Weak Film Slate Hurts Comcast Earnings

Sometimes, past success makes it hard for a company to meet expectations.

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That's what happened to Comcast (NASDAQ: CMCSA) when it reported its Q2 earnings. It's not that the company had a bad quarter; it's just that its most volatile business segment -- its film division -- faced difficult comps. The company did post an overall gain in revenue, from $18.7 billion in Q2 2015 to $19.2 billion in Q2 this year.

Those numbers might have been even stronger if the company's film slate wasn't competing with a year-ago quarter that contained a number of blockbusters. Comcast reported $1.35 billion in film revenue for the period ended June 30 -- a quarter containing a big part of the summer movie season -- that's down 40% from last year, when the company's Universal film brand released Jurassic World and Furious 7, two massive hits.

Going forward, both of those movies are franchises, and sequels will propel future quarters to the heights Comcast hit in 2015. In Q2 2016, however, the company didn't have anything of equal hit potential on its slate.

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CEO Brian Roberts noted the challenging comps in his comments in the earnings release

"Our cable subscriber and financial performance during the quarter was outstanding. We more than tripled our customer relationship net additions, with our best second quarter Internet customer results in eight years and our best second quarter video customer results in over 10 years, and we successfully balanced this with strong operating cash flow growth," he said. "Despite an expected difficult comparison to last year's record second-quarter film slate, NBCUniversal achieved solid results, driven by strength in our TV businesses and theme parks, which benefited from the successful opening of The Wizarding World of Harry Potter in Hollywood."

TheThe Wizarding World of Harry Potter at Universal Studios Hollywood joins a similar attraction the company's Florida theme park. Image source: Comcast.

It was a solid quarter for Comcast

Aside from the weakness in its movie business, Comcast had a lot to celebrate in Q2. Revenue in what Comcast calls its cable communications segment increased 6% to $12.4 billion compared with the same period last year. That was driven by increases in high-speed internet, business services, and video revenue, according to the company.

Perhaps most impressively the company held on to most of its video customers, losing only 4,000 versus the 69,000 it lost in Q2 2015. On that slightly smaller customer base, Comcast grew revenue by 2.8%, "primarily reflecting rate adjustments, as well as an increase in the number of customers subscribing to additional services, partially offset by additional revenue in the prior-year period associated with a boxing event available on pay-per-view," the company noted in the earnings release.

In Comcast's other major business, NBCUniversal, which includes its cable networks, NBC, the movie division, and its theme parks, revenue decreased by 1.8% to $7.1 billion year over year. All of the company's segments aside from the movie division were up.Cable networks revenue increased 4.7% to $2.6 billion, while broadcast Ttlevision revenue grew by 17.3% to $2.1 billion, and theme-parks revenue increased 47% to $1.1 billion.

This is good news, mostly

Comcast has shown resilience in its cable and internet service business, growing its broadband user base while holding on to video customers. It has managed to mostly stem the flow of cord cutters -- people dropping pay-television in favor of streaming services -- while also increasing revenue from its user base. In addition, the company has managed to make more money from its cable networks and even NBC despite a challenging climate.

The only weakness Comcast has is its film division. Whereas its closest rival, Disney (NYSE: DIS), owns so many franchises -- Pixar, Marvel, Star Wars, and its own animation brand -- that it can release nearly guaranteed hits year after year, Comcast comes up a bit short. Its movie studio has some major franchises, but it doesn't have enough of them to keep revenue relatively stable year to year.

Disney has mostly taken the risk out of the movie business, while Comcast hasn't quite gotten there yet. That's why this quarter dragged a little bit, but it's a problem that will be fixed by adding a few more franchises. The company has taken a solid step in that direction by buying DreamWorks Animation, but it still has a way to go before it can guarantee hits the way Disney can simply by scheduling a Pixar movie, Star Wars sequel,or film starring one or more of the Avengers.

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