Comcast Corp - Class A (CMCSA) — Q2 2019 Earnings Call Transcript

Thank you, operator, and welcome, everyone. Joining me on this morning's call are Brian Roberts, Mike Cavanagh, Steve Burke, Dave Watson, and Jeremy Darroch. Brian and Mike will make formal remarks, and Steve, Dave, and Jeremy will also be available for Q&A. As always, let me refer you to Slide 2, 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 8-K and trending schedules for the reconciliations of non-GAAP financial measures to GAAP. With that, let me turn the call over to Brian Roberts for his comments. Brian?

Thanks, Jason, and good morning, everyone. I'm really pleased with our strong second quarter results and the continued successful execution of our strategy. All of our businesses demonstrated significant growth, contributing to adjusted EBITDA of $8.7 billion in the quarter, an increase of 7.6%. We also delivered $0.78 of adjusted EPS in the quarter, an increase of 13% over the prior year. All in all, we generated $4.2 billion of free cash flow in the second quarter, resulting in a year-to-date total of $8.8 billion. The key driver of this sustained growth continues to be our market position with 55 million valuable customers in many of the world's most attractive markets, generating $111 in revenue per customer each month with high margin and strong retention. Across Sky and Cable, we added 456,000 new relationships this quarter and 868,000 in the first half of the year. In all the geographies in which we compete, we lead with superior products, content, and technology. In the U.S., connectivity is the focal point of our customer relationships, enabled by our world-class network. Our connectivity businesses again generated nearly 10% growth in revenue and, collectively, are on track to deliver the 14th consecutive year of well over 1 million broadband net additions. In Europe, Sky's premium brand and exclusive content is the principal differentiation in our relationship with customers, driving net additions of 304,000 in the quarter. Importantly, across the company, we also have leading scale and premium content with a vast library of IP and new productions that are extremely popular across generations and geographies. At NBC, we're on a path to finish number one in the U.S. for the sixth straight year in the key demographic of adults 18 to 49. And at Telemundo, we're number one in Spanish language primetime. In Film, we are executing our strategic slate approach and look forward to the return of the hugely successful Fast and Furious franchise with the spinoff of Hobbs & Shaw later this August. And Sky continues to develop a strong lineup of original content, including their highly acclaimed Chernobyl, which debuted in the second quarter. On the back of this success, we launched Sky Studios to expand our production capabilities and more than double the investment in local original content. The popularity and scale of this premium content and advertisers' need for trusted brand-safe environments drove NBCUniversal's upfront to record levels this year. Advertising is a core strength. And once again, we led the market on both volume and price. The overall portfolio volume was close to $7 billion, an increase of 10% over last year, and average price was similarly strong. We helped shift the marketplace to embrace all video, unifying all screens, platforms, and content, breaking down the historic barriers between linear and digital, which is particularly important as we prepare to launch our ad-supported streaming service next year. To that end, we had record digital video sales, an increase of 50% over the prior year. So when you add the scale and strength of our customer relationships, premium content, and advertising capabilities, we have a uniquely strong position to capture and profit from the growth opportunities in our markets. For example, in the streaming segment, we've already made significant moves to better serve viewers who want to consume content in and out of the home. Sky was ahead of the curve, launching NOW TV almost 7 years ago. That platform has proven to be incredibly durable and popular, evident in Sky's Q2 net additions. At Cable, Flex offers a new approach for our broadband customers to enjoy the most popular streaming apps on our X1 platform, including the Voice remote, without requiring a traditional linear content subscription. Finally, at NBCUniversal, we're making great progress on the direct-to-consumer streaming service that we announced earlier this year. We believe the strength of our assets and leadership across our businesses, combined with access to tens of millions of customers, will lower both our cost of entry and execution risk as we deliver a truly special offering. All in all, our strong operating and financial momentum continues. If you take a step back, there is significant competition and change in the ecosystem right now. But that said, for years, we've felt that video over the Internet is more friend than foe. We believe it plays to our strengths. We've got a great roadmap in each of our businesses and an even better outlook when you add it altogether. The fastest broadband married to world-class platforms as well as highly rated, relevant content. And we are the leading company in both of those businesses at scale globally. It's our scale that allows us to evolve and continue to invest, all while maintaining momentum and driving substantial growth, and this has always been our approach. In fact, if you look over the last 10 years, just to pick one stat showing our consistency during significant other transitions in our business, we've grown adjusted EPS by double digits in 9 of those 10 years, and we're pretty close in the 10th year. Our second quarter and first half results continue this trend of robust growth, and our outlook is for more of the same. Over to you, Mike.

Thanks, Brian, and good morning, everyone. I'll begin on Slide 4 with our second 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 1, 2017. Having said that, on a reported basis, revenue increased 24% to $26.9 billion and adjusted EBITDA increased 18% to $8.7 billion. On a pro forma basis, revenue increased 0.8% and adjusted EBITDA increased 7.6%, reflecting growth across all three businesses. As Brian mentioned, adjusted earnings per share grew 13% to $0.78 and free cash flow was $4.2 billion, bringing the first half total to $8.8 billion. Now let's turn to our segment results, starting with Cable Communications on Slide 5. Cable delivered another very strong, consistent quarter of growth, driven by healthy customer metrics on our connectivity businesses and continued success in controlling costs, while also making significant strides in the customer experience. We believe that the strength of our network, best-in-class products, and customer experience improvements are a winning combination that will continue to drive profitable growth. Overall Cable revenue increased 3.9% to $14.5 billion in the second quarter. Revenue growth in the quarter was led by the steady increase in customer relationships for both residential and business services as well as higher ARPU. Total customer relationships increased 3.4% year-over-year to 30.9 million, driven by 209,000 high-speed Internet customer net additions across residential and business services in the quarter and 1.3 million over the last 12 months. Total video subscribers declined by 224,000 in the quarter as we continue to respond to changes in consumer viewing preferences. We will remain disciplined in executing our connectivity-led strategy to drive customer relationship growth and total lifetime value of those relationships. Video will continue to play an important role in our strategy, but as we said before, we will not chase unprofitable video subscribers. The success of this approach is evident in our results, with our monthly adjusted EBITDA per customer relationship growing 3.8% year-over-year and our continued improvement in retaining customers, including our best on record retention for broadband in the second quarter. Consistent with recent trends, our connectivity business, residential broadband, and business services continue to drive the growth at Cable. Our revenue in these businesses collectively reached $6.6 billion in the quarter, up 9.5% year-over-year. In addition to the solid customer additions that I mentioned earlier, residential high-speed Internet ARPU grew 4% this quarter. Looking ahead, we expect to continue a healthy balance of both customer and rate growth. Our wireless business, Xfinity Mobile, is another important contributor to our growth at Cable. This still new business is already positively impacting retention, while also attracting new customers. And it’s firmly on a path to positive standalone economics. We added 181,000 net customer lines in the second quarter while we also reduced our quarterly adjusted EBITDA losses at Xfinity Mobile to $88 million, reflecting progress in scaling and fine-tuning our operations. While we expect this overall trend of improvement in Xfinity Mobile's financial performance to continue, we anticipate customer-related acquisition expenses will increase in the seasonally strong third and fourth quarters. Moving now to cable expenses and margin on Slide 6. Overall, total cable expenses increased 1.6% as we continue to see the benefit of our disciplined approach to controlling costs, while also increasing the total number of customers that we serve. Non-programming expenses slightly increased by 1.4%, but improved by 2% on a per-customer basis. Our ongoing efforts to continually improve the customer experience by reducing unnecessary transactions and digitizing many of the remaining transactions continue to drive cost out of the business. The company had its best performance on record this quarter across many of our key customer metrics. For instance, customer contact rate and truck rolls hit record lows as we continue to improve reliability and expand digital and proactive messaging to our base. On the programming side, we continue to benefit from the relatively low rate of expense growth, up only 1.8% this quarter, which reflects the timing of contract renewals. Putting it altogether, the strong growth in our connectivity businesses, the improvement in our performance at Xfinity Mobile, and our ongoing focus on cost management enabled us to deliver a healthy 7.4% increase in adjusted EBITDA at Cable. EBITDA margin expanded by 130 basis points to 40.5%. Based on our performance in the first half of the year, and our outlook for continued improvement in the second half, we are increasing our prior guidance. We now expect the improvement in EBITDA margin at Cable for the full year to be slightly above 100 basis points compared to our 38.7% margin in 2018. This is an increase from our prior guidance of up to 100 basis points of improvement in 2019. Finally, cable capital expenditures in the second quarter decreased 9.8% to $1.6 billion, which resulted in CapEx intensity of 11% for the quarter. This primarily reflects lower spending and scalable infrastructure and line extensions in part due to the timing of plant construction and other investments we're making in our network. That said, consistent with the broader shift in our business toward connectivity, we expect to continue to invest in our network, which will enhance our competitive position in broadband by enabling us to stay ahead of customers' high and increasing expectations, evidenced by the rapid growth in data consumption. We now expect cable CapEx intensity for the full year to improve by at least 100 basis points compared to 13.8% in 2018. This is an upgrade from our original guidance of a 50 basis points improvement in 2019. This is driven, in part, by the timing of network investment as well as the trend in decreasing CPE investment as the total number of video subscribers continues to decline and as the rate of our deployment of X1 has moderated. And while we don't provide specific multiyear guidance, and we could potentially adjust our plans if attractive new opportunities emerge, we expect the underlying video CPE trends that are contributing to the improvement in our full year CapEx intensity to continue beyond this year. In total, we're encouraged by the cable team's consistently strong performance and a great quarter and first half of the year. The formula is working. We're seeing healthy growth in total customer relationships and adjusted EBITDA with margin expansion driven by our strong connectivity results and focus on cost control, coupled with the decrease in cable CapEx intensity as the mix of our business continues to shift. Together, this drove a 22% increase in net cash flow at Cable in the first half of the year. Now let's move to NBCUniversal's results on Slide 7. NBCUniversal EBITDA increased 8.1%, with contributions across all of our businesses, clearly demonstrating the power of our premier content portfolio and IP. Cable Networks revenue increased 2.5% to $2.9 billion and EBITDA increased to 2.2% to $1.2 billion. Distribution revenue increased 3.4% driven by the ongoing benefits of previous renewal agreements, partially offset by subscriber losses in the 1.5% to 2% range. Advertising revenue was consistent with the prior year as lower ratings were offset by higher pricing. Finally, content licensing and other increased 5.1% in the quarter. We would note our content licensing comparisons become considerably more challenging in the second half of the year due to the heavy level of programming license to third parties last year. Broadcast revenue increased 0.5% to $2.4 billion and EBITDA increased to 28% to $534 million. Excluding the comparison to Telemundo's broadcast of the FIFA World Cup last year, revenue was up mid-single digits and EBITDA was up double digits, driven by growth in retrans and strong advertising. Retrans revenue increased 15% to $500 million. Excluding the World Cup, advertising increased mid-single digits as lower ratings were more than offset by higher price, reflecting a very strong scatter market with double-digit price premiums as well as some benefit from an additional NHL Stanley Cup game and Copa America soccer in the quarter. Filmed Entertainment revenue decreased 15% to $1.5 billion, while EBITDA increased 33% to $183 million. Revenue reflects a tough comparison to Jurassic World: Fallen Kingdom in the second quarter last year, partially offset by the release of The Secret Life of Pets 2 this quarter. Theatrical revenue declined 53%, reflecting this tough comparison. Content licensing revenue increased 9.8% driven by the timing of when content was made available under licensing agreements. Theme Parks revenue increased 7.5% to $1.5 billion and EBITDA increased nearly 4% to $590 million. These solid results were driven by higher attendance, aided by the timing of spring break vacations and higher guest spending. We're excited about the future of our Parks business as we have a great runway in coming years with Nintendo World opening in Japan in 2020, Universal Beijing opening in 2021 and other significant opportunities to come soon. Moving on to Sky results on Slide 8 now. As a reminder, I will be referring to our pro forma results as if the Sky transaction had occurred on January 1, 2017, and growth rates on a constant currency basis, consistent with what's reflected in our earnings release. Sky was a strong contributor to our consolidated results with solid revenue growth, significant customer additions and double-digit EBITDA growth in the quarter. Sky added 304,000 customer relationships, ending the quarter with 24 million relationships. Customer growth mostly came from streaming subscribers, primarily driven by Game of Thrones and also from the debut of the Sky original breakout hit, Chernobyl. Both were exclusive on Sky Atlantic. Importantly, customers are choosing to watch more Sky content. The amount of time Sky customers spent viewing Sky channels increased by more than 20% year-over-year driven by our investment in sports and entertainment programming. As Brian mentioned, on the back of this excellent performance, we've now launched Sky Studios with the intent of doubling our investment on local original content. This investment reflects our strategy to shift our mix towards more original content production. In a difficult macro environment in Europe, Sky revenue increased 2.4% in the quarter to $4.8 billion. Direct-to-consumer revenue grew 1.7%, benefiting from customer growth, but partially offset by the decline in average revenue per customer. The change in ARPU includes our previously announced rate increase in the U.K. as well as the record addition of streaming subscribers, which contributed incremental revenue to the business, but at a relatively lower amount of revenue per customer. Our investment in programming is driving top line growth. Sky's content revenue increased 28% to $376 million, reflecting the wholesaling of sports programming, including exclusive sports rights recently acquired in Italy and Germany, as well as the modernization of our slate of original programming. Finally, amid the challenging macro environment in Europe, including declines in our ad market, advertising revenue at Sky decreased 5.6% to $563 million. EBITDA at Sky increased by 20% in the quarter driven by the combination of revenue growth and operating efficiencies, plus a favorable comparison to previous year, which had contract termination cost and costs related to a settlement, which, together, more than offset the expected step-up in sports rights programming costs. Finally, wrapping up on Slide 9 with free cash flow and capital allocation. We made $954 million in dividend payments in the quarter for a total of $1.8 billion for the first half of the year. We also continue to make good progress in deleveraging. Pro forma net leverage at the end of the second quarter was 3.1x. Also, we are exploring ways to monetize the embedded floor value in our recently announced Hulu agreements with The Walt Disney Company. Should such a transaction come to pass, we would anticipate using the cash proceeds realized to accelerate our deleveraging efforts by paying down Comcast debt. We remain focused and on track to meet our deleveraging commitments. In closing, we are very pleased with our results in the quarter and throughout the first half of the year. We continue to execute at a high level, consistently generating significant free cash flow, which we believe drives growth and intrinsic value and, in turn, over time, strong total shareholder returns. So with that, I'll turn it back to Jason to lead our Q&A.

Okay. Thanks, Mike. Operator, let's open up the call for questions, please.

I have two questions. One, around the outlook for broadband growth and the second around the NBC streaming strategy. Maybe for Brian or Dave or who wants to take it, when you think about continuing to drive broadband net adds at the level we've seen over the last couple of years, can you just talk about the sort of product and service pipeline that you're focused on? Do you think you can deliver continued market share gains in a market that is obviously maturing, particularly if you think about 5G arriving at least someday down the road? And then on NBC, maybe for Steve or Jeremy. I'm just curious, we saw the move of The Office from Netflix to NBC. We've seen shows like Chernobyl do really well. How do you think about the cost of building this streaming business in terms of content spend or licensing loss relative to the opportunity down the road? Are you convinced that this sort of the upside is worth whatever dilution you expect to come? And I know you're still formulating your plans, but it seems like every media company is doubling their programming spend, so there's a lot of incremental investment going on. I'd love to hear your updated thoughts there.

In broadband, everything begins with consistent investment in the network. We are committed to delivering the most efficient support for high-bandwidth applications, such as gaming and Internet TV. Our network is designed for these applications, and our focus is on three key areas. First, we will continue to enhance speeds, maintaining our strong track record with 100% of our network offering 1 gig availability. Second, WiFi at home is essential for various devices, and we believe our gateway is the best in the market. We’ve introduced pods that make installation simple and optimize coverage automatically. Lastly, we prioritize control by facilitating device connections, managing applications, and enhancing customer security. All these elements contribute to xFi, our integrated brand. Looking at performance, as mentioned, we’re on track to add over 1 million net broadband customers in 2019, balancing market share gains with strong revenue growth. Our ARPU and broadband revenue are both increasing, contributing to EBITDA growth. Overall, we have a robust pipeline for broadband innovation.

The only other point I would make is that Dave and his team have provided a thorough description of the strategy and executed it well, especially with the new product we often refer to as Flex. Our goal is to strengthen our relationship with broadband customers, and we will have more to share in the coming months. In essence, we see that the shift to video consumption aligns with your second question about alternative video formats. We aim to ensure that this relationship is straightforward, beneficial, and enhances the value of subscribing to our broadband service. The team has some excellent ideas in this area. Steve, would you like to address the second question, and then Jeremy can provide his input?

So we're hard at work on our streaming plans. We're planning on announcing more details as we get closer to the launch. Our goal is to launch the service next April. We have over 500 people working on the service at present. We're using the NOW TV platform that has worked so well in Europe as really the platform foundation. We believe we have a very innovative way of coming into the market that is very different than anything else in the market and, we believe, has very attractive financial aspects versus other ways to get into streaming. The Office was important to us because, according to Nielsen, The Office is the number one show on Netflix. It's about 5% of all of Netflix's volume, which, obviously, a show that was on NBC and is tied to the DNA of NBC. And we see The Office as being one of the tent pole programs on our platform. So we'll have more to talk about. I think for competitive reasons, we believe we've got some ideas that are innovative and don't really want to share those until we get right close to launch, but we're very pleased to have The Office and very optimistic about our streaming plans at this point.

Jeremy, maybe talk about Sky Studios and, a little bit, the strategy there, if you wouldn't mind to the question he made about Chernobyl.

Sure, Brian. So a couple of things, Ben. It's just on your first point, remember, in Europe, particularly we're buying content for the market as a whole. So we can use our content very efficiently, either of the DTT service over a streaming service. So it's one of the reasons, whilst revenue from our streaming brand, NOW TV, tends to be lower, our cost basis is much, much lower as well. So we were thinking of it efficiently on an incremental basis. And the more we can do that with technology, as Steve described, of course, the more that effect can apply across the company. In terms of Sky Studios, really, our focus is on own originated content and European content. And I think this is going to be extremely powerful for us because, I think, there's a big opportunity to develop European stories at a scale that we've never really seen before. It's no surprise to me that both Game of Thrones actually, but also Chernobyl did particularly well here. Game of Thrones essentially was shot in Europe. It had a lot of European actors. And of course, Chernobyl, a difficult subject, is one of the great sort of European stories over the last few decades. So I think there's a real spot for us to drive into now Sky Studios. It will be the vehicle that we'll use to do that and that will complement all of the acquired programming that we are getting from around the world, but will be very, very different as well because it will be essentially European. So it fits really very well with us. And of course, we'll displace some of the acquired programming with more of our own originated content as part of our investment thesis.

I have two questions, if I may. First, I understand you are reluctant to provide long-term guidance, but I noticed that margins have reached nearly 50% for some of your video-light competitors in the cable sector. Could you elaborate on any significant differences between those companies and yours beyond just the video mix? Secondly, Brian, regarding NBC and Comcast's video strategy, which seems to allow video customers to leave if they choose, how do you envision those two strategies coexisting effectively?

Craig, this is Dave. Let me begin with margin. You're right that we don't provide long-term margin guidance, but I want to highlight our focus, which aligns with the fundamentals that will continue to influence margin. We have consistently concentrated on total relationship growth, EBITDA per customer relationship, and net cash flow per customer relationship. Our strategy remains unchanged. This begins with an emphasis on connectivity businesses, both residential and business services, which are both beneficial for margins. Additionally, as Mike mentioned earlier, we're heavily focusing on enhancing the customer experience by eliminating unnecessary processes and transactions. We're also prioritizing improvements in the digital experience for our customers. These fundamentals are affecting this quarter but will continue to do so moving forward. There is significant potential for improvement as we maintain our focus on connectivity businesses. Looking ahead to the second half of the year, we anticipate cycles in sales activity, especially with mobile sales expected to increase. Certain new product launches might impact margin slightly, along with the challenges posed by political advertising. Thus, there could be some variability from quarter to quarter. However, I believe our fundamental approach to margin is strong, and while I’m not providing guidance beyond this year, I feel very confident about our fundamentals.

On the other hand, we believe Comcast/NBCUniversal is a dynamic company. There will be changes in different segments. We've been consistent, and Steve has been vocal about cable networks facing pressure from subscriber losses. We're benefiting from that and selling a lot of content to streaming services. We're also building our own streaming service, which greatly benefits our Broadband business. That's why we have a Parks business, and we've seen excellent results in our Broadcast division this quarter. The Cable networks have seen growth as well. Having a more global footprint allows us to create one production and sell it worldwide, if we choose to do so. This aligns with our expectations. We've positioned the company and adjusted our strategies as needed. While there may be slight differences in emphasis between divisions, part of our uniqueness lies in supporting the ecosystem as we navigate this change and turn it into a positive outcome. We've seen this repeated many times, and with the guidance of strong leaders, we've developed products that have driven years of growth for the company, and we envision that continuing into the future.

I have questions for Steve and Jeremy. Steve, can you discuss the strong upfront advertising market despite declining ratings and the anticipated rise of non-advertising supported streaming services? When do you plan to launch your own AVOD direct-to-consumer service? Additionally, Mike mentioned the potential opportunities in Theme Parks related to NBCU, so could you provide some insight on that? And for Jeremy, to follow up on Ben's question, do you anticipate a pullback in programs similar to what's occurring in the U.S. from Disney and Warner? If so, how much funding do you expect to free up for your focus on increasing original content? Also, is there a secondary market for programming, or is your plan to keep everything on your own platform?

We achieved a record upfront this year. For the past seven years, we have been bundling all of our channels together at the upfront and have consistently led this market. We are the top seller of television advertising in the country. This year was especially strong, with our volume increasing by 10%. Our average pricing rose by nearly 10%, possibly 9%, and NBC in primetime grew by about 13.5%. Various factors contributed to this growth, but notably, the largest category of upfront advertising now comes from digital-native companies, including the FAANG companies, Peloton, streaming services, and other internet-based businesses. Interestingly, while these digital companies are affecting our ratings negatively, they also find television advertising to be very effective due to their data-driven nature, allowing them to measure its impact. This year, over $1 billion in advertising came from these digital-native companies, which were not advertising just 4 or 5 years ago. This demonstrates a thriving advertising market supported by a strong economy and the emergence of new advertisers. Our digital ad sales on our digital platforms have also exceeded $1 billion, enabling us to adopt a comprehensive strategy that includes linear television and digital offerings. This robust advertising market reinforces our optimism about the future of broadcast and cable channels.

Jeremy?

In response to your question, I believe we will continue to be a strong partner for the companies you mentioned or anyone else looking to develop a direct-to-consumer business in Europe. Typically, when companies enter the market, they tend to first ask about the presence of Pay TV customers, which has primarily been associated with Sky. Given our longstanding relationship, I am hopeful that we will keep collaborating with many partners to ensure mutual success. However, as you can imagine, we are constantly exploring various business options. Our investment in Sky Studio is not dependent on any particular partner, and we plan to double our original programming. We have the potential to scale that up even further if we choose to. We are already witnessing impressive results; for instance, viewership of Sky's original programs this quarter has more than doubled compared to the previous year. Additionally, we are effectively monetizing this through a secondary market, selling our content to retailers. We've established relationships with telcos and cable companies across Europe to distribute our content to their customers, leading to about a 30% year-on-year increase in content sales. We have many promising opportunities ahead, and we will see how our commercial negotiations develop.

Just looping back to Parks, which was part of your question, Jessica. We continue to remain very bullish on the Parks business. And obviously, we're investing in Beijing. We're investing in our domestic parks. We think there's a lot of opportunity down in Orlando. We built a lot of hotel rooms. We'll be talking more about investment in the state of Florida. And it's now about one-third of NBCUniversal's total operating cash flow. And we continue to love the business and think it fits very well with our animated movie business and other things that we're doing.

As your Cable business becomes increasingly connectivity-driven, it certainly seems like the margin profile is going to keep improving. And as Mike alluded to, the CapEx profile is also likely to continue improving as well. And so what that implies is that this business' natural ability to delever is probably going to be greater in the future than it has been in the past, and that could maybe get you back to your pre-Sky leverage profile a bit quicker. But I think that really, on a recurring basis, it implies that business might just be creating more excess capital over the long term than we've seen. So it's really a question about capital allocation. As you get back to that pre-Sky leverage profile, how do you think about where your capital allocation priorities go? Particularly, how do you balance the opportunity to return to a share repurchase program versus reinvesting in some of the growth opportunities you were talking about over the course of this call?

Thanks, Brett. It's Mike. I fully agree with the outlook regarding the long-term potential of the Broadband and connectivity businesses, which show a strong cash flow generation profile. We are committed to owning and investing in this area as Dave described. Currently, our top priority is deleveraging. We have communicated to the rating agencies our goal to realign with our rating within 24 months of the Sky deal, and we have made good progress towards that target. We are on track to meet our goals. Once we achieve this, we will discuss future steps, but our fundamental principles will remain centered around steady investment in our existing businesses and maintaining a strong balance sheet, while returning significant cash to shareholders through our dividends, which this year will exceed $3 billion, approximately $3.3 billion, marking ten consecutive years of dividend increases. Alongside healthy buybacks, as we did before Sky, this is likely the future direction, but first, we must return to our stated goals.

Could you provide an update on the M&A landscape? It appears that whenever there is a telecom or media asset for sale globally, Comcast is often mentioned as a top contender. Additionally, considering the ongoing changes in the U.S. wireless industry and the heightened emphasis on connectivity in the Cable business, do you believe there will be a need to eventually acquire assets in the wireless market in the U.S.?

Thanks. We're focused on our current opportunities and are excited about them. Our interest in Sky began when it became available in the market, which prompted us to make a decision. At this stage, I don't see anything lacking from the company that would concern us on a large scale. Additionally, our top priority is to restore the balance sheet to its historical levels as quickly as possible. We are committed to executing well, and I believe we've made progress in the first half of this year. Regarding wireless, we are very pleased with Xfinity Mobile, which has around 1.5 million customers since its launch. We provide a valuable suite of products for our best broadband customers, and it strategically aligns with our operations. We're starting to see real volume and scale, moving us closer to a point where it becomes a contributor rather than a drag on our resources. I don't see a reason to change our direction. While circumstances may shift, we are confident in our product and how it complements our offerings to customers.

I guess, two follow-ups. Dave, following up on your comments earlier on broadband, I'm curious what you see out in broadband competition. And as Mike pointed out through the quarter, Broadband had a tough year-over-year comp in 2Q, but was similar to better than the few years prior to that. Any reason to think that second half broadband momentum wouldn't be consistent with those last few years? And then second, on wireless, if I can just follow up on a comment, I think, Mike, you made about getting on that path to standalone economics. How do you think about the scale needed there and also the benefit you've seen so far in cable churn from those customers?

It's Dave. Regarding broadband momentum, we don't provide specific long-term guidance, but we will continue to concentrate on both residential and commercial connectivity. We are gaining market share and maintaining a good balance in our financial performance and revenue, starting with broadband. Our strategy is focused on offering standalone broadband, bundling it with X1 and other products, and we will persist with this approach. We've experienced record churn in broadband and have been effective in delivering value. Everything I mentioned earlier about our product pipeline will support us in the latter half of the year. Typically, Q3 presents opportunities for broadband during the back-to-school season. Looking ahead, we anticipate adding over 1 million broadband customers this year, reflecting strong momentum.

Yes, it's Mike. I'll just add regarding broadband that we expect another very strong year. The second half will indeed be a challenge compared to the first half, particularly due to a tough comparison to last year's best-ever performance. However, when we consider the first half overall, it aligns closely with the last couple of years we've experienced. I feel optimistic about our outlook for broadband additions for the remainder of the year. Regarding wireless, we were quite satisfied with the initial churn reduction benefits we've observed in the mobile sector, which aligns with what Dave just described in broadband. We're very pleased with the current developments. Specifically, we now have 1.8 million lines, with about 180 additions in the recent quarter. When evaluated on a quarterly basis within our footprint, we are capturing a significant portion of the net additions available in the entire wireless market. We appreciate the scale we have achieved. In terms of economics, the loss of around $88 million this quarter has improved significantly compared to last year. We need to reach mid- to high single-digit penetration of our broadband base to achieve economic neutrality, and we're on track to do that. It will take some time, but most importantly, we appreciate the momentum we currently have in the business, as both Brian and Dave highlighted.

Two questions. First, for Steve, understanding you do not want to provide too many details on the OTT service, I do want to explore the concept of originals versus library programming with you as a driver for the service. The Office, obviously, stands out. But Netflix believes that these new originals that drive new subscriber activations, while library content is more of the glue that keeps customer satisfied and the value of a service. Do you embrace that view that exclusive originals are a key driver for OTT services, like the one you're launching?

Our service is quite different from Netflix. When Netflix started, it primarily featured acquired programming, which still constitutes about 80% of their content today. The majority of our offerings will likely be acquired as well. We are investing in some original programming, including another season of A.P. Bio, and we have several originals linked to libraries we own. However, I anticipate that most of the initial content consumption will be from acquired programming.

Okay, I appreciate that. And Dave, when you look at AT&T's difficult programming negotiations where they're attempting to bend the cost curve, as they say, and lower the pace of programming cost growth, does that change your expectations that Comcast Cable for cost growth? And you might not want to share it, but it would be helpful when you look for the few years to know whether your programming renewals are lumpy or spread out more evenly on an annual basis.

Well, Doug, we don’t provide long-term guidance in programming. What we have indicated is that last year and this year, we are in a cycle with less deal activity, which will lead to lower programming increases. However, I believe we are in a unique position for a couple of reasons. Firstly, we have X1, which provides us with strategic flexibility as we navigate this new environment, combining the best of live, on-demand, and DVR applications. As we build important relationships, we are offering consumers unprecedented options to get what they want. We will actively analyze data and assess every deal based on engagement. X1 will remain a crucial platform for us moving forward.

This is only for Jeremy. Obviously, in the U.K. and Germany, you're a reseller of the incumbent phone company's broadband network. There's probably some opportunities to get partnerships with companies that have faster speeds and/or be partners with new build-out opportunities for broadband given Comcast DNA on connectivity. Can you just talk about, is there a real opportunity to drive subscribers broadly given the potential of faster broadband speeds in your footprint?

From a customer perspective, our business is already adapting to faster speeds. Around half of our customers in the U.K. are currently using Sky Fibre. While there isn't anything drastic happening in Europe, we see a consistent trend that allows for growth. We have good access to higher-speed broadband in our competitive markets. Our upcoming launch in Italy early next year is a great example of our partnership with Open Fiber, which gives us the ability to start with fiber to the premises right from the beginning. Overall, our current position is strong, as evidenced by our success in the U.K., where we have become a solid number two in the residential market. We aim to establish a similar presence in Italy, which will be a significant opportunity for growth. Additionally, we are open to collaborating more closely with network providers in all markets, but we do not see this as a barrier to our growth potential.

I think we all understand the connectivity message, but I think we're still trying to get a little bit of clarity on the video strategy. So two questions related to this. Number one, are you still investing in the video product? And I think from all of the comments on the call so far, the answer would be yes, but just want you to confirm that. And then sort of following up to Doug's question, if you're, in a sense, deemphasizing video, have you become indifferent to affiliate fee increases as you renew this carriage contracts because if you pass the increases on the customer, and if they leave, they leave or you're still going to fight the fight to keep programming cost down?

Marci, Dave. I believe you need to look at this in two ways. One is the marketing aspect and the other is the product aspect. From a marketing viewpoint, our focus is on connectivity, but video is also a crucial package element for the profitable segments that desire the best video platform available, which is X1. We will keep emphasizing our strategy of segmentation and using X1 alongside broadband to provide the top combination of both. We are not aiming for the lower end of the market. In the last quarter, our video churn remained quite stable compared to the second quarter of last year, largely because we are placing less emphasis on targeting lower-end customers. Overall, we will continue to direct our marketing efforts toward those segments with X1. From a product standpoint, we are investing in X1. We are adding applications, with Hulu being next and others we are enthusiastic about for next year at NBC. There is a growing demand for what customers want. Additionally, as Brian mentioned, we are excited about Flex, which is an extension of X1 that provides an opportunity to target the streaming segment with a solution that elegantly integrates applications and data. This allows you to use your voice to access the content you want from those apps. More details will follow on that. We will keep investing in video where it makes sense.

Okay. Well, I just would add that I think it was a good first half of the year. And I think we had a pretty robust discussion this morning, so I don't have anything to add. It was a good answer, David. Thank you.

Okay. We'll end the call there. Thank you, everyone, for joining us this morning.