Comcast Corporation

Good morning ladies and gentlemen and welcome to Comcast's third quarter 2019 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 to Senior Vice President Investor Relations and Finance Mr. Jason Armstrong. Please go ahead Mr. Armstrong.

Thank you operator and welcome everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanaugh, Steve Burke, Dave Watson and Jeremy Derrick. Brian and Mike will make former monarchs and Steve, Dave and Jeremy will also be available for Q&A. As always let me now 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 8k and trending schedules for the reconciliation of non-GAAP financial measures to GAAP. With that let me turn the call over to Brian Roberts for his comments. Brian. Thank you Jason and good morning

everyone. We delivered strong operational and financial results in the third quarter with each of our businesses contributing to our company's growth. Together we surpassed 55 million customer relationships, grew pro forma EBITDA by 7 percent, delivered 16 percent growth in adjusted EPS, generated significant free cash flow and paid nearly one billion dollars in dividends while further strengthening our balance sheet. Our results in the quarter and over many years are evidence that our strategy is working. From my perspective four things stood out as we wrapped up the quarter. Our incredible strength in broadband, the enduring popularity of our premium content, our strong global footing just one year after the sky acquisition and how the combination of these things puts us in a unique position to compete including in the streaming market. Starting with broadband it goes without saying the utility and demand for high speed and reliable internet access are ever increasing. We see this in our customers behavior, monthly data usage more than doubled in the last three years and our power users are connecting nearly 20 devices in their homes daily. That's great. It enables us to further differentiate ourselves from the competition hence more customers continue to choose Xfinity. The cable team has done a tremendous job redefining broadband by expanding the basis of competition beyond speed to also include coverage and control. With these three pillars speed, coverage and control our XFI experience is resonating with customers. And with Flex we just added a fourth pillar, streaming, designed to meet the growing needs of customers who only consume video over the top. Flex enables these streamers to quickly and easily search, access and enjoy content across their favorite apps on the TV using our award winning voice remote. It's a wonderful product and now we are providing it to our broadband only customers for free. At Sky we plan to follow a similar playbook by using XFI to differentiate the experience for our broadband subscribers in Europe starting with next year's launch in Italy. So our strengths and ongoing innovations are translating into record breaking results. Cable added 379,000 broadband customers, the most for a third quarter in 10 years. This drove our best total customer net additions on record for any quarter contributing to a .4% year over year increase in customer relationships. And we're also increasing the value of our relationships. EBITDA per customer relationship grew 3.2%. And what is even more impressive, our net cash flow per customer relationship grew 13%. Moving beyond broadband, our content continues to resonate with consumers. NBC Universal has the largest TV viewership share of any major media company in the US and one of the leading film businesses in the world. In Europe, Sky is the number one sports and entertainment brand and these strengths continued in the third quarter. NBC placed number one in prime time among adults 18 to 49 for the sixth consecutive 52 week season. Telemundo was number one in Spanish language weekday prime for the third consecutive season. Overall household viewership of Sky branded channels increased 10% in the quarter led by sports. And Sky's highly acclaimed Chernobyl received 10 Emmys, which bodes well for our newly created Sky Studios. On top of all this, the teams at NBC Universal and Sky are jointly producing and delivering content. For example, we've greenlit our first co-productions, shared over a thousand hours of sports content, and are creating a global news channel. In fact, it's hard to believe that we have owned Sky for only a year. Our company is strategically stronger today than we were a year ago. Sky brings 24 million customer relationships in Europe, including the 482,000 net additions in the last 12 months. Plus additional premium content and exclusive sports, all anchored by a leading European brand and an outstanding team. In what are tough macroeconomic conditions, Sky is doing a great job. Finally, our recent announcements on Peacock and Flex are terrific examples of how our combined company is working together and well positioned to compete. With our leading scale in distribution and premium content, along with our focus on innovation, we can continue to produce superior products like these for our customers and deliver strong financial results for our shareholders. So all in all, we had a great quarter led by Broadvan, and it also demonstrates what a fantastic set of businesses and leaders we have that positions as well for the future. Mike, over to you.

Thanks, Brian, and good morning, everyone. I'll begin on slide four with our third quarter consolidated results. As a reminder, we completed our acquisition of Sky in the fourth quarter of 2018. Our reported results include Sky from the acquisition date, while pro forma results include Sky as if the transaction had occurred on January 1st, 2017. Also, one housekeeping item on Peacock, our forthcoming streaming service. Similar to our approach with Xfinity Mobile, during its startup phase, we report Peacock's results in the corporate and other segments. So now let's move on to today's results. On a reported basis, revenue increased 21 percent to $26.8 billion and adjusted EBITDA increased 17 percent to $8.6 billion. On a pro forma basis, revenue was consistent with the prior year and adjusted EBITDA increased 7.4 percent, reflecting growth across all three businesses. As Brian mentioned, adjusted earnings per share grew 16 percent to 79 cents and free cash flow was $2.1 billion, bringing the -to-date total to $10.9 billion, an increase of 3.7 percent compared to the first nine months of last year. Now let's turn to our segment results, starting with cable communications on slide five. Cable delivered excellent results, driven by our connectivity-centric strategy and highlighted by strong performance in three key metrics we use to run the business. Growth in total customer relationships, EBITDA per customer relationship, and net cash flow per customer relationship. Overall cable revenue increased 4 percent to $14.6 billion in the third quarter, led by the increase in total customer relationships as well as higher ARPU. Total customer relationships increased 3.4 percent -over-year to $31.2 million, including 309,000 customer net additions, the best on record. This growth was driven by 379,000 high-speed internet customer net additions, the highest third quarter net additions in 10 years. We've added 1.3 million broadband customers over the last 12 months. Overall, our connectivity businesses, residential broadband, and business services continue to drive the growth at cable. Our revenue in these businesses collectively reached $6.7 billion in the quarter, up 9.3 percent -over-year. With broadband as the foundation of our customer relationships, we utilize additional products and services in a manner that profitably helps us attract and increase the lifetime value of the overall customer relationship. Video is still an important and profitable component of most of our relationships, but we continue to be disciplined and are not chasing unprofitable subs. Total video subscribers declined by 2.8 percent -over-year to $21.4 million. Xfinity Mobile is another important contributor to our growth as we pair it with broadband to provide our customers with a great wireless experience that helps them save money. We added 204,000 net customer lines in the third quarter and reduced our quarterly adjusted EBITDA losses at Xfinity Mobile to $94 million, an improvement from a $178 million loss in last year's third quarter, reflecting our progress in scaling and further improving our operations. And as Brian mentioned, Flex is another great product we'll use to add more value to our broadband-centric customer relationships. Moving now to cable expenses and margin on slide six. Total cable expenses increased 2.3 percent -over-year, reflecting strong cost management even as we increased customer relationships by 3.4 percent. Programming expense was flat, reflecting the timing of contract renewals and the lower volume in video. Non-programming expenses increased by 3.6 percent -over-year, but were relatively flat on a per-customer basis. We delivered outstanding growth in customer relationships and also improved our NPS scores, while reducing total agent-handled calls by 15 percent and lowering truck rolls by 10 percent -over-year. Together, the growth in our connectivity businesses, the improvement in our performance at Xfinity Mobile, and our ongoing focus on cost management resulted in cable-adjusted EBITDA growth of 6.7 percent and margin expansion of 100 basis points to 39.8 percent. We continue to expect EBITDA margin improvement for the full year 2019 to be slightly above 100 basis points, compared to the 2018 margin of 38.7 percent, based on our strong performance -to-date and our outlook for continued -over-year margin improvement in the fourth quarter. Cable capital expenditures in the third quarter decreased 6.7 percent to $1.8 billion, leading to capital expenditure intensity of 12.4 percent, primarily reflecting lower spending in scalable infrastructure and line extensions, partly due to the timing of planned construction and other network investments. However, as we've said, consistent with the broader shift in our business toward connectivity, we will continue to invest in our network to stay firmly ahead of our customers' high and increasing expectations and to further enhance our leading competitive position in broadband. We now expect cable capex intensity for the full year 2019 to improve by at least 150 basis points compared to the 13.8 percent in 2018, driven partly by timing of network investments as well as decreased CPE spend as video subscribers decline and the rate of our deployment of X1 has moderated. This is an upgrade to our prior guidance of at least 100 basis points of improvement. In summary, we're very happy with the team's strong performance. In the quarter, we delivered 3.4 percent growth in total customer relationships and 3.2 percent growth in adjusted EBITDA per customer relationship, which, coupled with the decrease in cable capital intensity, drove a 13 percent increase in cable net cash flow per customer relationship. We continue to see the benefits of consistently investing in our network, innovating to deliver the best in class products, services and experiences, and increasing our operational efficiency. We believe our approach will continue to strengthen our leading competitive position and drive profitable growth. With that, I'll turn to NBCUniversal's results on slide seven. NBCUniversal EBITDA increased 1.6 percent, reflecting expected difficult studio comparisons in TV and film. Cable networks revenue decreased 2.8 percent to 2.8 billion dollars, and EBITDA was flat at 955 million, primarily due to a 27 percent decline in content licensing and other revenue, reflecting a challenging timing-related comparison to last year. As we noted last quarter, our studio benefited from the considerable level of programming license to third parties in 2018. Offsetting some of this decline was a 1.6 percent increase in distribution revenue, reflecting the ongoing benefits of previous renewal agreements, partially offset by subscriber losses that have moderately accelerated, driven by increased satellite losses and slowing virtual MVPD growth. Lastly, advertising revenue was consistent with last year's result, as a strong pricing environment was offset by audience ratings declines. Broadcast revenue decreased 9.1 percent to 2.2 billion dollars, and EBITDA increased 5.1 percent to 338 million dollars, due to challenging comparisons in advertising and content licensing, more than offset by healthy growth in re-trans and lower programming and production costs. Advertising revenue declined 12 percent, primarily reflecting a difficult comparison to last year's results, which included Telemundo's broadcast of the FIFA World Cup. For the remainder of the year, we have a positive outlook on the ad market with the start of the NFL season and the return of original entertainment programming, as well as the benefit from higher upfront pricing. Content licensing declined 17 percent, reflecting a challenging comparison to last year's results, due to the timing of delivery of content under our licensing agreements. Re-trans revenue increased over 10 percent to nearly 500 million dollars. Lastly, on the expense side, lower programming and production costs were primarily driven by costs associated with the FIFA World Cup in the prior year. Filmed entertainment revenue decreased 6.2 percent to 1.7 billion dollars, and EBITDA declined 8.7 percent to 195 million dollars. While the Fast and Furious spinoff Hobbs and Shaw delivered strong results in the quarter, it was a tough comparison to Jurassic World Fallen Kingdom and a higher number of films in last year's third quarter. Despite experiencing a crowded box office so far in the second half of this year, we currently expect healthy growth in full-year Film EBITDA over 2018 results. Looking ahead to 2020, we believe we can achieve even better results, as our strategic slate includes three major animated sequels and another installment in our Fast and Furious franchise. Theme Park's revenue increased 6.8 percent to 1.6 billion dollars, and EBITDA increased about 1 percent to 731 million dollars. These results reflect higher attendance, as well as an increase in operating costs. The higher attendance was due, in part, to severe weather and natural disasters that negatively impacted attendance in Japan in last year's third quarter. While the park's business is subject to some ebbs and flows, we are pleased with our summer launches of Jurassic World in Hollywood and our Hagrid-themed Harry Potter coaster in Orlando. And we remain bullish on our growth opportunities with Super Nintendo World opening in Japan in 2020 and domestic launches thereafter. Our new Beijing Park opening in 2021 and our recently announced fourth gate in Orlando, Universal's Epic Universe. Moving on now to sky results on slide eight. As a reminder, I will be referring to our pro-form results as if the sky transaction had occurred on January 1st, 2017 and growth rates on a constant currency basis, consistent with what's reflected in our earnings release. Revenue at sky increased 0.9 percent to 4.6 billion dollars, reflecting growth in direct consumer and content revenue, partially offset by lower advertising revenue amid continued macro weakness in European markets. Direct to consumer revenue increased 1.9 percent to 3.8 billion dollars, benefiting from customer growth, but partially offset by decline in average revenue per customer. In the third quarter, customer relationships decreased by 99,000 following record streaming growth in the second quarter related to Game of Thrones and the debut of the highly acclaimed Sky original Chernobyl, both of which were exclusive to Sky Atlantic. Year to date, sky added 317,000 customer relationships and we expect a return to customer growth in the fourth quarter. Content revenue increased 15 percent to 315 million dollars, reflecting increased monetization of our original programming slate and the wholesaling of sports programming. Investment in sports continues to be a key differentiator. Audiences viewing tentpole sports programming are increasing, with household viewerships on sky sports channels up 21 percent year over year, reflecting great starts to the Premier League, Serie A, Bundesliga, as well as broadcasts of the Cricket World Cup and the Ashes. Advertising revenue declined by 14 percent to 446 million dollars, largely reflecting the impact from a change in legislation resulting in certain gambling advertising restrictions in the UK and Italy, as well as advertising market weakness across all territories. Pro forma EBITDA at Sky increased 46 percent to 899 million dollars, excluding certain non-recurring items in both periods. Growth would have been in the mid teens on a constant currency basis. For the full year at today's currency rates, we expect Sky's reported EBITDA will be close to 3.1 billion dollars. Wrapping up on slide nine with free cash flow and capital allocation. For the third quarter, we generated 2.1 billion dollars in free cash flow and paid 955 million dollars in dividends. Free cash flow in the third quarter was largely impacted by the timing of Sky's sports rights payments, which are heavily weighted to the start of the new soccer season. Year to date, we generated 10.9 billion dollars in free cash flow. In the third quarter, we monetized a substantial portion of the minimum floor value we negotiated for Hulu, which brought in 5.2 billion dollars in proceeds. In addition, starting in 2024, to the extent the total equity value in Hulu is worth more than the total floor value of 27.5 billion dollars, we will realize our share of that upside. Since the Sky acquisition, we continue to make very good progress in our deleveraging efforts. Year to date, we have paid down roughly 11 billion dollars of our consolidated net debt, ending the third quarter at 2.9 times net leverage, down from 3.3 times at the end of 2018. We expect to meet our commitments to the rating agencies by year end 2020. As a reminder, the rating agencies make certain adjustments in their leverage calculations that can add up to a quarter turn to our leverage ratio. In closing, our results today highlight the strength and consistency of our company's overall performance, and we couldn't be more pleased with our strategic and financial position. Looking ahead, we remain confident in our ability to continue executing on our long-term growth strategy and to deliver value to our shareholders. So with that, I'll turn it back to Jason to lead our Q&A. Thanks, Mike. Regina, let's open up for

Q&A, please.

Thank you. We will now begin the question and answer session. If you have a question, please press star and then the number one on your touchtone phone. If you wish to be removed from the queue, please press the pound key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if there are any questions, press star and then the number one on your touchtone phone. Our first question comes from a line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thank you. Good morning. I want to just follow up on some of your comments on streaming, both from a cable and an NBC perspective. For Brian or Dave, how are you guys thinking about Flex? What does that mean to the business over time in your view? And how do you think about investing in the X1 platform going forward? Obviously, the video business going through a transition, but you've invested a lot of money into that platform. It's done well for you. I'm just curious how you think about the product evolution there and how important it is to Comcast Cable. And I'll just ask to Steve on Peacock and sort of the NBC strategy, how are you thinking about content exclusivity and sort of the volume of original programming that you want to see over time? And when you look at some of the numbers out there for talent and showrunners from the Apples and Netflix's of the world, what is your reaction? Do you view this as healthy or irrational? Or how do you see yourself navigating this spending landscape? Thanks, everybody.

So let me just, as Brian, let me just quickly kick it to Dave, and then we'll go to Steve and follow the order of your questions. But, you know, I'm very pleased with the innovation team and how we made a pivot a few years ago. I think the right call, which was to really focus, you know, on to broadband, in addition to video and in some ways making that the lead part of where we're going. And one of the results was the X-Fy whole brand that's now stands for much more than speed and with flex in particular. You know, we're just now going to market with the free box to broadband only customers across the entire platform, whether you have our gateway or not. So there's real innovation ahead on that platform. And I think that that can reveal itself over the time as we go forward. But the point being that the team, the recruiting, retaining of the people to do the technology for this company, I think is second to none. And I'm really pleased with it, Dave. Thanks, Brian.

Yeah, Ben. So, yeah, flex, I think, is a great example of leveraging the innovation engine that we've had on X1 for some time. So we'll continue to make sure that relevant content is available and delivered through X1 and flex. But it's, you know, we just have such scale with X1. And it's a really efficient way to leverage this platform with flex. And our view with flex and providing more value to broadband and with streaming, it's just a great option for those customers that want an integrated experience. I think we see often, you know, bolt on, one off options of different apps that are available. What we are delivering to our customers is just a great streaming experience with flex. And it's completely integrated. The content is available through the voice remote, just like X1. So we're pleased with the innovation focus that's been able to put us in this position with flex. So off we go, as Brian said, very soon.

So regarding Peacock, we announced about a month ago the name and listed a fair number of shows that we're going to have on the service. I think the most important thing to think about as you're thinking about Peacock and its role inside NBCU and broader Comcast is we're not doing the same strategy that Netflix and people chasing Netflix have adopted. We're primarily working with the existing ecosystem and doing a lot of AVOD activity. And what that's going to do, we think, is cut the investment pretty substantially because I think we're going to get to cruising altitude much more quickly than a subscription service. We're also playing to our strengths. We happen to be part of a company that has 55 million video customers and is the biggest provider of television advertising in the United States. So we'll have a mix of originals, exclusive acquisitions like The Office, and a lot of non-exclusive product as well. Importantly, we're going to keep selling to other companies. If you take movies, for example, we plan to keep selling into the premium window. We're not taking all of our movies off of premium platforms like HBO or Sky or other platforms around the world. So I think our approach is different. I think it fits the strengths and characteristics of our company well. And it's a very, very interesting time as everybody tries to figure out what their strategy is. And we're very optimistic. We're planning on launching in April. We're going to use the Olympics as sort of an afterburner after our launch. And then we'll be adding content pretty significantly throughout 2020. And I'm very pleased with the technical progress our team is making. It's a wonderful product. The product is beautiful and very different and I think something that we're all going to be very proud of when we launch in April.

Thank you. Thank you, Ben. Next question, please.

Your next question comes from the line of Jessica Reif-Ellerich with Bank of America, Merrill Lynch. Please go ahead.

Thanks. A couple of questions. Just continuing on Peacock, can you talk about the ramp up in spends and is that the reason why there was such a big swing in working capital in this quarter? And then within Peacock, you know, can you talk about the marketing plan within and outside the ecosystem and how confident you are in the advertising per sub that you guys have talked about and then different subject? And then the last question on cable, a number of your 10-year contracts are expiring in the next year. I don't know if you can talk about expectation for step up in cost, but maybe, you know, how you're thinking about the next round of negotiations. What are the key considerations, especially as programmers, rule out their own streaming options?

Jessica, it's Mike. I'll just jump in a half minute. I'm going to head to Steve on the working capital. Working capital this quarter is primarily the change is sky, both the inclusion of sky versus prior year together with second half of the year, particularly third quarter is when football rights payments across Bundesliga Syria and Premier League kick in. So that's what's going on in working capital. Pleased with, you know, working capital and free cash flow, obviously, for the year to date, but lumpiness in working capital.

So in terms of the Peacock spending marketing plan, et cetera, I think we're going to remain pretty quiet until a month or two before launch in terms of the details for competitive reasons. Telemundo has been a huge success for our company. We've, as Brian mentioned in his introduction, we've beaten Univision, which was at one point unthinkable. They were so far ahead. We've beaten Univision in prime time every year for the last three years, and we're making real progress during the daytime. We have not closed the revenue gap in terms of retransmission consent, which leads into your next question about the cable channels. We have a lot of deals expiring in the next 12 to 24 months and channels like Telemundo that have made big strides. MSNBC is another one. MSNBC is solidly beating CNN almost every night and by a fair margin, and CNN has a much higher affiliate fee than we do. So I think you can expect to see us make some real progress there, but we're not going to be precise about numbers until the negotiations are completed.

And the question from the cable operator perspective.

So, yes, so we won't comment on future time periods, but it's clear we've had a couple of years where it's been a cycle where we've had lower cost increases in programming. Certainly recognize that, you know, future times that could change and have more headwinds. But a couple of things. One, the whole landscape is evolving and changing. For those that, you know, go directly to the consumer, that, you know, is game changing. We all know that. I think the key thing we talked a little bit before, X1 is strategically important to us. It just gives us flexibility and either, you know, the customer has choice, a ton of choice on different platforms to find content. And we want to be a great platform for all the content that makes sense for our customers. So we're going to be disciplined as we approach all these matters. And we're going to use data to understand the real value and to the extent that it is available on other platforms. We'll consider all those things.

Thank you.

Next question,

please. Your next question comes from the line of John Hudlick with UBS. Please go ahead.

Great. Thanks. Maybe a couple of questions more for Steve on D2C. First of all, will the Peacock product be bundled with Flex? And, you know, maybe more broadly, have you been surprised at how promotional the landscape has been on the D2C side thus far? And as you look out into 2020, do you think that all these launches and the uptake and, and particularly how aggressively these things have all been priced will have an incremental impact on the traditional ecosystem in terms of both viewership and subscribers? Thanks.

Well, most definitely Flex is a huge opportunity for Peacock and Peacock will be front and center on Flex. And Dave may want to speak to that more. But I think it's not only an opportunity for Peacock, but it's a great opportunity for Flex to be able to give a lot of great NBC programming shows like The Office to people at no additional charge to a broadband sub or cable sub. I think in terms of the overall ecosystem and the promotional intensity, I don't, it's not too surprising to me. I think you've got the three biggest media companies, Disney, Time Warner, and NBCUniversal, all launching streaming platforms. And this is a moment in time. And a lot of people are being very, very aggressive about it. And I would anticipate that to happen until, you know, at some point there'll be an inevitable slowing down and shake, shake out and the market will get a little bit more rational. But I think it's a moment in time and consumers are making their choices of apps and viewing habits. And you want to be aggressive to get in there and make sure that your service is one of the consumers' handful of favorite services.

This is Dave. Just one other comment. And, you know, the importance of Peacock to Flex and cable, I think it's enormously important. And a showcase on why it really matters how we work well together to make the experience even better. So we, you know, we are very much going to be active and promotional, but we're extremely focused on the experience. And it happens when, you know, the two teams are working so well together.

Does it concern you guys that bundling these products together could accelerate the trends that we're seeing in terms of the traditional TV ecosystem?

I think that, you know, the trajectory is pretty clear and it's the marketplace is evolving anyway. And so Flex is, I think, going to be a targeted focus for us towards the high speed Internet only segment. We'll continue to do that, but we're going to make sure that all of our broadband customers know that will be included. And we think this is the right step and the right thing for that segment.

Thanks, guys.

Thank you, John. Next question,

please. Our next question comes from the line of Doug Mitchelson with Credit Suisse. Please go ahead.

Oh, thanks so much. Just on the broadband side, Dave, anything unusual driving the quarter? We're always asked and I imagine you're always asked about the longevity of subscriber growth in broadband. And so any update on DSL subs in the footprint and how you're competing against fiber and upside you see in broadband penetrations would be helpful. And then, you know, Brian and I guess, you know, and for you again, Dave, on the wireless side, obviously a continued hot topic. Any thoughts about your MVNO and the leverage that you might be building as you grow that subscriber base, you grow the amount of revenue that you're paying out to Verizon. And also we're asked a lot about strand mounts. And if you've tested that and have any thoughts on the effectiveness on strand mounts and whether or not that would help a wireless network partner, that would be appreciated.

Thanks. Thanks, Doug. So let me start with broadband. I'm very pleased with the quarter. We've had solid performance in broadband all year. So there's another quarter, a consistent quarter, solid performance. And so clearly well over another year of a million plus net customer growth. And the drivers, you know, from I think are very consistent. I think the marketplace is growing. We have penetration upside and that's going to continue. Our focus, as Brian said, shifted gears. Our innovation engine has been absolutely focused on broadband. And so the key for us is to differentiate the product. And it's the combination of speed coverage control and now streaming with flex. And this is all X-FY. So we're I think we have a very different product in the marketplace. And a key thing that we have is consistent focus. While others, you know, that may change from time to time, we've been squarely focused across the entire enterprise on having a great broadband experience. And that's how we compete. So our innovation engine is all over the aspects that I talked about. And so nothing has changed competitively. Nothing has changed in segments, whether it's Internet Essentials or anything else. It's been, you know, pretty normal activity in that regard. But what we've seen is broad based strength across the entire geographic area and across all segments. So it's just robust growth. And I think an important point to bring up is not only share growth, but it's also strong financial results that we're delivering. Residential broadband ARPU is up 4.2 percent and residential overall broadband revenue is up 9.3 percent. So just robust growth in both categories. So I like our position going forward. In wireless, I would say that we're always to deliver also here the best experience that we can. But we're absolutely looking at options and leveraging our infrastructure with wireless options. We're always studying and we're actively testing the options of being able to load in any number of different ways. So we look at the tradeoffs between price and volume and then the amount of data on our MVNO network. And then when you offload data to our own network. So we will continue to test. We'll continue to look at this very closely. We think it will be opportunistic when things come up, more to come later. But we will actively consider that.

All right. Thank you. Thank you, Doug. Next question, please.

Our next question comes from the line of Marcy Rivaker with Wolf Research. Please go ahead.

Thanks. Two questions first. We've seen video subs decline at an accelerated pace for a while now. Can you just comment on who you're losing? And do you have any visibility into when video levels out and you're at a point where you maintain those core customers who really appreciate the bundle? And then secondly on Sky, what's driving expected customer growth in the fourth quarter? So we're still new to this asset. Can you remind us why Sky was down in the first couple of quarters of the year? Any seasonality we should think about, anything in particular? Thank you.

Marcy, Dave. So let me start with video and remind everyone our primary focus at Cable is in driving growth in the overall number of customer relationships and then driving the lifetime value of those relationships. So we segment the video base of customers and we're focusing on growing profitable video relationships. And there's some segments where customers are in lower end packages, you know, the skinny bundled video that often they're in promotional packages. And we work hard retaining customers. But if we can't profitably serve this segment, then we're going to move them to a broadband only relationship. And so not chasing the lower end of the video segment is behind the difference, I think, in the video results. To also remind folks, though, that we added a record 309,000 total customer relationships in Q3, ending the quarter with 31 million customer relationships up .4% -over-year. And EBITDA per customer relationship is up .2% and net cash flow is up per customer relationship 13.2. So we've been able to make this transition. This has been consistent. We're going to video is important to us that it is profitable and key segments. And for those key segments, we package it with broadband. We'll continue to stay very disciplined and focus around that.

On Sky, Jeremy,

you're on the phone. Yeah, so in terms of Q4, I'll talk with video first of all. Christmas is a big, always remains a bigger quarter for us in video in Europe. Bear in mind, of course, we've got a lot of penetration typically over here of our markets. So the idea of upgrading your TV for Christmas to pay TV to Sky remains a strong idea for us here. It's not as acute as it used to be in the past when our business was very skewed, but it remains important. So the business really quite quickly now shifts to Christmas. As part of that, we'll be driving Sky Q in particular very hard over the next quarter. Sky Q, which is I think Europe's best quality app-based TV experience by a long way, is about 40% of our business today. We think we can get it a lot higher. So that's going to be central to our plans. Alongside that, our programming makes really shifts. So at the back end of the summer, we're very focused on sport. The start of the football season is important here. We've had a strong schedule of sport this summer. So our focus on screen really moves to entertainment and Sky Studios and our own originated content. We've got a succession of Sky originals that will be coming to market in the next few weeks, and we'll really get behind that. And then cinema, where we have still really quite a strong leadership in terms of our cinema proposition. Away from TV, it's pretty much steady as she goes, both in broadband and mobile. I'm very pleased with the progress in particular we're making on mobile, where we're seen now as a service leader against all of the mobile operators. So I think our growth from the comms business should be pretty strong, I hope, over the next 13 weeks. And again, mobile, particularly with handsets, is quite a good Christmas product, so we'll get behind that.

Great.

I would just add that from my perspective, for the first nine months of the year, I think Sky added in the last 12 months running close to 400,000 subs, I think, Jason or Jeremy. So I think it's tough economic headwinds over there. We read about it every day, and uncertainty is never your friend in business climates, and there's an awful lot of uncertainty. But we're really pleased, I certainly am, with Sky one year later, what it's done for the whole company, giving us all the plans that Steve and Dave have been talking about. It's completely integrated, and Jeremy and his team, I think, are executing great. Jason?

Thanks,

Marcie. Next question, please.

Your next question will come from the line of Brett Feldman with Goldman Sachs. Please go ahead.

Thanks for taking the question. You continue to see, I think, slightly more than 100 basis points of margin expansion in cable communications this year. I believe you've done 100 basis points or more every quarter so far this year, so I'm wondering, are there going to be any headwinds in the fourth quarter that prevented you from improving that outlook? And maybe just to be more specific, it does look like the technical and product support costs did grow a bit more quickly in the third quarter. I was hoping you could give us some insight into that. I think maybe your MVNO costs are in there. And then just the last accounting question on this, as flex penetration grows, will we see that in OPEX or CAPEX? Thanks.

So, Brett, it's Mike. I'll start. So we do, we expect to be better than 100 basis points improvement in margin, as we've said. And in the fourth quarter, particularly, we expect to see healthy -over-year margin improvement in cable. But just remember that it's a political comp in that quarter as well. But net of all that, healthy fourth quarter margin growth coming in cable. And that'll flow through to the full year. Hey, Brett, Dave.

So specific to Q3, always remember Q3 is technically a little busier with -to-school activity. And so that's always good, welcoming the kids back. So, but Mike talked about Q4. Important are the fundamentals going forward of the non-programming expense and that are positively impacting margin. One, continued focus on the connectivity business, business services, residential broadband, just improves margin in doing that. We're making significant improvements in the serving customers through digital means. So we're going to continue to press on that. We think it's a great opportunity. We're in early innings on that. And then overall cost control remain very focused on that as well. So I expect those fundamentals to carry forward. And to the point Mike made, given fourth quarter has the political tougher comparison, but we still expect healthy growth going forward.

Flex, Flex, think of that as CapEx. But as we've said before, don't give multi-year guidance. But on capital intensity, the improvement that we've seen of greater than 150 basis points projected for this year, we've always said the trends behind that are we expect to see them continue. And I don't think the initiative around Flex is going to change that.

Thank you.

Thank you, Brett. Next question, please.

Your next question comes from the line of Jennifer Fritzke with Wells Fargo. Please go ahead.

Thank you. Two, if I may. One, back to wireless. There is a number of spectrum options coming up, CBRS next summer, C-bands being talked about, even millimeter waves. Can you talk a little bit about spectrum ownership as you look at these three options? Is it something you could see participating in in a more formal way, if only to offload some more traffic from your MVNO to your hotspots or your own network? And then secondly, if we look at the components of your CapEx, line extension and scalable infrastructure were down year over year. I know in the past you had mentioned timing issues there. Should we expect that to continue to be on a steady decline or should we not? Thanks.

So wireless in terms of spectrum will always be opportunistic. We'll evaluate every option, nothing more really to cover on that. But we always look at different options. To my earlier point, we're actively looking at models that may work in terms of leveraging our infrastructure to the extent that I think we're in a great position in regards to cable infrastructure and we're going to lead the way in terms of understanding that and testing different options. But we'll evaluate as things come up. In terms of CapEx, I think we continue to make very good progress in improving our CapEx intensity and as mentioned, on track for at least another 150 basis points reduction this year. And it's a consistent approach that we'll continue to invest where we need to in the connectivity business, but we're going to realize the reductions as video CPE continues to not be a big driver for us. So I think that expect going forward those fundamentals to continue. Jennifer,

it's Mike. I just add that those particulars, scalable infrastructure and line extensions, that's more timing, you know, third quarter versus I'd look at it over a 12-month period rather than quarterly on that one.

Great. Thank you.

Thanks, Jennifer.

Next question, please.

Our next question comes from the line of Philip Cusick with JPMorgan. Please go ahead.

Hey, guys. You know, one, and then if I can, I guess two follow-ups. One, Mike, to just follow up on what you just said. It sounds like there's some push out on the network CapEx side. Expand on that a little bit. And then a follow-up for Jeremy on Sky. Can you break down the drivers of local revenue decelerating? Looks like the DTC revenue is fairly consistent in local, but ad revenue was down a lot. I know there's some issues around sports and content sales were down as well. What in there was a one-time hit versus being more permanent? And then just one other question. Growth in parks has been volatile around storms and maybe competitive issues, and you aren't opening gates like you had been once.

How

should we think about the underlying growth at the parks business? Thanks, guys.

So, Phil, it's Mike. Not too much to add to what I've said thus far on cable CapEx. I mean, I do think hard to look at one quarter to the next to the next. The network, we're happy to invest in the network as usage of the network keeps going up and want to continue to stay ahead of customer expectations. So expect that's very healthy CapEx going into the network, but it just is a little lumpy. I wouldn't say things are pushed out so much that it follows its own timing based on what folks in the field are doing. And so stepping back up, we are getting more efficient on capital intensity. Two years in a row now this year heading towards the 150 basis points of intensity improvement year over year. And as I said, we don't get into multi-year guidance, but I think the expectation of the ability to scale the network, scale the business and what's going on in CPE gives us confidence that those trends ought to continue. And again, that's despite the opportunity that we have with Flex.

Yeah, Jeremy here. And in terms of revenue trends, on ad revenue, I'd say broadly, I'd say about a third of it is markets, TV market, advertising markets in Europe, as you know, pretty much all under pressure with mid single digit, perhaps a little bit more declines year on year. That's quite different from what you're seeing I think in the U.S. at the moment. And probably the balance of it is really down to gaming legislation change here, which is specific to the U.K. and Italy, hasn't arrived in Germany. And we're probably disproportionately affected by that, of course, because we've got such a strong sports business and the sports leader in Europe, but it'll work its way through over the course of this year. Intimidate content sales, year on year they're up. So the progress we're making in content sales as we start to commission more of our own content is good. It is down quarter on quarter, but there's nothing structural now. It's just a bit lumpy. Obviously as we scale, hopefully some of that lumpiness will disappear, but at the moment we see a little bit of that.

So in terms of the theme park business, six years ago we made about a billion dollars in the theme park business, and now we're at about two and a half billion. So theme parks have been historically one of the fastest growing parts of our portfolio, and we have a lot to look forward to. We're opening Nintendo in Japan, in Osaka, in our theme park in Osaka, which is very close to the headquarters of Nintendo in Kyoto. And then if you go out into 2021, roughly 18 months from now, we open in Beijing. And Brian and I were there last week with Tom Williams who runs our theme parks. It's going to be a spectacular park, and we're really looking forward to that. And we recently announced we're doing a fourth gate in Orlando in 2023. So we think the theme park business is a great business for us, and we're going to be making the investments to try to grow cash flow aggressively in the future.

Thanks, Gus.

Thank

you, Phil. Next question, please.

Our next question comes from the line of Craig Moffett with Moffett-Nadinson. Please go ahead.

Yeah, hi. Two questions for Dave, if I could. One, just to follow up on the questions that have been asked about wireless. Being able to offload traffic from the MBNO agreement with Verizon onto your own small cells, as I understand it, will require eSIM programming. I'm sure you've tested that at this point, given the eSIM inclusion in the new iPhones, for example. Can you just talk about how comfortable you are with your ability to manage traffic and direct it between your own small cells and the Verizon network just based on eSIM programming? And then a second question. It's been a while since we've really talked about the commercial services business, but business services is now getting close to 14 percent of your cable revenues. I wonder if you could just update us on your penetration levels in the various segments of business services and where the growth is coming from at this point. Are you really starting to take share in the enterprise market now, or is it still primarily small, medium business?

Hey, Craig. So first, on wireless, we're absolutely testing the eSIM, dual-SIM capability on both, whether it's iOS and or Android. We think that is an opportunity, and we'll continue to look at that. And that does go with any offload strategy, so we're very active in thinking through that. And whatever, in terms of the business model and the business planning around it, any potential shift will be a positive net economic outcome for us as we look at, but it's early still. I do think that there's promising opportunities when you combine dual-SIM with the cable infrastructure. Second thing in terms of business services, yes, it's a really important part of our growth, and has been, will continue to be, generating almost $8 billion in annualized margin accretive revenue. And the addressable market now is about $50 billion when you include new product opportunities. Everything from Wi-Fi, security, cameras, cell backup, SD-WAN. So you add up all those things, you know, for those products, it's still early innings on that. So we're going to continue to be very focused on this opportunity. In all three segments, you know, you asked about penetration, and we still have opportunity in all three. SMB is a little bit more mature, but there's growth opportunities there. And mid-market and certainly enterprise, we're in the high single digits at this point, working well, getting key clients on, so there's good upside. I think we have a competitive advantage across the board in every segment. We have a better product, superior product. We have better service in terms of how we locally deliver it and pull it all together. We have great pricing, and I think I like our position versus incumbents in this regard.

Great. Thanks, Greg. We're also going to launch a broadband business offering here in the UK, and that will be our first significant entry into that segment. We're doing it directly on the Bag of Days team. In fact, we've brought one of the team across to lead that business here. So we're broadening out from the residential market in the UK into the business services market and obviously try and replicate some of the success that we've seen stateside. And that will be a big new segment for us actually to attack here in the UK. And obviously over time when we get established in Italy, we'll be seeking to do that in Italy

as well. Yeah, I just want to say that's a great point, Jeremy. Obviously between Matt Strauss going to Flex, from Flex to Peacock, technical leads and finance, and of course now business services in the UK, and there's senior marketing team coming to cable from Sky. The integration, as I said, is one of the real highlights and makes the company unique in the conversation we've been having here. And then just on the wireless point, I just want to add in a number of questions there. I think all of this is, you know, the trend is going in a way that is very supportive of our capital light approach to wireless. We're getting scale. We're learning all the realities of a new business extremely well. And the technology, the innovation in the handsets, possibly Spectrum, all the conversation we're having, all of those are net positives to where we're going. And we've seen this with Sky in one respect is when you get to a certain point of scale, a number of people want to compete to have relationships with you. And so all that put together, I'm really pleased with the team. And we've taken the leader of that mobile area and given some more responsibility to. So just a lot of good momentum across the board.

Capital light approach that Brian mentioned. What we're doing today is working. We're encouraging results and driving, you know, improving broadband retention or attracting new customers through different sales channels and achieving and working, you know, towards the path for positive standalone economics. So we're real pleased with our current position and we'll be opportunistic going

forward. Thanks, Craig. Regina, we'll take one last question, please.

Our final question will come from the line of Michael Rollins with Citi. Please go ahead.

Thanks. Good morning. Just approaching Xfinity Mobile from a different direction. What's working from a selling and bundling perspective as you look at the success of adding customers on a platform now for more than two years? How important is the retail experience? And is this something that gets expanded to new direct and indirect locations over time? And finally, how do you view the value of bundling OTT media content with the wireless service to create an additional hook, whether it's to acquire or retain customers? Thanks.

Well, there's several things that are going on that are helping, starting with the fact that we have a great value proposition. And we offer by the gig, we offer a lot of choice in terms of unlimited to select plans that have some pieces of data that are included. So we have a lot of choice that we're delivering. And I think that's helping us achieve success in multiple segments. I think we're in a good position in regards to BYOD. So that helps. And then we're in a good position when great new products come out from Apple or on the Android side. So we kind of have a full slate covered in terms of channels retail. I think the good news is we're able to sort of upgrade our existing retail without having to spend a lot more in terms of new locations. We do add a few locations here and there along the way, but mostly we've been focused on upgrading retail capability. And mobile is absolutely a key part of that. And it's helping us, I think, attract new business when we do that. So we've been competing, whether it's broadband, whether it's mobile. We look at OTT things. I think our value proposition is terrific as is. And we're extremely competitive with our base core offering. And there's a lot of choice out there in segments. We've been competing against those that have offered different kinds of OTT offers. And we've done quite well. And we respond competitively all the time to different kinds of offers. So I think we're in a good position.

Okay. Thank you, Mike. And with that, we'll wrap up the call. We want to thank everybody for joining us today. Regina, back to you.

There will be a replay available of today's call starting at 12 o'clock p.m. Eastern Time. It will run through Thursday, October 31st at midnight Eastern Time. The dial-in number is -859-2056. And the conference ID number is 8088543. A recording of the conference call will also be available on the company's website beginning at 1230 p.m. Eastern Time today. This concludes today's teleconference. Thank you for participating. You may all disconnect.