Stellar Quarter for Resurgent NBC

Room for improvement as ad dollars continue to lag ratings growth

After years of ratings deflation took the wind out of its sails—er, sales—things are looking up at NBC.

Revenue at the broadcast network soared 12 percent in the fourth quarter of 2013 to $2.23 billion, as returning hits like Sunday Night Football and The Voice were supplemented by the freshman sensation The Blacklist. The result handily crushed the consensus projection of 2 percent growth.

Advertising revenue grew 8 percent.

Speaking to investors during Comcast’s Q4 earnings call, chairman and CEO Brian Roberts said, “The turnaround in broadcast is happening even faster than we had anticipated.”

Per Nielsen, NBC is leading the broadcast pack with an average rating of a 2.9 in the all-important adults 18-49 demo, flat versus the year-ago period. Its nearest competitor, CBS, is down 7 percent with a 2.6.

While Roberts was enthusiastic about the pace of the Peacock’s recovery, NBCUniversal CEO Steve Burke warned that the network was not out of the woods just yet. “I think broadcast television has a long way to go,” Burke said. “We now have ratings—first, you’ve got to get the ratings, then you can sell the ratings—but there’s sort of a lag variable.”

It’s a not-unfamiliar refrain for those who follow NBCU’s fortunes, although there is little doubt that the network is in a much better place than it was when Comcast first assumed control of the programming conglomerate.

“We believe we’re off to a good start but there’s plenty more to go,” Burke said.

As CPM declines tend to be self-reinforcing—once a network’s prime-time rates begin to slide, it’s no mean feat to bring them back to previous levels—NBC hasn’t been able to capitalize fully on its recent successes. But the more improvements that are made at 30 Rock, the bigger the payout on the ad sales side.

“We do feel there’s a monetization gap in terms of how we’re doing with ratings … and the amount of operating cash flow we’re generating,” Burke said.

The gap between what NBC commands for time in its prime-time series and the unit costs secured by the other networks is, in many cases, striking. For example, a 30-second spot in NBC’s freshman comedy The Michael J. Fox Show initially cost around $110,000 a pop, according to media buyers. By comparison, the CBS comedy The Crazy Ones in the upfront was pricing at around $175,200 per :30, or about 60 percent more than what its NBC competition was fetching at the time.

Pricing is adjusted throughout the season to reflect deliveries.

That the Thursday night lineup remains a blight on NBC’s schedule also goes a long way toward explaining why there’s such a discrepancy between its rates and those commanded by CBS, Fox and ABC. Arguably the most important night of the week for advertisers, Thursday night rates tend to be proportionately inflated. But unless viewers begin returning to NBC in droves—the Thursday comedy lineup is averaging an anemic 1.1 in the dollar demo—the rates will remain depressed.

Of course, a successful bid on the new NFL package would go a long way toward righting the Thursday night ship. The league is expected to announce the highest bidder within the next few days.

In the near term, look for NBCU’s sales momentum to continue on into the first quarter. When the smoke clears, the company may book as much as $1 billion in national and local Winter Olympics inventory.

As the broadcast business continues to improve, the cable networks remain the engine that drives NBCU’s profitability. While revenue at USA Network, Bravo, et al grew 5 percent to $2.32 billion in Q4, the unit topped broadcast by nearly $2.1 billion in 2013, generating $9.2 billion in revenue to NBC’s $7.12 billion.

Ad sales revenue at the cable networks unit was up 4 percent versus Q4 2012.

All told, NBCU accounted for $23.7 billion, or 37 percent, of the $64.7 billion in revenue booked by Comcast in 2013. Cable operations generated $41.8 billion to the company’s balance sheet.

Comcast did not field any questions about its rumored effort with Charter to buy out Time Warner Cable. Jason Armstrong, svp, investor relations, began the earnings call with a preemptive warning that the Charter deal was not on the table.

“Our intension here today is to talk about our fourth quarter and 2013 results, and we have no comment on press speculation or potential industry consolidation,” Armstrong said.

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