Comcast’s Roberts

October 2007

In the ’60s, the American television landscape was dominated by the three broadcast networks. The multichannel world was decades away and cable television served only to physically transport the signals of ABC, CBS and NBC and a few local stations to remote and mountainous areas that couldn’t receive them with conventional antennas.

To that end, in 1963, Ralph J. Roberts founded a single-system cable company with 1,200 subscribers in Tupelo, Mississippi. The company grew, was incorporated in Philadelphia and named Comcast. Ralph Roberts built his company on one simple principle: making the experience of watching television as enjoyable as possible. In the process he became one of the pioneers of the American cable industry, along with Ted Turner and John Malone.

Ralph’s son Brian, who today is Comcast Corporation’s chairman and CEO, started working at Comcast when he was only 15. Then, upon graduating from college, he was hired full time. He wholeheartedly embraced his father’s principle of enhancing viewers’ TV experience, and built on Comcast’s strengths by offering customers the best in technology and innovative services. In 2001 Comcast acquired AT&T Broadband’s cable holdings and became the largest cable company in the U.S. In 2002 Comcast launched its high-definition offering, followed by the on-demand service, which proved extremely popular. And all along, Comcast was buying stakes in several cable channels to boost the programming offering for its customers.

After spending years providing customers with other people’s content, Roberts decided in 2004 that it was time to acquire a major media company in order to have a constant flow of programming to fill his cable pipes. He made a $54-billion bid, assuming an additional $12 billion in debt, for The Walt Disney Company. Disney was considered quite vulnerable at the time, given then-CEO Michael Eisner’s battle with members of the Disney board. But when it became apparent that Disney had no interest in merging the two companies, Comcast dropped the bid.

But Roberts continued to build Comcast’s content assets. The Comcast Programming Group owns or holds stakes in a bouquet of channels that include E! Entertainment, Style Network, G4, the Golf Channel, PBS KIDS Sprout and VERSUS.

Comcast also revved up its on-demand offerings to the point that today’s service is arguably the best in the U.S. Its on-demand library is filled with thousands—almost 10,000 programs per month—of movies, shows, sports, highlights, music videos, children’s programs and instructional classes, many of them offered free of charge. This service has proved extremely popular, and this year the company received its five billionth on-demand order. Comcast is also the leading provider of the triple play—video, high-speed Internet and telephony. Today, Comcast has 24.1 million cable customers, of which 12.4 million are high-speed Internet customers and 3.5 million are voice customers.

Having established Comcast as the leading cable company in the U.S., Roberts is now setting his sights on international markets. Comcast International Media Group will be launched at MIPCOM; its aim is to take several of Comcast’s programming assets and launch them in various territories. He talks to World Screen about these plans and about his special relationship with his father, who remains his mentor to this day.

WS: What contributed to Comcast’s success over the last year?

ROBERTS: There are many positive forces coming together to make this a wonderful time for Comcast. Over the last decade, we’ve invested billions of dollars to create an all fiber-optic network, which we are now exploiting. We’ve taken television from some 80 channels to 200 plus, and developed many advanced features so that the entire television experience has improved dramatically and become more personalized. Consumers can now choose digital TV, HD, video on demand and DVRs, with new features being added regularly. We’ve begun to personalize television with our video-on-demand service and now have close to 10,000 shows available, 95 percent of which are free to the consumer. The major video-on-demand content areas include movies, sports, news, kids’ and music, and fun things like dating, real estate and karaoke. Consumers love this feature.

Then, of course, there’s broadband, which has really been the growth engine for a whole new line of business. The coaxial cable that we’ve installed in 25 million American homes, which connects to our fiber network, has created the fastest high-speed Internet service available. I chair an organization called CableLabs, and we are developing a new generation of modems, which we’re now calling wideband, that will provide 150 to 200 megabits of speed per second. Earlier this year we downloaded a five-gigabit file, which included the entire Encyclopedia Britannica and Webster’s English Dictionary, in three minutes. With a broadband connection it took four hours, and with dial-up technology it took fourteen days. So we’ve gone from fourteen days to three minutes. That puts into perspective how fast this world is changing. You can’t stop, and you can’t assume anything.

Last but not least is our new digital phone product. Digital phone has been enormously successful because it gives customers choice and a competitor to the telco providers. We began making Comcast Digital Voice available in 2005, and we added 290,000 new digital voice customers. In 2006, we added a million and a half digital voice customers and in 2007, we’ve added more than 1.2 million new phone customers. We now have a total of 3.5 million phone users. By the end of this year, Comcast will be the fourth-largest phone company in the United States.

On the content side of our business, we have been very busy as well. We plan to introduce Comcast International Media Group (CIMG) at MIPCOM 2007. This division reflects the expanding role that the Comcast Programming Group is taking on the international stage. Along with the creation and distribution of the international versions of the Comcast-owned channels, CIMG will be the primary sales arm for all Comcast content outside the United States.

WS: Is cable ahead of satellite and the telcos at offering as many services as possible to customers?

ROBERTS: I’m obviously biased! But cable is the only platform that can deliver all three products, video, Internet and telephone. It is a very competitive market, and it’s very different than it was years ago. I believe we now have the superior television product, which may not have been true ten years ago. When we introduced video on demand a few years ago, we began to offer something that satellite couldn’t. We now have almost 10,000 programs per month on video on demand, which completely differentiates us from satellite and the telcos. Our customers love video on demand and use it more than 20 times per month. Because it is so popular in the United States, we will unveil a suite of branded video-on-demand channels at MIPCOM 2007 that include E!, Style, Golf, G4 and Exercise TV. We are looking forward to a strong international launch of our video-on-demand offerings this fall through next year. We pioneered this technology in the United States and have a great deal of popular original content, and I think you’ll see that a lot of our offerings are going to be very attractive to the international market. Our channels, like E! Entertainment, Style and the Golf Channel, are all very strong global brands.

WS: By making downloading easier and faster, will piracy become more prevalent?

ROBERTS: It’s a troubling question for everyone concerned, but one of our top priorities is to keep our platform secure so that content providers feel 100 percent comfortable in providing us with their programming. We are working closely with the MPAA [Motion Picture Association of America] and the NCTA [National Cable and Telecommunications Association] to ensure that we are doing everything possible to prevent piracy. We can’t stop technological advancement, but we can take measures to make sure our network is secure. Video on demand is a great solution because we can ensure that our network is secure and that piracy cannot occur with on demand.

WS: How did the decision to offer video on demand for free come about?

ROBERTS: Providing video on demand for free was somewhat controversial at the time, but our view was really very simple. We modeled free video on demand after the Internet. We believed strongly that if people had to pay per click, we all probably would not be surfing the Internet today the way that we do. It’s not that you can’t develop robust, incremental business models for content companies with video on demand—I actually believe you can—but the [consumers], we believe, should get the vast majority of their content for free.

The concept of rolling out video on demand began to materialize after we bought AT&T Broadband. We became the largest cable company in the U.S. and began spending more than $4.5 million per year to purchase content. We had become a national cable company, so we went to various content companies and said, “How about a price reduction since we’re three times larger now?” They of course said, “No, we would prefer not to do that.” So we were at a standoff just at the moment we had developed this on-demand technology. We ultimately reached a compromise with the broadcasters, networks and studios to give us content for free that enabled us to create a library of video-on-demand programs, most of which we could provide to our customers for free. We do keep commercials in the shows that have them and promote popular programs like The Sopranos with on demand.

With on demand, we instantly leapfrogged satellite. That was worth far more to us than an immediate price reduction on programming. So we found a win-win outcome for programmers and Comcast that really launched the era of heavy usage of on demand.

We reached our five billionth on-demand order this year. It’s been very popular. In July alone, we had 245 million orders through on demand. Pay-per-view revenue has also increased about 20 percent per quarter since we’ve launched free on demand. Consumers have also gotten used to not just changing channels, but are now surfing on demand, clicking, watching, fast-forwarding and rewinding TV programs. They have become more comfortable paying for movies on demand and are now looking for more HD on-demand content.

That has led the movie studios to be more interested in experimenting with shortening the windows of when movies will be made available on demand to consumers in their homes. We have day-and-date trials going on this year in two markets, with movies available on demand the same day they’re released on DVD in the stores. We’re seeing incremental revenue to the studios from these markets without degradation to DVD sales. This is good news for everyone. On demand really is the most convenient way to rent movies—it is instantaneous gratification for the consumer. Customers love it. It’s adding value to content companies, keeping television ahead of the Internet—and it’s more secure, and it is an economically stable business model.

WS: How was the on-demand deal that you did with CBS groundbreaking?

ROBERTS: If you look at the evolution of our on-demand service, the first thing we decided to do was to make it free. And then we asked ourselves, “What are the two most important pieces of content that a consumer might want to watch?” That would be prime-time broadcast television and movies. But the networks said, “No thanks,” to the idea of providing their shows and movies for free. Then Apple’s iTunes got created and Desperate Housewives went on sale for $1.99 per episode. When I heard that announcement, I said to Steve Burke, the COO of Comcast, that I thought this was going to be great for us because it really broke the windows open. Steve was the one who created the whole idea of giving our customers video on demand for free and thought this was a breakthrough as well. It was very courageous of Disney and created an enormous opportunity for us. It allowed us to start a conversation with CBS and NBC about giving us some of their prime-time shows for VOD. At first NBC said, “Okay, if we can get 99 cents per episode we’ll do it.” CBS also agreed to give us some of their best shows for 99 cents per episode, but the big question in our mind was, would a consumer pay 99 cents when they could record the show on a DVR for free?

Eventually, Les Moonves, the president of CBS, said, “I’d like to try making some of our prime-time shows available for free. I’d like to see if I can get more advertising for these free CBS shows.” It was a very bold initiative, but we received something like ten times the number of VOD orders offering the shows for free as we did by selling them for 99 cents. And if you’re a broadcaster who is primarily interested in selling advertising, and can get ten times the audience with ad-supported free VOD, you’re in a much better position. So CBS agreed to give us its best shows for free.

The TV world continues to change. We went from no prime-time broadcast content, to charging 99 cents, to now offering it for free. Soon a new feature will be rolled out called “Start Over,” which will allow digital-cable customers who tune in to a show that has already started to push a button and go back to the start.

These are very exciting times to be in our business. New technological advances are happening every year, and our customers are reaping many of the benefits.

WS: What are your priorities for the Comcast Entertainment Group?

ROBERTS: Ted Harbert, the president and CEO of Comcast Entertainment Group (CEG), is doing a great job taking our networks and launching them internationally. E! was launched internationally five years ago, and this fall and in 2008, he will extend Style Network and G4 as fully branded global networks.

This year we are also launching E! Online, which is the world’s leading entertainment news website, in localized versions in six countries: Canada, the U.K., Australia, Germany, Italy and France. We’re doing the same thing in the sports category with Comcast SportsNet, VERSUS and the Golf Channel. Both distribution and content are exciting and growing businesses, and we would like to participate in the value and synergy of both.

WS: What are the plans for the Comcast International Media Group [CIMG]?

ROBERTS: In the U.S., we created the Comcast Networks so that when we go to our cable trade association shows, we have one area where you can buy content from all the networks. We tried to organize ourselves internationally the same way. Under the leadership of Kevin MacLellan, CIMG was formed because we were seeing huge success with E! Networks International, which in the last four years added over 60 million subscribers outside the U.S., and its revenue has grown by over 700 percent.

We’re going to continue to grow. We develop over 2,000 hours of original content a year, and we have over 3,000 hours in our library that are available for international distribution. A lot of this content is perfect for new-media initiatives and we will leverage its value across multiple platforms and in multiple countries, and CIMG will play a leading role in that effort. It will also have a strong video-on-demand presence with about 10-20 hours of content that is refreshed weekly.

WS: Are you looking to create more linear channels as well?

ROBERTS: We absolutely want to develop more networks, with a heavy focus on the multiplatform network, like the one that we launched last Halloween called FEARnet. As a multiplatform network, the content is available on video on demand, online and on mobile devices, which caters to our tech-savvy younger demographic. We’re talking to entrepreneurs and to content companies, and we hope to be part of another successful wave of valuable channel creation. It’s a tougher market because now you have three businesses [video, Internet and telephone] competing for bandwidth when just a few years ago you only had television going over that cable bandwidth. We’ll be making the switch from analog to digital over the next several years and as that happens, we’ll increase our bandwidth. Having said that, there are many opportunities to create new ways to deliver content to customers. Linear channel creation is just one avenue.

WS: How narrow can a channel get? Could there be a channel dedicated to training puppies?

ROBERTS: If you think in terms of a traditional TV channel, it is not a good comparison. You should think of Internet websites. That is a better model that allows for an unlimited amount of communities and niches to explore. In the on-demand world, you could go to a specific category and have an easy menu that gives you access to content that has appeal to a specific niche audience. The community of interest may not be large enough to justify a 24-hour-a-day channel and all the people within the structure necessary to maintain it, but it could work as a video-on-demand service. FEARnet is a good example of this concept. We took a great library of existing horror content, and with our partners Sony and Lionsgate, created a network in an easy-to-find spot on the web and on VOD, promoted it, and it became enormously popular. The same thing happened when we created PBS KIDS Sprout as an on-demand network. It became instantly popular and we’ve since launched it as a linear network. Karaoke is another good example—we get millions of orders a month from people doing karaoke at home. We have hundreds of thousands of orders for dating on demand. In the future it won’t just be broadcast television and movies; it is going to be user-generated content on television at some level. At the same time, you can sit back and watch movies on demand all day if you want.

WS: Do you think we’ll get to the point where on demand will offer an endless number of TV episodes and movies? Is there a limit to how much on demand can provide?

ROBERTS: There’s really no limit, because technology is improving so rapidly. We’ve looked at eventually creating a library of 30,000 or more shows as a long-range goal. We are spending a lot of time thinking about video search because a viewer probably can’t even remember all the great shows she or he liked. Because video on demand is so popular, we want to leverage the opportunity we have as pioneers in the industry and begin to offer some of our content to attract international cable operators to want to carry our new branded video-on-demand channels.

WS: Has your dad been a big influence on you?

ROBERTS: Absolutely. I am extremely fortunate to have a father like him. He has been my number-one champion and mentor for decades. He has a soft touch in the way he mentors and teaches me and other executives at Comcast. Even when I may not have a good idea he tells me so in a way that allows me to regroup and rethink my direction. People want to be reinforced that they are doing a good job, but at the same time be given suggestions on how they can do better. Particularly if it’s your father, you like to please him. In his case, I think he’s very proud of the way Comcast has grown. He is 87 and the founder of the company and still is very active. He often meets with groups of employees throughout the United States. He was just in our newly acquired Houston, Texas, system, and it was so touching to see the tremendous respect and admiration that our employees have for Ralph. I believe we have something very special at Comcast that is hard to find in other companies. While we have grown into a very large national company, we have still been able to maintain the best of what a family business can be—if we can keep that mix just right, I think we will have a significant competitive advantage.