NBCUniversal’s Steve Burke says NBC lags in profitability

NBCUniversal Chief Executive Steve Burke said Comcast Corp. inherited a media company that was an industry laggard in key financial measures, particularly at the NBC broadcast network.

The NBC broadcast network earns $500 million to $1 billion less each year than industry leaders CBS, ABC and Fox Broadcasting, Burke said Wednesday morning at the Bank of America Merrill Lynch Media, Communications & Entertainment Conference in Beverly Hills.

Burke’s comments shed light on Comcast Corp.’s investment strategy when it acquired controlling interest in NBCUniversal more than two years ago from longtime media owner General Electric Co.

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Comcast executives have long believed that they could run NBCUniversal much better than GE’s management team did. The early results suggest that Comcast was right.

Simply put, Comcast took over a media company that allowed its advertising rates and affiliate fees to tumble far behind rival media companies. And the gap was not just at the NBC broadcast network.

The revenue gap between the company’s cable jewel, USA Network, compared to other high-rated cable channels was also large, Burke said. Despite being a top cable destination with popular scripted programming, USA’s ad rates and affiliate fees are about 20% less than other players like Time Warner Inc.’s TNT and TBS.

“We need to invest, and we have to play to win,” Burke said.

Using Burke’s figures, a back-of-the-envelope calculation demonstrates that the seven-year slide in prime-time ratings at the NBC broadcast network cost the company at least $5 billion in potential revenue.

Probably more than that, if one factored in just how much NBC’s struggles weighed down the rest of the company.

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Burke said Comcast initially placed a $1-billion evaluation on its theme parks before the Philadelphia cable giant took over NBCUniversal in January 2011.

In the last two years, Comcast bought out Blackstone’s half-interest in the Orlando theme park and the company began stepping up spending to spruce up the parks and build new rides.

Comcast is currently constructing a “Harry Potter” attraction at the Los Angeles complex.

Ticket sales are up, and Burke said the company now places a valuation on the theme parks at closer to $9 billion.

“We love the theme park business,” Burke said. The company, he said, plans to spend $500 million a year on capital improvements at the parks.

In March, Comcast bought out GE’s remaining 49% stake in NBCUniversal for about $16.8 billion. The transaction came five years ahead of schedule because Comcast sees so much financial upside from its own management of the media company.

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Two years ago NBC did not receive a penny for retransmission fees when other broadcasters were turning up the heat on pay-TV distributors to fork over much higher payments.

NBC will collect $200 million this year in retransmission fees, Burke said. Still, that is well behind the hauls of CBS and Fox, two companies that have gone to the mat with cable companies, including Time Warner Cable, and satellite broadcasters to hike retransmission payments.

While the retransmission trend suggests a growing problem on the Comcast cable systems side of the ledger, it is good news for NBCUniversal.

The media company expects to rake in hundreds of millions of dollars more in retransmission fees each year from cable and satellite TV operators.

Burke said the bulk of NBCUniversal’s distribution contracts come up for renegotiation during the next three years.

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