Comcast's (CMCSA) Management Presents at JPMorgan Technology, Media and Telecom Broker Conference (Transcript)

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Comcast Corporation (NASDAQ:CMCSA)

JPMorgan Technology, Media and Telecom Broker Conference Call

May 23, 2016 13:30 ET

Executives

Mike Cavanagh - Senior Executive Vice President and Chief Financial Officer

Analysts

Jennifer Nason - JPMorgan

Phil Cusick - JPMorgan

Jennifer Nason

Okay. Good afternoon, everybody. Jamie, you need to exit the room now. So, it’s my great pleasure to introduce our next keynote speaker, Senior Executive Vice President and CFO of Comcast, Mike Cavanagh. Mike joined Comcast only last year from Carlisle, where he was Co-President and Co-COO. And prior to that, Mike was my colleague or more to the point, my boss, operating committee member at JPMorgan, where he ran the investment bank, treasury services and was for many years, Jaime’s right-hand man and CFO of JPMorgan. Prior to that, he was with Bank One and Citi.

Comcast today is a $203 billion media, entertainment and communications company, operating in five key and in most cases, expanding segments: cable communications, cable networks, broadcast, filmed entertainment and theme parks. Comcast, as I think all of you know, has a long history of bold M&A. And even most recently, we have seen DreamWorks Animation, which was a little bit of the surprise for me; Time Warner Cable, which ultimately couldn’t get through; and of course, NBC just a few years ago. So, we can’t wait to hear from Mike what is next on the docket. So, here is Mike Cavanagh with Phil Cusick.

Mike Cavanagh

Thank you. Thanks, Jennifer.

Phil Cusick

Thanks for joining us Mike. Nice to see you.

Mike Cavanagh

Well, it’s like being back home, I got Jamie is going to stay around and critique me for a few minutes, which will be like gold times. I will try. Everything I knew comes from over there and it’s good to see everybody else from JPMorgan. Great to be here. Thanks, everybody.

Question-and-Answer Session

Q - Phil Cusick

Yes, welcome back. So, I thought it would make sense to start with DreamWorks, which you really haven’t spoken about publicly. What was the driver behind the deal and how does Comcast add value to that?

Mike Cavanagh

Sure. I will spend a few minutes on that one. So, DreamWorks, you start with our film business, 5 years ago was making $25 million a year, last year, $1.2 billion of cash flow. So, the team Jeff shell, Donna Langley, Ron Meyer, Chris Meledandri from the animation side have done an unbelievable job operationalizing that business. We will get into it little bit more later but in other words that I have grown up with, you got to earn the right to do deals, right? And so that team has clearly won that it’s running its own business well and this business has been on its wish list for a long period of time. So, that’s step one, the ability to do it and do it right and execute it well. We have the team that could do it. Two, it’s got to make financial sense. So, hit that one for the crowd and come back to some of the strategy. So financially, you think about DreamWorks as a company that making two animated films a year, which is what their capacity is a little more than that, but if that’s what you believe they should do and that was their intention. You look at most analyst reports and say that business with the TV business and other products in there should earn close to $200 million of EBITDA a year. We believe that is well. We come in on top of that and say, because this is set up, we are lucky that it was a moment in time where Jeffrey was ready to put the company, put his baby in the hands of us. He thinks that this is our – Universal is a great home for his business, but it’s on the basis that we will run it the same way that we ran Universal meaning integrate it in. We have the Symphony with Steve Burke, board member of JPMorgan who runs NBC, drives which is to really harness the whole company. So, it wouldn’t have been possible to do what we wanted to do unless we integrated the business.

So, couple of things that are obvious there on the cost side is there is a distribution deal. So, about $75 million or so a year is what’s paid somewhere else to distribute the films, and in about 2 years’ time, we will take that in and immediately add that to the core earnings power of the company. The other big cost driver is the company today spends about and saw public about $250 million a year on SG&A. So, it really doesn’t make sense to have a public company that makes only two movies a year. So, we will be able to do quite a good job over a period of time to capture synergies there. So, in our minds, taking those couple of things together turns it into a deal that is high single-digit EBITDA multiple. On top of that, you have got the opportunity for the DreamWorks team did a great job building a TV animation studio, something that Universal has yet to do. So, we will be able to take subject to it making sense our intellectual property like Jurassic World or other properties.

And as DreamWorks has done, create kids animation for TV largely distributed over SVOD and drive more value through that and ultimately, the parks business. Obviously, we have huge ambitions in parks that we will get to and it gives us our own IP content to work with there in addition to making a couple of more great movies. So, the strategy fit goes along with all of that, you can ask the question why not just – there is only so much capacity that Chris Meledandri has to make – he makes Minions, Despicable Me, we have got a great new one coming out, Secret Life of Pets. But the real capacity there is to make maybe make two movies a year. The characteristics of an animated film, profit-wise and risk-wise, volatility is much better for animation than live action movies. So, we have long wanted to tilt the business more in the direction of animated films at the margin and this gives us the capacity to do that. So, for all those reasons and it’s a low capital intensity business, it’s a once-in-a-lifetime opportunity, so we are glad to be ready to move quick and work with Jeffrey to get it done at a price that made sense.

Phil Cusick

So I understand, so Chris Meledandri continues to make two movies a year in the legacy business. DreamWorks continues to make its 2 movies a year. Do you imagine...

Mike Cavanagh

And Chris will play a role straddling all of our animated output and help drive on storytelling creative and the like.

Phil Cusick

You mentioned an increase in capacity from those two together over time?

Mike Cavanagh

It’s probably about two movies from each side per year, and in each case, one new, one sequel. Because, again, going back and harvesting what Despicable Me 3 next year gone have through 1 and 2, and so you have got great opportunities to develop a franchise, repeat the franchise, drive that through your theme parks, drive that through your consumer products businesses and so that’s why we like the business.

Phil Cusick

So, let’s follow up on the parks you mentioned a couple of times. First on the DreamWorks side, how long does it take to start to build those into the parks infrastructure?

Mike Cavanagh

Well, it will take – I mean, we are doing one – basically one new attraction per park per year as part of the formula in the parks business that’s helped drive that business from a business that made about $400 million of operating cash flow a year, 5 years ago to about $1.5 billion today. So, we are a big believer in the growth trajectory of the parks business. So, we are working on definitive agreements to get a Beijing park launch that will be 4 or 5 years out. We just acquired half of the park in Osaka, Japan. We have obviously got our Orlando Park and our Hollywood Park. And at Orlando, we have acquired more land, so over time, we will be adding more property. So, it’s measured in years. It’s not something we will do in the next 1 or 2 years, because these things are scheduled out for quite a bit. But out over the horizon to have internally children’s intellectual property that’s both in the library of DreamWorks as well as what will be newly created on their side and on the elimination side is great for the parks business.

Phil Cusick

And the company has been excited to put capital into parks that sounds like that continues at a…

Mike Cavanagh

Absolutely, go back to those numbers. I mean that growth trajectory I mean and going back to some of the things people worried about the media space, parks business is completely uncorrelated to what’s going on in cord-cutting asset, for instance. So, we like I mean we will come back to the broader NBCUniversal, but you think about that, that’s basically a quarter or so of the operating profits of NBCUniversal growing at a very fast rate steadily. And with the investment we have made, it will become an ever bigger part of the percentage earnings of NBCUniversal.

Phil Cusick

So, one of those new attractions you mentioned was Harry Potter in LA, how has that gone versus expectations?

Mike Cavanagh

Great. So, Harry Potter opened in 2010 in Orlando, subsequently in Japan 2 years ago. Last year, 2014, we opened the second stage of Harry Potter in Orlando, in each case, adding Harry Potter in has helped to lift annual attendance by 2 million to 3 million attendees and driven increase as what matters in that business is attendance and what people spend on a per capita basis daily in the parks. So Harry Potter Hollywood opened April 7. We are getting record high guest satisfaction scores. The word of mouth has been excellent. And thus far, the attendance is up 40% – 30% versus a year ago, per capita spending up 40% versus a year ago, so it’s tracking and exactly where we would expect it to be.

Phil Cusick

Okay. In film, you mentioned that last year, I think you said $1.2 billion in operating cash flow and that’s I believe a record number for NBC?

Mike Cavanagh

Record after the prior year.

Phil Cusick

After a record and this year a much tougher – on a tough comp, a decent year against anything but the last two?

Mike Cavanagh

Yes.

Phil Cusick

So how should we think about more of a normal level of profitability in the film business ‘17 and beyond?

Mike Cavanagh

So to just maybe be fair for a minute to the film business, since we – film business last year was the first studio ever to have three movies in 1 year do more than $1 billion each in global box office. We crossed – we have $4 billion total of international box office, $6 billion of global box office and again for $1.2 billion of operating cash flow, driven by franchises, so Fast and Furious 7, Fifty Shades, Jurassic World, Minions. And so the theme of the business from 5 years ago when Comcast acquired the business from GE was to really focus on in Steve’s words increasing the ongoing cruising altitude of the business. So what happened was a lot of focus on what’s called strategic slate, so not throwing lots of darts at the wall with similar types of movies because it’s what came through and got green-lighted without deliberation. So much more focused, we are going to make x number of movies a year. We want two of them to be animation. We want two or three tent poles. Each of those cases, we want sequels and one new, mature comedy, etcetera, etcetera. And sticking to a strategic slate framework is a major part of the ongoing sort of change in the business approach. Another big change was globalizing the marketing side of the movie business, taking all of that in instead of having different regions of the world kind of doing their own thing and deciding how many screens and which operators to go with and which markets on which dates, all that’s done globally now out of L.A. And then finally, in an important market like China, we didn’t have people on the ground China 5 years ago, now we have a robust team. We have gone from being represented by third-parties to distributing the movies ourselves. So for instance, last year – which means a lot a work to make sure your movies get shown to begin with because there is quotas on how many international movies are allowed to be screened in a given year in China when they get released. And then all that, we do for ourselves now. And so as an example, Fast and Furious 7 last year did $400 million in box office in China, which is more than it did in the United States. And so the ramping up of those three aspects strategic slate, global marketing and China distribution, are what’s contributed to the story in film. So you are right. This year, much smaller slate of films in ‘16 versus ‘15 and we are coming off a record year. So we expected this to be a down year relative to a record. We have a start with a weak performance by Huntsman which affects us in the first half of the year, but then we have Bourne 5 and Secret Life of Pets and some other titles coming out in the second half of the year. And then in 2017 a bunch of our big franchises are back, so Fast and Furious 8 and a few others, Fifty Shades. And then in ‘18, we get Jurassic World back. So we are very confident that the long-term trajectory of the business is going in the right direction.

Phil Cusick

It’s been nice to see a very sort of planned and disciplined level of investment in film?

Mike Cavanagh

I would say all the people and that was a large part of the town hall meeting that Steve and Brian did at DreamWorks is that it’s striking I think to all the creative talent in the NBC World, NBCUniversal World, from the parks people to the film side, the bias of Brian, Steve and Comcast to invest in its businesses, which is – was tougher previously for them to get the resources and the focus. So I think it’s actually a great place to work to draw talent and do good creative work.

Phil Cusick

Okay. One of the other things that we have talked about a lot with Comcast is the Olympics and Brian was very excited about the last week of cable show, what’s going to be…?

Mike Cavanagh

He was. He had to do a demo if he could.

Phil Cusick

I am sure he would. What’s going to be different this year versus 4 years ago?

Mike Cavanagh

Well, the Olympics hits on a couple of different things, the importance of sports rights and how in the whole ecosystem, live, big sports events are just a key to engagement both on the advertising side and the importance in the affiliate relationships of wanting to carry channels and the like. So we love the Olympics. We have it at a low cost escalator going from here through 2032. Made money in London and we expect to do better again in this year in Rio. We have already – we are four months ahead of crossing $1 billion mark for advertising sales. So financially, we expect now and into the long distant future for the Olympics to be kind of very important to the company and uniquely combines sort of the storytelling side of NBC for anybody that’s a big watcher of Olympics over the years, it’s just great display of what the athletic competition is all about. Combined with the Comcast side, it’s – I will tell you in a second about what we have done on the X1 side. But this year for the first time, we are going to be carrying 6,000 hours of programming. So think of it as all 130 events either carried on either many – both network and cable channels in the NBCUniversal World, together with live streams from basically every one of the 130 competitions. And so that’s obviously different this year, which is available on your NBC Olympics app or NBC Sports live apps. But for an X1 subscriber to switch over to the Comcast Cable side of things, for anybody that was at the cable show last week saw, this is a demonstration that Brian did, it’s on our X1 box when you turn it on and it brings up on a new tile at the bottom of the front screen that takes you front row for the Olympics and going into that shows you the power of the X1 platform, great searchability of content. So you can follow a sport, you can follow an athlete, you can follow a country, you can tag any of those as favorites, you can then build your own customized experience and basically, curate your way through that many hours and get a unique experience out of it. There is going to be – it’s going to channel all of the furor over the Olympics into the primetime window where because Rio is one hour ahead of New York, we will have all the major sports – all the major events being broadcast live East Coast prime time, so it’s going to be a great experience for American viewers. So it’s we couldn’t be more excited and it’s going to be a big 17 nights. And that’s actually back to the power of live sports and must have programming. That 17 nights, we have this measure of what we call big nights where it’s a household rating of 10 or greater, 18 to 49 demo of five or better. So in the course of 2016, there are 63 nights. We will have 41 of those, 17 of those being in the Olympics. We have got Sunday Night Football which is the number one prime time show for the last 5 years. We picked up five nights of Thursday Night Football and then a few other events. So we think, all goes together to create sort of a must have experience with NBC.

Phil Cusick

I want to talk more about sports in a second, but if I lived in a Comcast area and I had an X1 box, what would I get that I can’t get as a different cable company customer today?

Mike Cavanagh

That experience. So having moved to Comcast territory, we have a voice remote. So my whole family is now accustomed to touching the voice remote, speaking to the television to say I want to – tune me into your favorite movie and actor, genre and show all of the content that’s available to you. What I just described is a customized experience for the Olympics that you won’t get unless you have the X1 platform, which obviously need to be a Comcast subscriber for. You will be able to access some of the same streaming content on your NBC apps if you are out of the Comcast footprint, but not the X1 experience I just described.

Phil Cusick

Just if I were an X1 customer outside of the Comcast area?

Mike Cavanagh

There is no such thing.

Phil Cusick

There is only a couple of.

Mike Cavanagh

Well, there is no – other than we have licensed X1 in Cox’s footprints, they have rolled it out in 30 or 40 markets. So, if you are a Cox customer, you will be able to get it, but it’s got to be part of the X1 offered platform, which kind of blew people away for those who were not there in Boston last week.

Phil Cusick

Okay. And you mentioned the 5 NFL Thursday night games, how does that – that in the Olympics I would think lead in strong to your fall lineup? How do those five nights sort of work into your overall lineup?

Mike Cavanagh

Well, just imagine those 17 nights of the Olympics where we will be far and away the number one programming will be its advertisers heaven. You are reaching the broadest reach for big events. So, we are getting the great response I described earlier with advertising bookings generally. Likewise, it’s a phenomenal opportunity for us to use promotional spots to advance our fall programming which includes three new scripted programs. We got a sophomore season of several big returning shows that were successful last year. Two top reality show in The Voice and the top new reality show in Little Big Shots. So, we will use the Olympics to launch that and promote Thursday Night Football as well.

Phil Cusick

So, I am curious as a new cable company executive and you have talked about sports being tremendously important, right, between the Olympics and football, how do you think about the growth in content cost both from NBC needing to buy content, specifically sports? And from a cable company side having to pay and drive that cost through to your customers, is this sustainable?

Mike Cavanagh

Sure. So on the NBC side, I will take the NBCUniversal side first, it’s a delicate balance. We have to have a lot of financial discipline. So, we look at lots of different sports right opportunities and know what balance we are trying to strike. And if it goes beyond our appetite for what we are trying to sell for, we will pass. So, there has been plenty of examples of that. But when you look at what we do participate in, I have already described the dynamics of the Olympics with having that locked in through 2032 again with a very low cost escalator, we feel very confident and we are making money today we feel very confident our ability to make money on the Olympics for the entire life of that contract, which goes obviously for a long time. The NFL, again, top Sunday Night Football, top program on television, great draw for advertisers. We feel very good about our two big properties, Sunday Night and now Thursday Night Football and Olympics are great properties.

And what you are trying to do on the content side is make sure that you are using live programming of which sports is the best among the best to make – to reach audiences and make your networks and channels must-have for carriage in all forms. So, it helps drive re-trans fees and affiliate fees, obviously, on the revenue line for the content side of the house. So, that’s the – but you got to get the balance right. You need enough. What’s going on? You need enough to get the balance right and that’s our team – Mark Lazarus and the team at NBC I think has done a great job of getting that balance right. So, we have got NASCAR NFL playoffs, some Please go ahead, now British Open beginning next year, so spread across a variety of our different properties. So, we feel like we have got it right and again, that translates into obviously a major driver of content cost for distributors. So, coming to that side of the equation, we are seeing that re-trans fees and sports rights are really the main driver of – for us this year, we have said we expect programming costs to be up 10% year-over-year driven by the calendar, which is basically of the major relationships we have. We had a bunch of multiyear deals come up for renewal right at the end of last year beginning of this year. I will have some of the same as we end this year going into next.

So for a period of time here, we have higher than historical levels of programming increase. But when you look beyond that, so 2018 and beyond, there is no reason to think that the 7% to 8%, which is more than historical average won’t hold to be true, but we will see. We have a bias gone – touch on the cable side. We certainly have the bias to make sure we continue to have the best video product out there. So, you think about X1, one of its great powers is searchability and the more content. That’s part of the offering the better. So, we have been historically biased to try to acquire full season stacking, library rights, make it a richer and better experience as part of the – what you get when you buy the cable bundle. And so that’s little bit of our bias. I get the question a lot don’t we have the leverage to drive cost down? And we do. We use data. We have definitely gotten smart about using data about how our subscribers are using different pieces of content tend to introduce that into the dialogue. But I think at the moment in time we are in and the success we are having, we added 53,000 pay-TV subs in the first quarter and it’s the first time in about 10 years that we have been able to look back 12 months and say we have net added subscribers on the video side. We have done that while driving ARPUs higher. So, it’s not a matter of us introducing lots of skinny bundle customers in the mix or changing the profile, I think it’s largely to do with X1 together with a very strong video product away from X1 and obviously customer service, all part of the story there.

Phil Cusick

So, you expect that programming expense sort of back in that 7% to 8% range after the next couple of years?

Mike Cavanagh

That’s as best we can see. That’s the historical averages. And like I said, we get through by the end of this year some of the big contract renewals that lead to the more erratic near-term step-ups like we are experiencing this year.

Phil Cusick

And as you have said, you have been getting a lot for that. You have been getting searchability, you have been getting stacking rights, you have been getting some TV Everywhere rights. Is there something beyond what you are targeting now that you think justifies that sort of higher remaining high single-digit programming cost growth?

Mike Cavanagh

Well, justify, as a matter of being a capitalist, it’s what the market will bear. So, as a programmer, so we are in the NBCUniversal head, there are so many different buyers out there for content. It’s a great time to be a content creator. And you see that for all the reasons we just described. I think it’s our job on the distribution side to convert that into a business model that allows for us to deliver a great product for which we are compensated and drive good results. And I think we have been walking that line well. As part of our bundled relationships, we have – obviously, there is a squeeze on the margin of a video product if it were to be a standalone product, but as we manage double and triple play bundles, where we are pricing an overall relationship, we are well aware of the compression that we are not interested in subsidizing things, but the rich video experience is one of the greatest reasons to have the best broadband product that’s available which is ours. So, we are committed. I know some are looking at the video product as something that they want to run away from or minimize. We don’t have that view.

Phil Cusick

Right. That’s a good – let’s transition more into the cable business. As you mentioned, you seem to be growing share at the high end of video customers. You are expanding the addressable base. Can you talk about, first, the addressable base, what have you been doing to grow the base of customers and to retain them?

Mike Cavanagh

Sure. Well, so we pass around 55 million homes and we have about 28 million customer relationships. Inside that, last year, we had the number of high-speed data relationships cross over the number of video relationships, 23, they are about 1 million different now, 24, 23 or so. And so we are going to market with a – obviously we are interested in a little more complete package, i.e., the bundle, but we have gotten much more refined on customer segmentation. So, we certainly start with the bigger package including X1, but we also have high-speed data only. It’s the best high-speed data anywhere you run into us. And so for those that are primarily interested in high-speed data, we have sought to offer a more basic skinnier video package, which is our Internet Plus product, largely taken by millenials that was introduced about 2 years, 2.5 years ago. So modest portion of the base and it’s actually a flattish in terms of its new connect, so it’s not a growing part of our overall base, which is to kind of up-sell into what otherwise might be high speed data only a video offering. What we found is of the people who stay with us over time, 30% are upgrading to a higher video package. So incubating new clients is part of what customer segmentation is all about, showcasing our products. So we have got a college campus product. We have got a Hispanic targeted product. I mentioned Internet Plus. Stream is a product where it’s all tablet or mobile device based in your home if you are a high speed data customer. So our real job and how we are broadening the base is to make sure that we are relevant to all different slices of potential customers in our footprint and give none of them a reason to go somewhere else. So we have to constantly revisit what our offering looks like to be responsive to customer needs. And I think the business is nicely pivoted to that approach. It’s not one size fits all.

Phil Cusick

You specifically mentioned in your footprint and I am sure you get asked this all the time, but it seems like every week we are seeing a new announcement about some national over the top products, how do you think about Comcast going out of region or over the top and then how do you think about the sustainability of those business models as a standalone video provider?

Mike Cavanagh

Well, I would start with – we got to give our customers what they want, so following on what we are just talking about, we are expecting to see some of these ideas of over the top be introduced into the marketplace, virtual MVPD. So it takes some of the ones recently described that are not going to be skinny in nature, may not be the full traditional bundle. But certainly, if you read reports, that would look like something that has the four major networks plus Time Warner in all their channels, which is going to be a relatively costly product, certainly compared to what’s currently known as a skinny product. And I think our job on the distribution side, the good news is that every report you read about those kind of offerings includes NBC as must have content, which is a good thing wherein our NBCUniversal had. But as it relates to the Comcast Cable side of things, we have great skill in distributing video. So obviously, we are there ever to be a real market opportunity for our shareholders for us to make money and out of footprint virtual video offering, we would certainly come back to it and consider it. We have yet to see a business model to acquire that kind of content at the prices that are likely to be required and then make money doing it. We are much more focused on in-footprint where we still have a great runway to roll out X1, so a whole experience including broadband. And the converse of that is, I think our products will be very competitive against any such offering coming into our space because when you think about for the price paid with broadband, with the fuller bundle, the value, there is actually quite a bit of value and customer satisfaction in our broader X1 experience. And so I think that’s our primary focus is make sure that we win in footprint against all that’s being folded out there. And I think we are in a good position to do that.

Phil Cusick

You mentioned X1 again and you are in the process of ramping that up pretty fast, how widely distributed would you expect X1 to get and how long does that take?

Mike Cavanagh

Sure. So we are rolling out 40,000 boxes a day, so that it is adding about 5 percentage points of penetration a quarter roughly. We ended last quarter at 35% penetration, so we will be at close to 50% penetration by the end of this year. We don’t have a number of where it’s going to go. We are obviously following the evidence of its payback as we are rolling out later and later cohorts. But it’s not likely to go to 100%, but I would expect we will be deep through 2017 and longer perhaps depending on data. And the data is much lower churn for an X1 subscriber, an X1 customer, much higher propensity for all the reasons I have been alluding to of searchability and discoverability. You speak into your voice remote and ask for a certain program, it will present you always in which it’s available, linear or on-demand. And as a result, as happens in my household, you get that presented to you. You are much more likely to make use of the video on demand library, both paid and free on demand, which again goes to the power of the experience. Much greater inclination to acquire a DVR is 50% higher activation of DVRs and other devices in the home for overall ARPU of an X1 subscriber much higher. So we are rolling it out at a brisk pace and it’ll say at about that pace for the next many, many quarters to come.

Phil Cusick

So ‘16 and ‘17 really the flat parts of the X1 rollout curve.

Mike Cavanagh

Yes. And as we get into the future, we are now developing Tony Warner and his team on the cable side in our developing next generation. The next generation X1 box is going to be this big and this thick. It’s going to sit on the back of your TV. It will be – all it needs is power and it will be Wi-Fi enabled with powerful wireless gateways we have powering the Internet in home. So there is plenty of advancement of that to come.

Phil Cusick

So you mentioned broadband a couple of times I think you are at 42% penetration of your own homes Thank you. Telco had been losing copper-fed broadband customers for a long time, go you feel like there’s a point at which you can see that business starting to slowdown in terms of penetration, it doesn’t look like it is now certainly?

Mike Cavanagh

Now for quite some time, we feel very good. It starts with we have the best product. We have increased speeds 17x in the last 15 years. We continue to enhance the capability of our network with DOCSIS 3.1 which will enable 1 gigabit, speeds will be enabled internationally over the next 1 year or so. And so we think we have a great product. We have added more than 1 million subs a year for high speed data for the last 10 years now, and recent quarters have been record quarters for us in terms of adding high speed data. So we are very competitive in the marketplace and think that that’s going to be what carries us forward for the indefinite future.

Phil Cusick

Okay. Last week at the cable show…

Mike Cavanagh

Nationally, high speed data is only penetrated about 70% and we Are doing a great job in new connects having a disproportionate share versus what we otherwise extrapolate to in footprint again going back to it being an and we are very focused on driving share in the business.

Phil Cusick

Okay. The broadband has been a big regulatory issue over the last couple of years and last week, at the cable show, there was a lot of painful words I think on both sides. As an executive who is had a share of regulatory experience over the years, how do you think about regulation in the cable industry, are we at sort of a peak in terms of risk, s there less risk maybe than the market perceives? And how do you think about opportunities here?

Mike Cavanagh

Well, it’s hard to handicap what the market perceives, but certainly if there is a pro-regulatory environment, generally, that you would get if you spoke to executives in just about any industry, that’s the moment in time we are in now. We run the company for 50 years ahead of us. I think it’s our job to make sure we pivot and react accordingly and make sure the company thrives whatever the outcome is on some of the regulatory proposals that are out there. And they have been coming with a good amount of frequency and so we have a strong point of view and I think good merits on all of those points. I was asked earlier how do I handicap them, I can tell you how we feel about them. So set-top boxes, it’s an environment where the amount of choice for consumers is high and accelerating. So the idea that there is a need for a government mandate in that space strikes us as odd. We are making, as you saw in the last couple of weeks, our X1 experience available on an app basis was not exactly the same as a box driven experience, but that’s done native and some Samsung TVs and Roku boxes. So, there is plenty of innovation coming. Our X1 is availed by the footprint if you are licensed by another provider. So I think there is plenty coming out of the set-top box side. So we don’t – we will see how that one finally resolves itself. And in any case, it’s going to be several years before a mandate comes along and the likely outcome, frankly in my perspective, is that the marketplace competition is driven in the marketplace, which is I care far more about what’s likely to come on competitively between now and any kind of mandate than what the mandate itself would be on that score. And we are really going back to what I have been saying. We have been investing, we are thoughtful, we are driving our business and I think were well equipped to compete. On privacy, we are pro-privacy done responsibly by all companies, not just cable providers. And so that’s a point on that one. And then finally business services and access, we are actually the disruptor in that space. We are a new entrant helping create – we have grown a $5 billion business making our fast and new generation connectivity primarily available at smaller businesses, medium size and by adding some additional services and now enterprise. So the idea that will be swept up in regulation that would make that a more costly proposition or cause us to consider slowing that down seems odd to us, but those are some thoughts on a few of the topics out there. But again, our job and I don’t see a problem doing it, is to make sure we respond accordingly to whatever the final determinations are on regulatory.

Phil Cusick

Speaking of competition, we have AT&T coming up next, we saw T-Mobile this morning and so the wireless space I am sure you have gotten a lot of questions, but we see consumer broadband fixed and mobile coming together fairly quickly and Comcast has been sort of tiptoeing around wireless for 25 years, it feels to me like it’s a lot closer than it was 5 years or 10 years ago when people would ask me a similar question, how do you feel about wireless, what’s the importance of being in that business one way or another and offering that to customers and then how do you think about the need to maybe own those assets or not?

Mike Cavanagh

Well, I think wireless is too narrow, if you think about the mobility, our customers now a and into the futures care about mobility which across our existing kind of assets, we are very focused on making sure that we provide the logical mobile extension of our products, whether that be content rights to take our contents out of home on a device regardless of how you are connecting or it’s the apps that allow you to connect to our content or it’s the best Wi-Fi out there including in-home and out of home where 75% of people’s mobile usage of their data that’s not wired is over Wi-Fi. So we are in the business of making sure that our services are mobile enabled. So when it comes to cellular wireless, obviously there are trends in Europe about quad play that we pay attention to. We have triggered our MVNO rights with Verizon to work on seeing if there is a commercial product that can serve the purpose of satisfying a churn reducing offering for our existing business through wireless offering with them under an MVNO and that’s work in progress. But we’re in the mode of test and learn to watch developments as the marketplace changes, does quad play really matter or doesn’t it. We are not necessarily convinced that U.S. will be like Europe on that score, but we are paying close attention and trying to experiment and be quite thoughtful about it. We don’t think having owners economics in the wireless business today is something that’s interesting to us now if – we reserve the right to have a different view of the future, but as we sit here now, no.

Phil Cusick

Okay. 45 seconds…

Mike Cavanagh

That’s not new news.

Phil Cusick

For one last question..,

Mike Cavanagh

We don’t necessarily want to believe it, but that’s not new news.

Phil Cusick

Nobody wants to believe it.

Mike Cavanagh

Yes.

Phil Cusick

So 40 seconds last question, we get a lot of questions about buyback, we get a lot of questions about dividend, what are your investors tell you that they want? How do you expect your return on capital over time?

Mike Cavanagh

Well, I mean I think that our long-term investors want us to build our business, protect it for the long, long term. I think we have proven – you look at the results of the past couple of years acquiring subs turning the record rates of sub acquisition and high-speed data and video. So, I think we get a lot of credit for being biased towards investing in our business in a way some competitors haven’t, which I think explains some of our successes. So long as we are success-based in our continuation or not of capital deployment, I think that’s an important part of our capital allocation and strategic process at Comcast. And again, I think our long-term investors want to see that from us and would rather see us do that than any kind of financial engineering. On leverage, I think we have the view and people can vote with their buys and sells of maintaining a balance sheet that’s leveraged around 2x. Obviously, the company has taken advantage of that with the opportunity to acquire NBC a couple of years ago and when that wouldn’t have been possible, had the company been more highly leveraged in the environment that it was in. So, I think conservative balance sheet with the ability to use that opportunistically occasionally is important. And I think we get credit for being biased towards steady return of capital to shareholders, both through a dividend that’s increased for 8 years running now and steady buybacks, but in a responsible way. And we balance all of those things and I am happy to be held accountable for the decisions we make. And DreamWorks is a good example of we put $4 billion to work quickly, thoughtfully and in a way that I think is going to pay great dividends as an adjustment to what we otherwise would have said we are going to do at the beginning of the year, but I think that’s what we are here for.

Phil Cusick

Good. Mike thanks very much for coming.

Mike Cavanagh

Thanks. Thanks everybody.

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