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Comcast Corporation (NASDAQ:CMCSA)

Q3 2012 Earnings Call

October 26, 2012, 08:30 am ET

Executives

Marlene Dooner - SVP, Investor Relations

Brian Roberts - Chairman & CEO

Steve Burke - EVP, Comcast Corporation & CEO, NBCUniversal

Michael Angelakis - Vice Chairman & CFO

Neil Smit - EVP, Comcast Corporation, President & CEO, Comcast Cable Communications

Analysts

Jessica Reif Cohen - Bank of America Merrill Lynch

Jason Armstrong - Goldman Sachs

Doug Mitchelson - Deutsche Bank

Craig Moffett - Sanford Bernstein

Jason Bazinet - Citi

Marci Ryvicker - Wells Fargo

Ben Swinburne - Morgan Stanley

James Ratcliffe - Barclays

Stefan Anninger - Credit Suisse

John Hodulik - UBS

Operator

Good morning ladies and gentlemen, and welcome to Comcast Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note, that this conference call is being recorded.

I will now turn the call over the Senior Vice President, Investor Relations, Ms. Marlene Dooner. Please go ahead, Ms. Dooner

Marlene Dooner

Thank you, operator and welcome everyone to our third quarter earnings call. Joining me on the call are, Brian Roberts, Michael Angelakis, Steve Burke and Neil Smit. As we’ve 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 number two, 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 Roberts

Thanks Marlene and good morning everyone. I am really delighted to discuss today's results, because so far this year, on nearly every front we have made great progress. Our company as a whole has come together really well and we have strong financial performance and real operating momentum that we believe is sustainable.

Let’s start with Cable where quarter-after-quarter the team is delivering under Neil Smit’s leadership outstanding results. In the third quarter, revenue growth was 7%, operating cash flow grew by 7.7% and Cable generated free cash flow of $1.1 billion. Every part of the Cable business showed strength with revenue increases in all of our residential products, in business services and in advertising.

We also extended the trend of improving customer performance and believe we are making headway because of our scale and our focus on transforming the customer experience. Also, our previous investments are now driving product leadership and accelerating on our innovation.

Michael will cover the Cable numbers in greater detail, but let me give you some highlights. In the third quarter, we reduced our video subscriber losses by 48,000, eight quarter in a row of improvement and we had the highest third quarter revenue growth in four years.

Voice had another good quarter with a 123,000 net additions and high speed data net adds of 287,000 grew by almost 10% over last year. We continue to gain share by offering a superior product, one of the fastest in the market.

With best-in-class products for mid-sized customers and solid momentum serving small business, we generated 34% growth in business service revenues and when you put it all together our core Cable revenue, excluding advertising grew by 6% the highest level of growth since the first quarter of 2009.

I often like to speak about new products and new initiatives which we are continuing to work on and expand. But today, I really think that this is the best execution we’ve ever had and Neil and Dave Watson and Dave Scott and their teams are really hitting their stride delivering consistent and first rate operating performance.

Switching to NBCUniversal, revenue increased 31% and cash flow grew by 20% in the third quarter driven by the success of the Olympics. But even when you exclude the Olympics, NBCUniversal’s results were strong with revenue growth of more than 8%, operating cash flow growth of more than 7% and nearly $400 million of free cash flow.

So whether it’s the Cable channels, Theme Parks, Film or Broadcast, Steve Burke and his team are making steady progress throughout all of NBCUniversal and as we are investing to make all of these businesses even more profitable overtime.

Our Cable Networks and that’s 15 channels and 12 regional SportsNet are great businesses that we know well with real strength in entertainment, sports and news.

Let me give you some selected highlights from the third quarter. USA was once again the number one entertainment cable network in total viewers. Golf Channel had its most watched third quarter in 17 years of its history. And MSNBC with all the election coverage has had a really good quarter with ratings up 17% from last year. Film had solid results led by the very successful Ted and Universal Theme Parks continued their consistent and strong performance particularly due to the new Transformers ride in Hollywood.

In Broadcast, following the Olympics Bob Greenblatt and his new team are off to a very strong start in this primetime season. Across all programs, NBC is up 17% after four weeks and up 31% in Entertainment. This is NBC’s seventh consecutive weekly win in adults 18 to 49 as well as the first time NBC has led each of the first four weeks of the new television season since 2002. So it’s certainly early, but I believe and hope we are seeing the beginning of a turnaround at NBC.

Now back to the Olympics for a moment. I just want to say how proud I am of our coverage and the performance. Beyond even the results, the way the whole company worked together on a strategy that for the first time accomplished Broadcast Cable and Digital and also XFINITY and TV Everywhere and all those aspects were successful.

Clearly, NBC Broadcast was a real winner with record viewership that also helped to launch the full primetime schedule now so successful and boosted NBC’s affiliated TV stations. This was the first Olympics where social media played a major role and our digital platforms saw unprecedented traffic, consumption and engagement. We had a 25% increase in viewing by kids and teens, really the next generation of our viewers, so a very exciting development given our long-term commitment to the Olympics. And NBC’s sports network set new viewership records helping to really establish this recently rebranded network.

Comcast Cable had a major success with the Olympics as well. The TV Everywhere experience provided our cable customer’s access to Olympics content on linear TV to our On Demand and online platforms through XFINITY TV and XFINITY Sports Remote Apps in and out of the home. XFINITY Cable customers showed how much they love this multiplatform experience generating 50 million multiplatform views On Demand, online and with live streaming.

XFINITY drove 31% of all Olympic authentications and we were a top driver of traffic to NBCOlympics.com ahead of Yahoo!, Facebook, YouTube, Twitter, Bing, really establishing ourselves as a significant generator of traffic for major events in the future. As we look at the long-term commitment we made to the Olympics, we now have more confidence than ever the Olympics can be profitable for our company. We believe that our success in London proves how effective the new Comcast can be when we take advantage of our scale and innovation and bring together our unique assets and capabilities. All-in-all, we have real momentum and we are working hard and staying focused on operating our businesses really well.

Let me now pass it over to Michael to review the results of the third quarter in detail.

Michael Angelakis

Thank you, Brian and good morning everyone. Let me begin by briefly reviewing our consolidated financial results on slide four. Overall, we are pleased with our third quarter results which reflect strong execution as well as sustainable and profitable growth in our business.

For the third quarter, consolidated revenue increased 15.4% to $16.5 billion and operating cash flow increased 9.5% to $5 billion, reflecting healthy organic growth in our Cable business and solid performance at NBCUniversal.

Free cash flow for the quarter, which excludes any impact of the economic stimulus, increased 8.8% to $1.5 billion reflecting growth in consolidated operating cash flow, partially offset by higher taxes and capital expenditures. Free cash flow per share increased 12% to $0.56 per share for the quarter, and increased 22% to $2.24 per share for the first nine months of this year.

Earnings per share for the third quarter increased over 136% to $0.78 per share versus $0.33 per share in the third quarter of last year. Excluding gains related to the SpectrumCo transaction in the sale of NBCUniversal Entertainment Networks, our normalized earnings per share increased 39.4% to $0.46 in the third quarter.

Year-to-date earnings per share increased 67% to $1.72 per share versus $1.03 per share in the prior year. Again, excluding the gains on the asset sales I just mentioned in the NBCUniversal transaction and related cost and other non-recurring items in the first nine months of last year, our normalized year-to-date earnings per share increased 27.3% to $1.40.

Now let’s review the proforma results of our Cable Communications and NBCUniversal businesses on slide five. As you know we believe the proforma presentation provides a more meaningful comparison of the operating performance of the businesses. The proforma results are necessary for year-to-date only and are presented as of NBCUniversal and the Universal Orlando transactions were both effective on January 1 of 2010.

For the third quarter of 2012 consolidated revenue increased 15.4% to $16.5 billion and consolidated operating cash flow increase 9.5% to $5 billion. During the third quarter, the Olympics generated $1.2 billion of revenue and a $120 million of operating cash flow which reflects the positive impact of a $237 million unfavorable contract recorded in acquisition accounting in 2011.

Overall, the London Olympics were breakeven when you take into account other Olympic related revenues that are booked over multiple quarters. Excluding any impact from Olympics consolidated revenue for the quarter increased 7.1% and consolidated operating cash flow increased 6.9%.

Year-to-date consolidated proforma revenue increased 9.4% to $46.6 billion and consolidated proforma operating cash flow increased 6.4% to $14.7 billion. If we exclude $259 million of revenue related to the Super Bowl in the first quarter and the impact of the Olympics in the third quarter consolidated proforma revenue increased 6% and consolidated proforma operating cash flow increased 5.6%.

In the third quarter, Cable Communications revenue increased 6.9% to $10 billion and represented 60% of our consolidated revenue, while Cable operating cash flow grew 7.7% to $4 billion and represented 80% of our consolidated operating cash flow. Year-to-date, Cable Communications revenue increased 6.2% to $29.5 billion and operating cash flow also increased 6.2% to $12.1 billion.

For the third quarter, NBCUniversal revenue increased 31.2% to $6.8 billion and operating cash flow increased 19.9% to $1.1 billion.

These results were driven by the strong revenue performance of the London Olympics, but when excluding the Olympics, NBCUniversal revenue increased 8.3% and operating cash flow increased 7.3% during the quarter.

Year-to-date, NBCUniversal revenue increased 15.7% to $17.8 billion and operating cash flow increased 8% to $2.9 billion. Again, if we exclude the revenue related to the Super Bowl and the Olympics, NBCUniversal revenue increased 6.3% and operating cash flow increased 3.6%. All these adjustments related to the Olympics and to the Super Bowl are highlighted on the slide and in our press release.

Please move to slide six to review our Cable Communications results in more detail. We had another strong quarter of financial and customer growth in our Cable Communications business. For the third quarter, Cable revenue increased 6.9% to $10 billion reflecting solid growth in our residential businesses, continued strength in business services and strong growth in advertising.

Contributing to this growth are rate adjustments, new customer additions and the increasing number of customers taking multiple products. At the end of the quarter, almost three quarters of our video customers took at least two products and almost 40% took all three services compared to 36% in the third quarter of last year. As a result, total revenue per video customer increased 8.7% to $151 per month. As we have in the last few quarters, we continue to experience positive momentum in our customer metrics.

In the third quarter, combined video, high speed internet and voice customers increased by 294,000, a 28% increase in net additions versus a year ago. As Brian mentioned, we once again reduced our video customer losses. In the third quarter, we lost 117,000 video customers, a 29% improvement from the third quarter of last year, as we continue to execute with improved products and customer support. Our third quarter video revenue increased nearly 3% reflecting rate increases and an increasing number of customers taking higher level of digital and advanced services.

In the third quarter we added a 101,000 advanced service customers and deployed 449,000 advanced boxes. We now have 11.3 million HD and/or DVR customers equal to 54% of our 21 million digital customers. In addition to the improved video results, we added 287,000 new high speed internet customers during the quarter. This marks the 12th consecutive quarter of both high speed internet unit and ARPU growth, as we continue to differentiate our products through service and speed enhancements. High speed internet revenue was the largest contributor to our cable revenue growth in the third quarter with revenue increasing 9% reflecting rate adjustments, continued growth in our customer base and an increasing number of our customers receiving higher speeds.

At the end of the quarter our overall high speed internet penetration was 36% of homes past with 28% of our customers receiving a high speed tier above our primary service. With regard to our voice service, revenue increased 1.5% for the quarter, reflecting continued growth in our customer base as we added 123,000 new voice customers. Our performance over the last few quarters has improved as we've increased the number of triple play customers.

At the end of the quarter our voice penetration was approximately 19% of homes passed. We continue to experience strength in our Business Services group as well which was the second largest contributor to our cable revenue growth in the third quarter, with revenue increasing 34% to $621 million. The small end of this market or businesses with less than 20 employees now accounts for 85% of business services revenue and continues to be meaningful driver of growth. We are also making good progress with the mid-sized businesses as well, as this revenue base now represents 15% of the group’s revenue and is growing rapidly off a smaller base.

Our Cable Advertising business delivered strong results as third quarter revenue increased 23.5%. This improvement was led by strength in automotive, higher political revenue as well as an extra week of advertising included in this quarter. Excluding the impact of political and the additional week, our core cable advertising revenue increased 6%. We expect advertising growth to remain strong in the fourth quarter, again driven by strong political revenue given the upcoming election. Our cable businesses have performed well through the year and have delivered consistent results. Excluding advertising, cable revenues increased 6% for the quarter. Please refer to slide 7.

In the third quarter, Cable Communications operating cash flow increased 7.7% to 4 billion, representing a margin of 40.1%, a 30 basis point improvement compared to third quarter of 2011. In the third quarter, our total expenses increased 6.4%, primarily reflecting increased video programming cost, sales and marketing expenses as well as additional cost related to expansion of business services and other new initiatives.

Program expenses increased 6.9% in the third quarter, as we continue to expand the amount of content we provide to consumers across multiple platforms. For the first nine months of 2012, our program expenses increased 6.8% and for the full-year, we continue to expect pressure in this area with program expense increases in the high single-digit rates. In addition, sales and marketing expenses increased 12.3%, reflecting higher overall media spend and a continued investment in direct sales to more effectively target customers and enhance our competitive positioning in both our residential and commercial segments.

These increase marketing efforts have had a positive impact on our core customer metrics as well as promoting our new products like XFINITY Home, XFINITY Signature Support and Streampix. We continue to offset our increased expenses to further operating efficiencies and improving product mix, as we increased the number of customers upgrading to higher tiers of services, such as advanced video services or premium internet tiers. In addition, we remain very focused and believe we can continue to gain efficiencies at our customer service and technical operations.

During the third quarter, we reduced our activity levels by more than 1 million truck rolls and by 5 million agent calls handled in our call centers, even as we added 294,000 total new customers. Customers continue to elect self installations which in the third quarter was 34% of our installations. In addition, we now have over 25% of our customers managing their accounts online. These operating and technology improvements result in a better experience for our customers, lower activity levels and improved productivity metrics for our cable operations.

Overall our cable groups’ third quarter and year-to-date results clearly demonstrate we are executing well and competing effectively with our improved products and services. Please refer to slide 8, so we can review our cable capital expenditures. In the third quarter, cable capital expenditures increased 110 million or 8.8% to 1.4 billion equal to 13.7% of cable revenue versus 13.4% in the third quarter of 2011. This primarily reflects our continued investment in our network and expansion of new services that generate attractive risk adjusted returns by business services, advanced video services and XFINITY Home.

We continue to invest capital in our network to ensure product leadership. In video, we are delivering more content to more devices some of which are IP enabled. Our customers average over 400 million Video-on-Demand views each month and our XFINITY TV apps has been downloaded over 7 million times. In addition, we are investing in our high speed internet product, as we continue to increase speeds and introduce faster tiers of service to our customers. Including these type of investments our year-to-date cable capital expenditures increased $56 million or 1.6% to $3.5 billion equal to 12% of revenue versus 12.6% for the first nine months of 2011.

And as I have mentioned before, we expect that for the full year of 2012 cable capital expenditures will be relatively flat in dollars when compared to last year and should be lower as a percentage of cable revenue. Please refer to slide 9, so we can review the results of NBCUniversal.

For the third quarter of 2012, NBCUniversal revenue increased 31% and operating cash flow increased to 20%. These strong results were driven by the success of the London Olympics. Excluding any impact from the Olympics, NBCUniversal revenue increased 8.3% and operating cash flow increased 7.3%. Now lets review the individual business segments of NBCUniversal. For the third quarter, cable networks generated revenue of $2.2 billion, an increased of 3%, driven by a 6% increased in distribution revenue. Advertising revenue grew by 1% reflecting soft cable network ratings offset by increases in price.

Cable networks operating cash flow increased 8% to $809 million reflecting higher revenue as well as flat programming and marketing cost which are primarily due to timing. Year-to-date cable networks revenue increased to 4% and operating cash flow is relatively flat, as we continue to invest in our channels and increased original programming and hours of regional content.

Moving onto our broadcast segment, third quarter broadcast television revenue increased 84% to $2.8 billion and included $1.2 billion of revenue generated by the Olympics. Excluding the impact of the Olympics, broadcast revenue increased over 5% reflecting a strong start of the fall primetime schedule and an improvement at our own stations.

Operating cash flow was $88 million and compares to a loss of $7 million in the third quarter of last year. However, again excluding the Olympics, operating cash flow declined by $25 million reflecting higher programming and marketing costs related to the early start of our fall broadcast season and news coverage related to the elections.

Moving on to film entertainment, third quarter revenue increased 24% to $1.4 billion reflecting higher theatrical revenue and strong box office performance of Ted and the Bourne Legacy as well as increased Home Entertainment revenue due to the higher number of titles released on DVD. Third quarter film operating cash flow increased 31% to $72 million.

Switching to our theme park segment, we had another solid quarter as theme parks generated revenue of $614 million, a nearly 6% increase driven by consistent performance at the Orlando Park and strong growth at the Hollywood Park fueled by the success of the new transformers attraction.

Third quarter operating cash flow for the park segment increased just over 11% to $316 million. Please refer to slide 10, so we can view our 2012 financial strategy. As I mentioned earlier, we generated consolidated free cash flow of $1.5 billion in the third quarter, an increase of 9% compared to last year and free cash flow per share increased 12% to $0.56 per share.

For the first nine months of the year, we generated $6.1 billion of free cash flow, an increase of 19% over the first nine months of 2011 and year-to-date free cash flow per share increased 22% to $2.24 per share. For year-to-date 2012, Comcast Cable accounted for $4.6 billion or 76% of total free cash flow and NBCUniversal contributed $1.5 billion or 24% of consolidated free cash flow.

We continue to execute on our financial plan for 2012. Year-to-date, we have returned $3.4 billion of capital to shareholders, a 35% increase which includes share repurchases totaling $2.3 billion and dividend payments totaling $1.2 billion. Also during the quarter, we completed the sale of two non-operating investments as we continue to simplify our balance sheet.

We’ve recently received $2.3 billion in pre-tax proceeds from our share SpectrumCo sales of wireless spectrum licenses and $3 billion in pre-tax proceeds on the sale of NBCUniversal’s interest and A&E Television Networks. As you know, we managed Comcast Cable and NBCUniversal as two separate pools of cash flow generation and funding capacity. Accordingly, NBCUniversal’s proceeds from A&E will remain at NBCUniversal to build capacity to fund future equity redemptions by GE, while SpectrumCo proceeds will be part of our 2013 evaluation of capital allocation and return of capital.

Our return of capital planned for 2013 will be reviewed by management and our board in the next few months, and we will provide an update for 2013 year end earnings call in February. Overall, we are very pleased with the operational and financial progress we have made during the first nine months of this year. We believe the investments we have made along with a strong focus on execution will continue to generate organic growth and yield positive results.

Now, let m turn the call over to Marlene for Q&A.

Marlene Dooner

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

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of Jessica Reif Cohen with Bank of America Merrill Lynch.

Jessica Reif Cohen - Bank of America Merrill Lynch

I have two questions. The first one is, you guys are in very unique position to answer this question but where do you think viewers are going besides NBC? I mean you really should have the data given the set-top boxes are they going to Cable on-Demand TV, everywhere iPads and what are you doing about the measurements system?

Brian Roberts

Okay, Jessica. We spend a lot of time talking about that. I think the fact is that people are watching more video today than they ever have. The challenge for a company that's in the television business is that much of that viewing is in places that is neither measured nor monetized. Obviously, SVOD has an impact, internet streaming has an impact. All the variety of things that have happened due to technology have given people so many more options for viewing that they are viewing more but they are viewing far too often in my opinion in places that are neither measured nor currently monetized. So, one of our challenges overtime is to make sure that, that changes so that the ecosystem continues to remain healthy.

Jessica Reif Cohen - Bank of America Merrill Lynch

Okay, I guess the second question is more general for both sides. Given the really fabulous performance on both side of the house, could you just align, I mean you’ve executed so well what is the next few priorities for each side?

Neil Smit

Jessica, I think on our side its heads down execution where we continue to rollout X1; we have got it in four markets now. We will be rolling out two other markets and major markets in the next couple of weeks. I think on the marketing side it’s continuing to refine our targeting of high value subscribers, and I think on the operation side it’s really to execute well on our service delivery. We are taking truck rolls out; we are taking noise out of the system. I think the division presidents are doing a great job of that. And finally, it’s continue to accelerate our new businesses, business service has been growing at 34%. We are getting into the mid-market now. XFINITY Home, the home security and automation product is that rolled out across all our markets now and we are going to continue accelerate on the new business side.

Steve Burke

And in terms of NBCUniversal obviously we are doing better but we still have a lot of businesses that are underperforming by my standards by the standards that we all have for them. Broadcast I think is our biggest opportunity and the fact that NBC has been number one for the first four weeks of the season in demo, is a very positive start for the season for us and we want to continue that. But I think broadcast profitability could be dramatically higher than it is currently and hopefully we are going in the right direction on that. And then I think monetization across the company in terms of affiliate fees, advertising, CPMs we have a lot of upside and we have only been together with NBCUniversal now for 18 months, 20 months and we feel like we are on the right path but there is a long, long way to go.

Marlene Dooner

Thanks, Jessica. Operator let's go the next question, please.

Operator

Our next question comes from the line of Jason Armstrong with Goldman Sachs.

Jason Armstrong - Goldman Sachs

Thanks and good morning. maybe I will ask the of regulatory video subscriber question, if you continue this pace of year-over-year improvement in video subs, it would suggest to get actually had video subscribers in the fourth quarter, is there any reason for us to not expect that would you express any sort of caution around that statement? And then second question we saw, I think (inaudible) cable recently tweets some modem fees that was sort of the most recent pricing lever we’ve seen in the industry, what are the key levers they give you in today’s pricing across the different cable product categories, thanks?

Neil Smit

Jason, on the video side, I think we are executing well on both the product side, the marketing side and the service side. We’ve rolled out new video services X1 is going out, it’s rolling over the today's market, as I mentioned. I think we have got a really nice balance between rate and volume.

Our video rate was up 5% and our volume was we reduced losses by about 29%. So I think we stuck a nice balance there. I think on the [HSD] side, we took equipment charges, we had equipment charges last year, and we have been driving ARPU up for and to at least the eight sequential quarters its been, I think we struck a nice balance there what drives the rate increases right now is primarily speed, but we are driving additional services like a home security, and what not whether we get the video increases in the fourth quarter, I think we just have our head down, we are focusing on execution and block and tackle things.

Jason Armstrong - Goldman Sachs

Yeah, I just had a quick follow-up to that; last year in the first quarter there was a chance that we may go positive, we didn't because there were large price hikes implemented across a wider portion of base and I think people are expected, is there anything in fourth quarter whether its price hikes or other sort of activity that would tell your fourth quarter may have more video headwinds than we otherwise would expect?

Michael Angelakis

Hey Jason, it’s Michael. There is really not any abnormal expectations in the fourth quarter, but I think as Neil said, the team is really just trying to make progress everyday and execute and I think we’ve done that over the last eight quarters in a row. So we’ll see how the fourth quarter comes up, we are optimistic, but we've got a lot of days left in the fourth quarter.

Marlene Dooner

Thanks Jason, operator lets go to the next question please.

Operator

Our next question is from the line of Doug Mitchelson with Deutsche Bank.

Doug Mitchelson - Deutsche Bank

Thanks, one for Michael and one for Neil. The question for Neil, I think along with Apple this was about the only conference call in TMT so far that's not mentioned macro issues and many businesses showed weakening during the quarter. How much of the 3Q sub improvements in video and data were driven by gross add improvements versus churn improvements. Is there any favorable or unfavorable market momentum, macro or competitive worth noting?

And for Michael, I think Comcast is an unusual stretch where you are incented to raise your gross debt leverage maybe into the very high end of your target range given the very low cost of debt and the new issue market, but you are already in the $9 billion cash position. So I know you are asked this every quarter, but how do you think about the level of gross debt and gross debt leverage the company carries relative to the attractiveness of the debt markets right now? Thanks.

Neil Smit

Hi Doug, it’s Neil. On the video side, I wouldn't say there are any unusual circumstances that would affect the video momentum going forward into the fourth quarter. The competitive market seems, there is no major change there and I think we are executing well on and we did recognized balance between rate and volume.

Doug Mitchelson - Deutsche Bank

And there is nothing in terms of housing or in terms of the overall macro environment that you would call out.

Neil Smit

No I think the housing is neither a headwind nor a tailwind, we haven't seen any material changes; we've seen slight housing improvements in some of our markets but overall nothing unusual there.

Michael Angelakis

I'll take the second question Doug, regarding sort of cash balance and debt. Actually after the third quarter we actually did another bond issuance for NBCUniversal of approximately $2 billion and that cash has gone and is sitting on the NBCUniversal’s balance sheet. So as we sit here today our debt is about $41 billion give or take and our cash balance is approximately $11 billion. So we have taken advantage both on the Comcast side as well as on the NBC side of what we consider to be historically low interest rates and have issued two sets of bonds, $2.25 billion on the Comcast side and $2 billion on the NBCUniversal side. So we feel pretty good in terms of where we are and our growth target has really not changed between 2 and 2.5 times and we obviously look at total debt as well and that's where the balance is.

Doug Mitchelson - Deutsche Bank

And I guess I was getting to Michael is this sort of a historic opportunity to take leverage up to an unusual level given the attractiveness of the new issue marketing, and given you are such a big company and such a big issue where its obviously a very interesting question for you.

Michael Angelakis

I mean you do have to pay debt back. So I think from our standpoint the way we look at is we have roughly $11 billion of debt in cash, $6 billion of that, actually a little bit more than 6 is at NBCUniversal and really that cash is going to be utilized eventually for equity redemption, and on the Comcast side we do have a little bit more than $4 billion or so of which some of that is a Spectrum Co. proceeds and some of them is a recent bond issue. We have some maturities coming up in the end of this year and in the fourth quarter, but I think we feel pretty good that we've been opportunistic in terms of how we've accessed the capital markets and will continue to do so when we think rates are exceedingly attractive.

Operator

Our next question is from the line of Craig Moffett with Sanford Bernstein.

Craig Moffett - Sanford Bernstein

Two quick question if I could. Michael, first, lets just continue on with that same thought. Given the cash balance at NBC, can you talk about how you're thinking has evolved with respect to the timing of the equity redemption? And then, Neil and and/or Steve if you could just comment on the political ad environment for the fourth quarter, and how we can expect to see that roll through the cable business in particular but also at NBC?

Michael Angelakis

Okay. Why don’t I take the first one in terms of the cash balance? We feel very good that we built up the liquidity and flexibility at NBCUniversal with regard to it's cash balance and 2014 will be here before we know it and we’ll evaluate it at that point in time. As Steve said, we're approximately 20 months in to managing and owning NBCUniversal and we have about this little bit more than that before we have to make a decision with regard to July of 2014. So we've clearly have some runway to evaluate it. We really like the structure we have. We were good partner, and partnership with GE is working out well. We have a lot of faith in the team and how NBCUniversal is performing. So we feel good that we're building up the financial flexibility and that we have the runway to make a decision in 2014.

Neil Smit

Craig, on the political side we had a strong quarter in Q3 and I think that’s continues in to Q4, but the core business was also very healthy without political and the extra broadcast, we're still up 6%. Auto seems strong, and so I think the team is executing very well there and political remains strong going in to Q4.

Craig Moffett - Sanford Bernstein

Would you expect that (inaudible).

Neil Smit

Universal as you know that most of the political spending is local. There was a little bit of national and then the local was very specific. Unfortunately we don’t know a television station in Ohio. Most of our own station markets did not have a lot of political because they were not battleground stakes.

Craig Moffett - Sanford Bernstein

Would you expect that the fourth quarter benefit would be larger than the third quarter benefit though and if so how much?

Neil Smit

Yes I would expect it to be higher than the third quarter, but I wouldn’t venture to say how much.

Operator

Our next question is from the line of Jason Bazinet with Citi.

Jason Bazinet - Citi

Just have a question for Mr. Burke. Given the trajectory what’s going on with cable network ratings on the linear side, do you mind just elaborating on

your posture as we move into 2013 as it relates to generating smart revenues from your content. Is that something you think you will increase, stay flat or you will continue to pursue it in figure ways to sort of monetize your content?

Steve Burke

Well as viewership trend have changed you have got to adjust the way you monetize your eyeballs, and I think one of the new major areas for any cable channel or broadcast channel can monetize their content is SVOD. In a way it’s a new form of the traditional syndication model where at a certain point after the shows have aired in their primary run on a broadcast for cable channel they have been sold into another market and SVOD has emerged as a major revenue source, and our belief is that revenue source will continue. It might change, different companies might do different things and new entrants might come into the market or leave the market, but it’s clearly there and something that you need to pay attention to and monetize. The same things happening with the internet and electronic sell through, I think both the television and the movie business there are more different ways to monetize your content today then ever, but in some way it is more complicated than ever, because viewers are watching more different screens.

Jason Bazinet - Citi

And you feel like, you aggregate trade off today is still positive for you in terms of the net gains on the SVOD side and the erosion on the linear side?

Steve Burke

I think so, and we will see. There is a chance that it will be lumpy. There will be new technologies that merged and there will be times when those technologies allow us to monetize in a way that’s greater and we have historically and then maybe other times that are less. But I think in general these new technologies will be great realizing the real base of our cable business is officially the fees we get from the MVPD community and the advertising.

Operator

Our next question comes from the line of Marci Ryvicker with Wells Fargo.

Marci Ryvicker - Wells Fargo

Thanks, two questions the first, Comcast has signed a bunch of programming agreements and taking the Disney and scraps so I think there is one some discussions of News Corp either now or coming soon. It might be early but it could be very helpful if you can talk about your expectations for next year either in terms of total programming expense on the P&L programming expense growth per [side]. Second question is any more color on X1 how this is trending the number of boxes, the response from Boston and that will be very helpful?

Michael Angelakis

Why don’t I take the programming question. I think the team has done a great job this year with our programming increases. They are certainly a bit lower then we had forecasted. However that being said we do expect a bit in the fourth quarter that number to increase a bit. As we think about ‘13, I think you are going to see some continue pressure, we do have lumpy contracts that come up and so forth. I don't want to get into too much detail, but I can just tell you I think the team has really done a great job. We have a lot more rights over many different platforms, and I think that probably in the fourth quarter and to a bit into 2013, we will see some additional pressure on programming and I think we will be able to manage through that.

Neil Smit

On the X1 product we've rolled it out in four markets today, and we are going out to two more major markets the next couple of weeks. As I mentioned earlier, we’ve got very positive feedback so far where we've rolled it out. And I think the important thing to remember with the X1 is its more than just a guide, it’s the IP delivered video platform that enables us to adjust the product and upgrade different services in a very short time frame, and so it takes time to prep the markets and roll them out and train the service technicians but we are very encouraged by the initial rollout of the product.

Operator

Our next question comes from the line of Ben Swinburne with Morgan Stanley.

Ben Swinburne - Morgan Stanley

Steve any more color on the flat ad sales of Cablenet this quarter? You mentioned ratings, but I didn’t know of the Olympics, so how you guys are allocating Olympic revenue might have hit that, is there's any comment on how Q4 looks.

And then maybe a question for Brian, I think I asked this a couple of years ago and it didn't sound like you guys were that excited about this opportunity, but if you look at what Amazon was talking about last night and how much success they are having with Prime Video and what you can do on the technology front going out of market.

I am just wondering if Comcast NBC combined thinks there's an opportunity to develop customer relationships outside of your historical cable footprint. It just seems like with your scale it doesn't have to be necessarily a full blown video business, but something that could actually expand your addressable market beyond your $50 million homes.

Steve Burke

In terms of cable advertising as an accounting matter, some of the Olympics advertising that was on our cable channels was actually reflected with the Olympics in the broadcast segment and that depressed our advertising a little bit and then the quarter was not our strongest quarter in terms of cable ad sales.

Neil Smit

On the other question you asked, I think we are very focused right now, we've just got so many business opportunities that are businesses we know and we think can perform better. Steve has talked about a few, Neil’s got a really good momentum and plan and we don't see the profitability or the logic to not want to extend the relationships in the markets we serve. Out of the markets we don't serve it’s not clear what the business opportunity for us is certainly from a content company just to Steve’s answer there are new businesses that emerge and we always want to take advantage of that by selling and partnering with those companies. So we are pretty focused. I think we like the trajectory we are on and the results I think speak for themselves.

Marlene Dooner

Operator, let’s have the next question please.

Operator

Our next question is from the line of James Ratcliffe with Barclays.

James Ratcliffe - Barclays

Two if I could. First of all, can you walk us through what the impact if the Hockey Lockout goes on where we would see that in the numbers either both in the NBC and on the cable side and how like not so essentially it was loaned via NHL on the contract would be treated, and secondly on the business services side, has there been any change in your strategy toward CapEx and your willingness to build out to locations with less certainty about the revenues given that you have a larger base and hence more knowledge about it? Thanks.

Michael Angelakis

I take the hockey one. We have a lot of businesses that are related to hockey whether its NBC Sports Network or whether it's the regional sports network or obviously Comcast SpectrumCo and in that net it’s immaterial to the whole company in terms of lockout but I can tell you we're in a pretty disappointing with regard to lockout. I don't think we should say a heck of a lot more James. I think that we're just hopeful that the ownership and their players can get together and get on with the season. So for me, corporate standpoint, the impact is immaterial. I think we're just hopeful that both sides will come to resolution and go back and play the game.

Neil Smit

Yeah, James on the businesses services side, our slots in terms of build out of our network to address the opportunities hasn’t really changed that much. We're seeing strong growth on this small business side which is about 85% of our revenue and on the mid-sized market it's about 15% and growing of a smaller base. We extend our network where we see the opportunities and it's a great ROI so far and we will continue to invest in that business.

Michael Angelakis

And I think James, if you look at our trending schedules on business services, you can see that capital expenditures dedicated to business services has been increasing, that’s both to see sort of the middle-sized business where we are doing extension. If we just look at how it was two years ago, it's up roughly 50% over 24 months and I think that reflects pretty good investment. The team does a great job on being disciplined with those investments.

Marlene Dooner

Thanks James. Let’s go to the next question please.

Operator

Our next question will come from the line of Stefan Anninger with Credit Suisse.

Stefan Anninger - Credit Suisse

One of the elements of the NBCU opportunity that excites investors is the retrans opportunity. It's something you discussed a bit in the past but I was wondering if you be willing to update us on your thinking there now. Where you stand with respect to discussions with the cable operators and DBS and telcos that offer video and on that note, is reversed compensation something that you would consider asking for in the future? Thanks.

Steve Burke

Well, I think in fairly rapid fashion over the last two years or three years, the industry has settled in on it’s not really a rate card but I think there is a general agreement as to what the right kind of structure for retransmission consent is and that’s across the four networks and with a major distributors. And we will participate according to those kinds of sort of established structures. What we have to do is wait for our existing affiliation agreements to expire and negotiate new ones.

We have about 25% of our sub base up in this calendar year, calendar 2012; and we have had a number of discussions ongoing and some of those have been concluded at this point at least in handshake fashion and we are getting what we think is a fair price for retransmission consent. We have also done a lot of deals with our broadcast affiliates in which we share in the retransmission consent fees that they negotiate and we believe that those agreements are similar to the kind of agreements that ABC, CBS and Fox are negotiating as well. So, obviously retransmission consent is a major positive for all broadcast businesses including NBC and I think we are right on schedule, right on where we thought we would be in terms of getting those deals done.

Marlene Dooner

Thank you, Stefan. Operator, we are going to now take the final question and then we are going to come back to Brian for a short statement that he wants to make.

Operator

Our final question will come from the line of John Hodulik with UBS.

John Hodulik - UBS

Okay, thanks. Guys can you give us a quick update on where are in terms of the Wi-Fi build out and the wireless strategy now that the you have the SpectrumCo deals close and may be how long, we need to wait to until, we can expect see some products on the from the [JB], thanks?

Neil Smit

Hey, John, on the Wi-Fi side, we continue to build our markets gradually. We’ve implemented a number of rollouts in the cities where we have the hotspots going through based on usage and we rollout the product. We are also establishing in-home and small business hotspots concerning for us partnership, we have been really working on the infrastructure, we are launching stores, we have got about 550 launched and we are working with agents as well, we’ve developed a point in system sales products that we are well for their in-store agents and we are developing products together that we think will be very exciting for consumer. So more to come on that front but overall we are very pleased with the partnership.

Brian Roberts

Okay, well. Thank you all for the call. I just wanted to end on a really said tragic note. Many of you may hear or read about awful murder of two young children by their nanny yesterday in Manhattan. And the father and the children was part of our CNBC family. So I just want to say on behalf of all us at CNBC and Comcast and NBCUniversal and many others around the nation have touched and said we are by this unspeakable act and we will do everything we can to support their family in their awful time. Thank you all and we will go back to our jobs, but have them in our thoughts and prayers.

Marlene Dooner

Thank you all for joining us this morning.

Operator

There will be a replay available of today’s call starting at 12:30 pm Eastern Standard Time. It will run through Friday November 2 at Midnight Eastern Time. The dial in number is 855-859-2056 and the conference ID number is 36800409. A recording of the conference call will also be available on the company's website beginning at 12:30 PM today. This concludes today's teleconference. Thank you for participating. You may all disconnect.

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