in each of the last 4 quarters. In 2010, we generated $180 million of political ad revenue, making 2011 comparisons a bit challenging. As a result, Cable advertising declined by 1% for the full year and by 9% or $56 million for the fourth quarter. However, excluding the political ad revenue, cable advertising increased 7% for the full year and 5% in the fourth quarter.

We are managing the business for sustainable and profitable growth, and our total revenue per Video customer reached $141 per month in the fourth quarter, a 7% increase. That reflects our growing customer base, a higher contribution from Business Services and an increasing number of residential customers taking multiple products. At year end, 71% of our Video customers took at least 2 products, and 37% took all 3 services versus 33% in 2010.

We continued to experience real strength in our customer metrics. We ended the year with improved year-over-year customer growth. For the year, we added 1.4 million total Video, High-Speed Internet and Voice customers, an 11% increase in net customer additions compared to 2010. As Brian mentioned, in the fourth quarter, we lost 17,000 Video customers, a significant improvement over the 135,000 Video subscriber losses in last year's fourth quarter. For the full year, we reduced Video losses by nearly 300,000, approximately a 40% improvement over 2010. In addition, we added 1.2 million new High-Speed Internet customers in 2011, a 10% increase over last year's new customer additions.

We have improved products, we are competing better, and our focus on retention and customer service has resulted in lower churn year-over-year and each quarter across all of our services. In addition to our strong customer metrics, rate adjustments, and an increasing number of customers taking higher levels of digital and advanced services contributed to a 1.3% increase in video revenue. We added 743,000 high def and/or DVR customers in 2011 and now have 10.9 million high def and/or DVR customers, equal to 53% of our 20.6 million digital customers.

High-Speed Internet revenue was the largest contributor to Cable revenue growth in 2011. High-Speed Internet revenue increased 9.8%, reflecting rate adjustments, continued growth in our customer base and an increasing number of customers taking higher-speed services. Today, over 25% of our residential High-Speed Internet customers take a higher-speed tier than our primary service. Our HSI service is clearly capturing more market share as we continue to differentiate our product through service and speed enhancements.

With regards to Voice, our Voice revenue increased 6.2% for the full year, reflecting continued growth in our customer base. In 2011, we added 732,000 voice customers, and our penetration is now 18% of our homes passed.

Business Services were the second largest contributor to Cable revenue growth in 2011, with revenue increasing 41.4% to $1.8 billion. Virtually all of our growth is from the small end of the market or businesses with less than 20 employees, and we continue to experience strong momentum. In addition, we now have Metro E and PRI trunked voice available in all of our markets. In total, Business Services represents a $20 billion to $30 billion opportunity in our markets, and our penetration is only 10%. So we are enthusiastic about the growth opportunities in this segment.

Please refer to Slide 7. In addition to revenue growth, we remain very focused on expense management in driving greater efficiencies and effectiveness through the organization. As a result, full year Cable Communications operating cash flow increased 6.9% to $15.3 billion, resulting in a margin of 41.1%, a 70 basis point improvement compared to 2010. We had several positives contributed to our margin improvement. First is our improving product mix. We are adding more High-Speed Internet, Voice and Business Services customers, and an increasing number of our residential customers subscribed to multiple products and upgrade to higher tiers of service, such as HD DVRs or faster Internet speeds. These products are clearly accretive to our margins.

Second, we've had improved efficiencies in our operations as we then focus on improving service, reducing churn and increasing customer satisfaction. As a result, customer service and technical operation expenses were relatively flat during the year. In addition, bad debt expense improved as we continued to improve our retention, collection and screening processes. Partially offsetting these positives are 3 pressures, 2 of which we control and have positive ROIs.

We are making important investments in new products to expand business services and to offer new products like XFINITY Home and Signature Support. In addition, in 2011, sales and marketing expenses increased 11.8% for the full year as a result of higher overall media spend and a continued investment in direct sales to more effectively target customers and enhance our competitive position. These increased marketing efforts have had a positive impact on our customer metrics. Our XFINITY brand is now launched in 100% of our footprint and represents a more technology- and customer-focused brand that is making a positive impact on both our customers and those considering our services for purchase.

Finally, programming expense remains a challenge. In 2011, programming expenses increased 5.8% as we continue to increase the amount of content we provide consumers across multiple platforms. As we have mentioned previously, we expect programming expenses to grow at the mid- to high-single-digit rates, and in 2012, we expect programming expenses to grow at the higher end of that range.

Please refer to Slide 8 so we can review our Cable Communications capital expenditures. As indicated on the slide, we continue to reduce the capital intensity of our Cable business. For 2011, total Cable capital expenditures decreased 1% to $4.8 billion, equal to 12.9% of revenue versus 13.7% in 2010. This reduction reflects scale efficiencies, including improved equipment pricing, partially offset by continued investments in network infrastructure and the expansion of Business Services. Our full year CPE expenditures declined even as we deployed 2.4 million advanced HD and/or DVR set-tops and deployed 6.4 million digital adapters. In total, we have deployed over 23 million digital adapters since the inception of the All-Digital project, which is now complete. All-Digital has been a terrific initiative that has provided significant operational benefits and product enhancements as well as generating strong financial returns.

Over the past year, we have begun to recapture the remaining analog bandwidth in a number of our markets, and we plan to continue this effort as we anticipate additional operating efficiencies and strategic benefits from fully digitizing our systems.

Full year 2011 CapEx also reflects meaningful investments to support the continued growth in Business Services and to expand our efforts in the midsized business area. Our investment in Business Services increased 22% to $607 million in 2011. We've also increased our investment in network infrastructure to enable product enhancements, including increasing Internet speeds to our customers to reinforce our product leadership and High-Speed Internet. We successfully raised speeds on our flagship product from 12 to 15 megabits and raised speeds on our Blast! product from 20 to 25 megabits. In addition, we introduced our 50-megabit service and our extreme 105-megabit service to virtually all of our markets.

With regards to 2012, we anticipate our capital intensity to moderate further as Cable capital expenditures are expected to be lower as a percentage of Cable revenue when compared to 2011, even as we continue to invest capital in our network and fund the expansion of new service offerings like XFINITY Home, Wi-Fi and Xcalibur. These projects provide attractive returns, expand our service and product offerings and drive future organic growth. Please refer to Slide 9 so we can take a closer look at the pro forma results of NBCUniversal segments. For the full year, Cable Networks generated revenue of $8.5 billion, an increase of 10.6%, driven by a 10.9% increase in distribution revenue, an 8.7% increase in advertising revenue and an 18.7% increase in other revenue, primarily due to increases in the licensing of content from the Cable production studio. Cable Networks' adjusted operating cash flow increased 9.8% as we reinvested some of the top line growth in original programming and incurred higher marketing expenses to support launches of new series and other new programming across a number of our Cable Networks.

With regards to our Broadcast segment, full year Broadcast Television revenue decreased 7.1% to $6.4 billion, reflecting the inclusion of $782 million of revenue from the Olympics in 2010's results. Excluding the impact of the Olympics, Broadcast revenue increased 4.8%. Advertising revenue, excluding the impact of the Olympics, increased 1% in 2011, primarily reflecting ratings pressure at the NBC Broadcast network and lower political advertising at NBC-owned local stations. Content licensing revenue increased 23.3%, primarily the result of a licensing agreement for prior season and library content in the second and fourth quarters. Full year 2011 Broadcast adjusted operating cash flow, which excludes the Olympics in 2010 as well as acquisition-related accounting revisions in '11, decreased to $231 million, reflecting lower ratings, increased programming and marketing costs associated with NBC primetime schedule and higher news coverage.

As we look at advertising revenue at Cable Networks and Broadcast, both had unusual items that impacted advertising growth in the fourth quarter, including 4 fewer days in our advertising calendar, fewer NBA games due to the lockout and lower political advertising revenue at the NBC-owned local stations. If we adjust advertising growth to exclude these items in the fourth quarter, Cable Networks advertising revenue increased 7% versus the reported 2% growth, and Broadcast advertising revenue was flat versus a reported decrease of 6.5%.

Moving on to Filmed Entertainment. 2011 revenue was flat at $4.6 billion, reflecting higher theatrical revenue from the strong box-office performance of Fast Five and Bridesmaids as well as higher content licensing revenue offset by lower home entertainment revenue and a decrease in other revenue due to fewer stage plays. Film adjusted operating cash flow declined $220 million to $10 million in 2011, reflecting the underperformance of the 2011 film slate, higher marketing costs and a tough comparison to the 2010 performance of Despicable Me.

Switching to our Theme Parks, this segment had a terrific year. Theme Parks generated revenue of $2 billion in 2011, a 24.3% increase that was driven by strong attendance in per capita spending at both parks, which are benefiting from the success of The Wizarding World of Harry Potter attraction in Orlando and the King Kong attraction in Hollywood. Full year adjusted operating cash flow increased 41.2% to $835 million. We are pleased that the integration and transition of 2011 is behind us at NBCUniversal and look forward to 2012, which will be more execution-focused.

Please refer to Slide 10 to review our consolidated financial strategy. We believe that operational excellence and strategic differentiation drive shareholder value, so we have an operating strategy that is execution-focused and a financial strategy that is returns-focused and supports the strategy by reinvesting in our business while maintaining a strong balance sheet and providing a consistent and sustainable return of capital to shareholders. Our strong free cash flow generation means we can balance and achieve our growth in capital allocation priorities. It's not an either/or choice. So let me once again quickly review our priorities.

Our first priority is to generate strong returns by reinvesting in our businesses. In both Cable and NBCUniversal, we are reinvesting to strengthen our competitive positions and to support attractive internal growth opportunities. In regards to acquisitions and investments, we have a very disciplined approach, focused on opportunities that generate strong risk-adjusted returns and combined with strategic importance that generate long-term value. We view our strong balance sheet as a strategic asset and are committed to remaining a strong investment-grade issuer. At the end of 2011, we had $39.3 billion of debt on our consolidated balance sheet and had gross debt to operating cash flow leverage of 2.1x. We are comfortable with a gross debt to operating cash flow leverage target of 2 to 2.5x and expect to remain at the low end of that range, which we believe provides appropriate financial flexibility and liquidity to execute our operating and strategic plans. We also have a strong commitment to deliver consistent and sustainable return of capital to shareholders within a disciplined capital structure and through a combination of dividends and buybacks, which we think enhances shareholder returns while maintaining adequate liquidity to execute our plans.

To achieve that, we currently view Comcast and NBCUniversal as 2 distinct pools of cash flow generation and funding capacity. NBCUniversal retains its free cash flow, which amounted to $1.8 billion in 2011, to build capacity to fund future equity redemptions by GE while Comcast Cable allocates its free cash flow to consistently return capital to shareholders.

As we move to the next slide, you can see a consistent and growing return of capital over the last 3 years and for 2012, reflecting today's announcements. Since the 2008-2009 financial crisis, we have steadily increased our total return of capital through a combination of increasing dividends and buybacks. We instituted an annual dividend in 2008 at $0.25 per share and have consistently increased it to the current announced level of $0.65 per share. The newly announced dividend represents 43% of our last 12 months of net income and raises our current dividend yield to approximately 2.4%, which is above the S&P 500.

In combination with the planned stock repurchases in 2012, our combined yield is approximately 6.5%. As a percentage of free cash flow, our total payout has steadily increased from 35% in 2009 to 63% in 2011. With today's announcement, our total return of capital in 2012 is increasing approximately 45% to $4.8 billion, incorporating a 44% increase in the dividend and a plan to repurchase $3 billion of stock in 2012 under our new repurchase authorization of $6.5 billion. This total return represents a payout of 90% of our last 12 months' Cable free cash flow and approximately 115% of our last 12 months' net income.

So as we conclude 2011 and begin 2012, the company is performing well, with a real focus on innovation and execution. In addition, we are pleased with the start in 2012 and hope to build on Cable Communications and NBCUniversal's momentum. We also are very pleased at this momentum, and our financial strength is allowing us to invest for profitable growth and to accelerate our return of capital to shareholders.

Now let me turn the call to Marlene for Q&A.

Marlene S. Dooner

Thanks, Michael. Operator, let's open up the call for Q&A, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Craig Moffett with Sanford Bernstein.

Craig Moffett - Sanford C. Bernstein & Co., LLC., Research Division

I'm going to try to slip in 2, if I can. First, on the strength in Video subscribers, are you seeing that as a competitive issue, or are you starting to see some tailwind from new household formation recovery in your markets? And then secondly, if you could just update us on your Wi-Fi expansion and whether you're thinking about a voice-over-Wi-Fi service as part of that? And if so, how would you fill the MVNO component in order to fill in where you don't have Wi-Fi coverage?

Neil Smit

Craig, this is Neil. I think that our Video results are more a competitive issue. I think we're focused on product innovation and better customer service, and I think we've seen kind of sustainable results from those 2 areas of focus. The other factor that I would mention is that the RBOC overbuild has flowed in 2011. It was about 1.1 million homes versus 2.5 million in 2010. We're getting more flexibility in our programming agreements, as you've seen, so we're offering more content to more devices. So we're staying focused on product innovation and better service, and more to come there. Concerning the Wi-Fi build-out, we built out Philly, parts of New Jersey and Delaware. We're pleased with the results. We have about 4,000 access points. We'll be building out more markets, but it will be primarily focused on data versus voice-over.

Operator

The next question comes from Jason Bazinet with Citi.

Jason B. Bazinet - Citigroup Inc, Research Division

Just have a question for Mr. Burke. On the Cable Networks side of the business, it seemed like expenses over the first 3 quarters of the year were growing pretty significantly and you had margin compression, and the expense growth seemed to stop in the fourth quarter of this year with pretty significant margin expansion. Can you just help us, spring 2012, in terms of how we should think about the level of investment or harvesting that's going on in the Cable Networks division?

Brian L. Roberts

Steve, you want to take that, or Michael?

Michael J. Angelakis

Why don't I take it? Sorry, Jason. You really can't look at the quarter-by-quarter for the Cable Networks. We've made meaningful investments in Cable Networks, really trying to build each of the franchises and build value for those particular channels. With regards to the first 3 quarters versus the fourth quarter, I really wouldn't focus on 1 quarter. I would really focus on the entire year and how we've invested in new series for different channels and how we've marketed those as well. As we look to 2012, we feel pretty good about what our investment level is. We'll continue to invest in certain areas where there's other channels that we think need some additional help. But it's not going to be material, and I think the cruising altitude that we have for investment in the Cable channels feels about right.

Operator

Your next question comes from Jessica Reif-Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

I have maybe a clarification and then a separate question. Michael, on the capital returns, I mean obviously, a very solid number for 2012. I think everybody should be happy. But can you clarify your outlook for 2013? If we assume that the balance of the buyback, the $3.5 billion, is 2013, your leverage then goes back to the mid onetime level. So how should we think about that, given your leverage target of 2 to 2.5x?

Michael J. Angelakis

So, Jessica, I really wouldn't look into 2013. I wouldn't look at the $6.5 billion authorization as a marker for 2013. We're very focused on 2012. And as we've said before, we're really looking at a financial strategy for each year separately. So the reason for the $6.5 billion is to provide us with flexibility. We obviously ran out our authorization in the fourth quarter of 2011, and we really want to have as much flexibility as we can. And then we'll obviously sit down with our board at the end of 2012, and we'll look at our financial strategy again with a pretty fresh look on both dividends and buybacks for 2013.

Jessica Reif Cohen - BofA Merrill Lynch, Research Division

And then my question for all. On NBCU, clearly, there's a lot of upside in every division. I was just hoping you could -- Steve, could talk a little bit about where you see the biggest growth opportunities over the next 1 to 3 years. And on the Cable side, can Neil or Brian, anyone discuss what you're seeing in terms of early indications of -- from the Verizon joint venture in terms of marketing? And you mentioned new products. Can you elaborate?

Stephen B. Burke

Jessica, this is Steve. Just to start on NBCUniversal, we obviously think there are a lot of opportunities, but if you look at 2011, that was really a year of integrating the 2 companies, making sure we had the right people in place and starting to invest in some of the businesses that we thought had real opportunity. And our goal for 2011 was to make those investments but not have cash flow go backwards, and we accomplished that goal. As you look out into 2012 and 2013, we're going to start to hopefully see some of the seeds we planted there bear fruit. We think there's real opportunity in Broadcast. We've said the network is going to take us a number of years to turn around. We had a very good week. Last week, The Voice is one of the top shows in America and, we think, is a franchise that we can help rebuild the network on, but that is going to be a multi-year effort. We also think we can see some improvement in Film, where our Film business has not been doing well. We have a very strong slate in 2012. We think our management team in Film is doing a very good job, and the films that we've seen that will be coming out later this year, we're very optimistic about. Cable Networks are extremely strong from really strength to strength. We have 20 cable networks that are all doing quite well, and we look at those being the core of the company. But we have opportunity there as well. So we're very optimistic, but I also want to caution people that we're still in the early innings of the integration process, and I don't want to get ahead of ourselves in terms of how fast some of these opportunities are going to be realized.

Neil Smit

Concerning the Verizon Wireless rollout, we've rolled out to 4 markets now. We're pleased with the results. We're learning. We're working together. They've been great partners. I think on that front, it's probably early to tell. Concerning new products, in addition to Verizon Wireless, we've got XFINITY Home, our Home Security product, which is going very well and we're rolling out to more markets; Signature Support, which is a higher-end service for customers who need more help; Wi-Fi was already mentioned when I responded to Craig's question; and then our Xcalibur product, our high-end video product which we're branding X1. So those are examples of a number of different products we're rolling out right now.

Brian L. Roberts

More On Demand and more -- the Disney agreement, with other agreements we've got in place and things that we're working on, I think TV Everywhere, whatever you want to brand it, we call it XFINITY, obviously, is you're going to see a lot of progress in 2012 on getting more content available to consumers on more devices than in any year in the company.

Operator

Your next question comes from John Hodulik with UBS.

John C. Hodulik - UBS Investment Bank, Research Division

Two real quick ones. Maybe first for Neil. Obviously, I think the few Video losses for the fourth quarter's a sort of great harbinger of things to come. I mean, you typically see about 100,000 improvements sequentially in the first quarter, suggesting we're sort of getting to the point where, looking out into 2012 here, you could see potentially subscriber growth, if you could just sort of comment on that. And then maybe for Michael, the $6.5 billion buyback, you're -- just from your answer to Jessica's question. A quick follow-up would be, how did the SpectrumCo cash factor into that? I mean obviously, you could see another $2 billion in cash come by the end of the year. Could that potentially boost 2012 buyback? Or is that why you did the bigger authorization, or is that something that's going to factor into the numbers as we look into 2013?

Neil Smit

John, it's Neil. On the sub-growth question, I mean, as I said earlier, I think we're focused on product innovation and better customer service. I don't think we'll see growth in the first quarter, the quarter where we're taking rate increases, but we're going to stay focused on our priorities, which is really delivering more value to the customers. Michael?

Michael J. Angelakis

Sure. With regards to SpectrumCo and the sale of the Spectrum, it's not incorporated in our financial strategy for 2012. Just want to make that clear. Obviously, we have to close the transaction, which our best guess is in the latter part of the year. So we will utilize that SpectrumCo cash as we think about and evaluate our 2013 return-to-capital strategy. Also, I just want to make sure the $2.3 billion is a pretax number. We have a gain that we have on that. But really, when we think about SpectrumCo, first is let's get the transaction closed. Given what we think the timing of it will be, it will probably be in our 2013 evaluation.

Operator

Your next question comes from Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs Group Inc., Research Division

Maybe just a follow-up on capital allocation. As we thought about sort of the pacing through last year, the excess cash was devoted towards taking down debt as opposed to refinancing. Is that still sort of the framework to use for 2012? And then question on the programming cost outlook and just maybe some more granularity on the contributors to 2012 being at the higher end of the historical range.

Michael J. Angelakis

Why don't I take the first one on capital allocation? The reality is there's really not going to be that much excess cash. When you think about NBCUniversal's free cash flow, 100% of that is really dedicated to, I would say, sort of indirect equity redemption over time with General Electric. And then when you think about Cable free cash flow, about 90%-plus of that will go to the buyback and the dividend. Obviously, we also have some taxes to pay related to the reversal of the benefits of the economic stimulus. So over time, our view is for 2012, we've got our balance sheet kind of where we want it to be, but there's not going to be really excess liquidity I think is a term you utilized.

Neil Smit

Jason, this is Neil. Concerning the programming increases. I mean, the rates really fluctuate based on renewals an roll-offs. We project for 2012 increases to be in the mid- to high single-digits, probably at the higher end of that range. I think we're getting longer terms and more flexibility in our contracts to deliver what Brian mentioned earlier, which is more content across more devices. I think it's important to note that we've grown Video gross margin dollars on a per-sub basis as we've upgraded to higher levels of service and advanced services. So we're very focused on the business, and we really want to deliver more value to our customers by getting more flexibility in the rights.

Operator

The next question comes from Doug Mitchelson with Deutsche Bank.

Douglas D. Mitchelson - Deutsche Bank AG, Research Division

A question for Michael or Neil on Cable margins for the year. Given the balance of innovation and investment against efficiency, should we think about the positive impact of political advertising offsetting the faster programming cost growth that's potentially in 2012, so maybe flattish overall Cable margins? And then I did want to follow up on Craig and John's question. I'm not sure in the answer to John's question you said this or not, Neil, but is 1Q '12 sort of for sub growth starting the way 4Q and 2011 ended, if that's a fair question?

Neil Smit

I'll take the sub number, then I'll turn it over to Michael for the margin number. I mean, I think the way I described the first quarter is the trends that we're seeing seem to be sustainable. We've seen very strong response to our offers and we -- in the customer service and the increased value that we're delivering I think customers have responded well to. We've beefed up our channels, whether it's direct marketing or direct sales, and we're executing, I think, pretty well right now. But I think that while we won't grow, we'll be in a close range is the way I described the first quarter, and we're really focused on execution. Michael?

Michael J. Angelakis

Yes. I'll take Cable margins. I think political advertising in 2012 will obviously help, but it's not really going to move our margins, given the size of political advertising versus the size of the overall business. Obviously, it's a benefit. With regards to 2012, don't want to give guidance, but I think we see a little bit of the same versus 2011 is -- the real headwind is on programming costs which you mentioned, but we're going to have some benefits related primarily to product mix. As you can see with high-speed data and with Voice and with Business Services, those are growing really nicely and accretive to margins. So I don't want to give any predictions on margin, but I think stable is a pretty good way to think about it.

Operator

The next question comes from Ben Swinburne with Morgan Stanley.

Benjamin Swinburne - Morgan Stanley, Research Division

I have 2 and I wanted to come back to the Video business. Brian, maybe you or maybe Neil can comment on X1 or the Xcalibur rollout and put it into context for us. It seems like if you look back over the last 2 years, you've had some major innovations, like DOCSIS 3, Project Infinity, All-Digital. Where does X1 fit into all that? How much of the sort of an experience changer is this for the customer in 2012? How broad do you deploy it? And related to that, I want to just ask about the CapEx outlook maybe for Michael. Intangibles were up in the 2011 year. I think you had about $1 billion, and that might be related to software on the X1 platform. Does your comment about flat CapEx to sales in '12 include intangibles? Does that move that comment around at all? Just want to get a clarification there.

Brian L. Roberts

Okay, Ben, this is Brian. Let me maybe start, and, Neil, if you want, feel free, or Michael can answer that second question. My view is that in 2012, X1 is a beginning of a new way of communicating with the television device which is coming from the cloud, not solely from the box. But it will be in hundreds of thousands of homes. Obviously, that's not tens of millions -- that's not the big number for us. It will be in multiple markets, and we will be stable, and it will radically improve the experience, in my opinion, over time. But more importantly, it is creating the unlocking mechanism to future innovation, which will then reside on the best servers in the cloud that can be upgraded, state-of-the-art, without having to ever come back to your house and can be done quickly, not over years, but over weeks and months. Those UI changes and other things that we want to do as we create better search products and we have the need with more On Demand. And so I think it's got the same kind of long-term strategic implications that some of those other products you've mentioned. In 2012, it's really getting it commercialized in a number of key markets. Another part of the strategy is -- that this accomplishes, is the beginning of allowing us to get on to other devices. We obviously are not operating in a vacuum, and we are very cognizant of the exciting changes in the consumer electronics space. And we want to position our company to take advantage of the innovation, not trying to necessarily fight it and want to make it as simple for our customers as possible, so we have an agreement with Xbox. We're working with Samsung. We'll be working with others throughout the year, and I think our Comcast technology group is doing a super job of changing the way we historically look at how we deliver our products to consumers. And so getting things into the cloud out of the cable box will have broad implications over time, and 2012 is a year to make it happen and get it started.

Michael J. Angelakis

So why don't I take the CapEx and software intangibles question? With regards to Cable CapEx, as I said in the remarks, Ben, I think that you'll see some trending downward in terms of intensity as a percentage of Cable revenue. So the team's done a phenomenal job of managing that. We're investing for growth in a lot of that, as Brian and Neil have mentioned on this call. So I really look at CapEx as trending slightly downward as a percentage of revenue and bringing that intensity a bit down. With regards to software and intangibles, one of the reasons for the increase is, obviously, NBCU now has added to that number and that free cash flow. But you've got to really look at 2 of them combined. As we've talked about and Brian mentioned just now, the Cable business is spending more on the software and areas in the cloud. That's an important investment for us. It allows Neil's team to really increase the speed of innovation, and I think we've got a pretty good number of what we're spending. That's a pretty stable number, sort of in the range. Also, NBCUniversal has been spending a bit on software and intangibles, and that's one of the reasons for the increase. So I think the number for all of 2011 that's in our press release is $954 million. I don't want to get too specific, but that's in the range.

Operator

The next question comes from James Ratcliffe with Barclays Capital.

James M. Ratcliffe - Barclays Capital, Research Division

Two quick ones, if I could, on the Cable business. First of all, can you talk a little bit about the relative performance you're seeing on HSI and areas where there -- you face fiber, quasi-fiber competition versus areas where you're going up against standard DSL? And secondly, I know it's early, but any reads or takeaways thus far from the My TV Choice deployments in terms of customer interest and where those customers are coming from?

Neil Smit

James, this is Neil. I think generally speaking, we've performed much better in the DSL markets, and I think that's due to the billions of dollars of investment we've made in the plant. Capacity, we continue to increase, and we just got a -- what we feel is a better product versus DSL. I think generally speaking, in the fiber markets, we're competing well. They're aggressive competitors, as are we, and I think the bundle is a real value proposition. Concerning your second question, My TV Choice, we continue to look at packaging possibilities, and My TV Choice has been a -- we've discovered a lot and learned a lot from that rollout, and we'll continue to experiment. I think that we will look at how we can get more flexibility in packaging and delivering the right package to the right consumers, and that will be a component in that for this year.

Operator

The next question comes from Stefan Anninger with Crédit Suisse.

Stefan Anninger - Crédit Suisse AG, Research Division

Could you comment on how you might evaluate the opportunity to buy out the portion of NBC you don't own today? Of course, your ability to buy out the entire stake in the near term will depend on what GE might decide to do. But assuming that GE would opt to redeem half its stake in 2014, maybe you could discuss how you would think about the opportunity, and would it simply depend on the price of the last, let's say, 25% of the JV you would purchase? Or is there more at work there?

Michael J. Angelakis

Stefan, it's Michael. We're still pretty early days into this. We've owned NBCUniversal now for just over a year. We have really 2.5 years left before we would have to have that discussion, so obviously, we'll learn a lot more then. So we gave a lot of thought to how we structured the transaction with GE. We want to make sure that we retained our flexibility on our capital structure. We want to make sure we retained our flexibility on return of capital. We have, in our view, a pretty attractive carried interest. So I think we are very pleased with how NBCUniversal is performing and also the structure that we put in place with GE. So I really wouldn't want to front-run that. I think that we have to make a decision in a couple of years or 2.5 years, and then we'll revisit it then, and then we'll revisit it again in 6 years. So there's a long, long road here, and for us to alter the structure, I just don't see it right now.

Operator

The last question comes from Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Neil, I just want to get a better understanding of your subscriber performance in the quarter. Do you feel that Comcast is gaining market share? Or is the entire pay-TV sector healthier? And then a follow-up to this. I know in the prepared remarks, there was mention of better churn. I'm just curious if the gross-adds part of the equation is also trending better.

Neil Smit

Marci, I'll answer those in reverse. We had -- churn did improve for each of the 4 quarters on the year, and I think that was due to a few factors. One is, I think the field teams are just executing better on customer service, and they've done a nice job there. And I think that we've built up our retention focus as a channel. And so we're more focused on the offers and the destination pricing for customers who want to churn and for different reasons. I think concerning the -- whether we're gaining market share or not, I mean if we're losing subs, we're not gaining market share, and we don't like to lose subs. So our objective is to grow the business, and I think it's primarily due to the -- we're staying very focused on delivering more value, as Brian mentioned. And the second thing is we're just going to continue to improve customer service. I think we've built the foundation of it, and now we've got to continue to transform it. So I think we're going to continue to drive the business. We're very focused, and I think the teams are executing well. And that will be our focus going forward.

Brian L. Roberts

I just want to just add, Marci, that -- and maybe end the call on this thought, which is, Neil, I think a big part of it is your leadership -- I think the entire Cable team had an outstanding 2011, and part of it is the scale that we have, the ability to make the investments several years ago that are paying dividends now to try to have leading products that perhaps not everybody has. And so I begin -- I think this is several quarters in a row where we're trying to make that XFINITY experience the best in the market. And we may not get back to full growth on Video for a while, because we don't see housing growth at the moment, but someday, that's going to happen. But more importantly, I think this is just terrific execution by the Cable team and sets us up for 2012.

Marlene S. Dooner

Thank you all for joining us this morning.

Operator

There will be a replay available of today's call starting at 12:30 p.m. Eastern Standard Time. It will run through Wednesday, February 22 at midnight Eastern Time. The dial-in number is (855) 859-2056, and the conference ID number is 40671374. A recording of the conference call will also be available on the company's website beginning at 12:30 p.m. today. This concludes today's teleconference. Thank you for participating. You may all disconnect.

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