Comcast programming costs up just 3% in Q1. Have affiliate fees ‘hit a wall’?

money
Affiliate fee expenses calmed a bit during the first quarter for Comcast. (Pixabay)

After several years of steep quarterly increases in the amount of money Comcast spent to license pay TV programming, expense growth increased by only 3% in the first quarter. 

This came after Comcast saw a 10% increase in the first quarter of 2017.

The sudden deceleration wasn’t unexpected, Comcast CFO Michael Cavanagh told investors during the cable operator’s first quarter earnings all Wednesday. 

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“We’re back in the land of normal escalators,” he said, noting that the high levels of expense growth were driven by renewal deals with programming conglomerates over the last few years.  

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“That combined with some of the shift in mix of our customer base and some of the reductions in subs deflates the growth rate down, as a result, a little bit below the historical levels,” Cavanagh added.

“We'll probably see trends similar for the remainder of this year, it's safe to say,” he also noted. “And we'll come back next year with further annual guidance, but that's just on programming.”

While Cavanagh boiled down the calming affiliate fee expenses to normal business cycles, MoffettNathanson analyst Craig Moffett, in a note to investors sent yesterday afternoon, sees a bigger omen for media companies. 

“There are warning signs everywhere that cable network affiliate fees are hitting a wall,” Moffett wrote. 

The analyst sees important lessons for AT&T, which he said is now a 75% odds-on favorite to prevail in its legal battle with the Justice Department and succeed in its $85.4 billion purchase of Time Warner Inc.

“All this is a simple reminder that, while Time Warner’s growth rate is inarguably better than the rest of AT&T’s, it is a business with its own secular challenges,” Moffett added. “Lest we forget, DirecTV was growing rather nicely when AT&T bought it just three short years ago.” 

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