COMCAST CORPORATION Management's discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes to enhance the understanding of our operations and our present business environment. Components of management's discussion and analysis of financial condition and results of operations include: • Overview • Results of Operations
• Non-GAAP Financial Measures
• Liquidity and Capital Resources
• Contractual Obligations
• Off-Balance Sheet Arrangements
• Recent Accounting Pronouncements
• Critical Accounting Judgments and Estimates
Overview
We are a global media and technology company with three primary businesses:Comcast Cable , NBCUniversal and Sky. We present our operations for (1)Comcast Cable in one reportable business segment, referred to asCable Communications ; (2) NBCUniversal in four reportable business segments: Cable Networks, Broadcast Television,Filmed Entertainment andTheme Parks (collectively, the "NBCUniversal segments"); and (3) Sky in one reportable business segment. FollowingOctober 9, 2018 , Sky's results of operations are included in our consolidated results of operations. For more information about our company's operations, see Item 1: Business. Additionally, refer to Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K for management's discussion and analysis of financial condition and results of operations for the fiscal year 2018 compared to fiscal year 2017. Consolidated Revenue, Net Income Attributable toComcast Corporation and Adjusted EBITDA(a) (in billions) Revenue Net Income Attributable to Comcast Corporation Adjusted EBITDA
[[Image Removed: consolidatedresults128.jpg]]
(a) Adjusted EBITDA is a financial measure that is not defined by generally
accepted accounting principles in
"Non-GAAP Financial Measure" section on page 51 for additional information,
including our definition and our use of Adjusted EBITDA, and for a
reconciliation from net income attributable to Comcast Corporation to
Adjusted EBITDA.
32 Comcast 2019 Annual Report on Form 10-K
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2019 Consolidated Operating Results by Segment(a)
Revenue Adjusted EBITDA
[[Image Removed: piecharta01.jpg]]
(a) Charts exclude the results of NBCUniversal Headquarters and Other, Corporate
and Other, and eliminations.
2019 Developments The following are the more significant developments in our businesses during 2019: Cable Communications Segment • Revenue increased 3.7% to$58.1 billion , reflecting increases in
high-speed internet, business services and wireless revenue, partially
offset by declines in advertising, video and voice revenue
• Adjusted EBITDA increased 7.3% to
• Operating margin increased from 38.7% to 40.1%, reflecting increases in
revenue from high-speed internet and business services and decreases in
losses in our wireless business, partially offset by higher technical and
product support expenses
• Capital expenditures decreased 10.5% to $6.9 billion , reflecting lower
spending on scalable infrastructure and customer premise equipment,
partially offset by an increase in support capital
NBCUniversal Segments
• Total NBCUniversal revenue decreased 5.0% to $34.0 billion and total
NBCUniversal Adjusted EBITDA increased 2.0% to $8.8 billion
• Broadcast Television and Cable Networks segments revenue decreased 10.3%
to $10.3 billion and 2.2% to $11.5 billion , respectively, reflecting the
impact of our broadcasts of the 2018 PyeongChang Olympics and 2018 SuperBowl; excluding revenue associated with the 2018 PyeongChang Olympics and
2018
increased 1.0% and 0.1%, respectively, with the increase in Cable Networks
primarily due to increases in distribution revenue, partially offset by
decreases in content licensing revenue
•
reflecting lower theatrical, home entertainment and other revenue,
partially offset by an increase in content licensing
•
increased guest spending and higher attendance in 2019 due, in part, to
natural disasters that negatively impacted attendance in Japan in 2018
• Announced that Universal Orlando Resort is building an additional theme
park named Universal's Epic Universe
Sky Segment • Sky's results of operations for the full year 2019 are included in our
consolidated results, with revenue of
$3.1 billion • On a pro forma basis, Sky revenue decreased 3.0% to$19.2 billion .
Excluding the impact of foreign currency, pro forma Sky revenue increased
1.7% primarily due to increases in content and direct-to-consumer
revenues, partially offset by a decrease in advertising revenue
• On a pro forma basis, Sky Adjusted EBITDA increased 7.1% to
Excluding the impact of foreign currency, pro forma Sky Adjusted EBITDA
increased 12.2% primarily due to contract termination costs and costs
related to a settlement in the prior year period.
Comcast 2019 Annual Report on Form 10-K 33
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Other
• Corporate and Other revenue decreased 35.0% to
to the sale of a controlling interest in our arena management-related
businesses in the second quarter of 2018
• Corporate and Other Adjusted EBITDA losses increased 12.9% to
primarily due to costs associated with the development of Peacock
• Announced Peacock, our direct-to-consumer streaming service that will
feature NBCUniversal content, which is expected to be launched in 2020
• Entered into a series of agreements in
for certain put and call provisions regarding our ownership interest, and
in
obligation secured by the proceeds guaranteed under the put and call
provisions
• Repaid
net repayments of commercial paper, which were funded with cash on hand,
proceeds from the collateralized obligation related to Hulu and proceeds
from the
Competition
The results of operations of our reportable business segments are affected by competition, as all of our businesses operate in intensely competitive, consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services, and entertainment, news and information content to consumers. Technological changes are further intensifying and complicating the competitive landscape and challenging existing business models. In particular, consumers are increasingly turning to online sources for viewing and purchasing content, which has and likely will continue to reduce the number of our video customers and subscribers to our cable networks even as it makes high-speed internet services more important to consumers. In addition, the increasing number of entertainment choices available to consumers has intensified audience fragmentation and disaggregated the way that content traditionally has been viewed by consumers. This increase has caused and likely will continue to cause audience ratings declines at our programming channels. For additional information on the competition our businesses face, see Item 1: Business and Item 1A: Risk Factors. Within the Business section, refer to the "Competition" discussion, and within the Risk Factors section, refer to the risk factors entitled "Our businesses operate in highly competitive and dynamic industries, and our businesses and results of operations could be adversely affected if we do not compete effectively." and "Changes in consumer behavior driven by online video distribution platforms for viewing content continue to adversely affect our businesses and challenge existing business models." Seasonality and Cyclicality Each of our businesses is subject to seasonal and cyclical variations. See Item 1: Business and refer to the "Seasonality and Cyclicality" discussion within that section for additional information.
34 Comcast 2019 Annual Report on Form 10-K
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Consolidated Operating Results
Year ended December 31 (in % Change % Change millions, except per share data) 2019 2018 2017 2018 to 2019 2017 to 2018 Revenue$ 108,942 $ 94,507 $ 85,029 15.3 % 11.1 % Costs and Expenses: Programming and production 34,440 29,692 25,355 16.0 17.1 Other operating and administrative 32,807 28,094 25,449 16.8 10.4 Advertising, marketing and promotion 7,617 7,036 6,519 8.2 7.9 Depreciation 8,663 8,281 7,914 4.6 4.6 Amortization 4,290 2,736 2,216 56.8 23.5 Other operating gains - (341 ) (442 ) NM NM Total costs and expenses 87,817 75,498 67,011 16.3 12.7 Operating income 21,125 19,009 18,018 11.1 5.5 Interest expense (4,567 ) (3,542 ) (3,086 ) 28.9 14.8 Investment and other income (loss), net 438 (225 ) 421 294.6 (153.4 ) Income before income taxes 16,996 15,242 15,353 11.5 (0.7 )
Income tax (expense) benefit (3,673 ) (3,380 ) 7,569
8.7 (144.7 )
Net income 13,323 11,862 22,922 12.3 (48.2 )
Less: Net income attributable to
noncontrolling interests and
redeemable subsidiary preferred
stock 266 131 187 102.7 (29.8 )
Net income attributable to
Comcast Corporation $ 13,057 $ 11,731 $ 22,735 11.3 % (48.4 )%
Basic earnings per common share
attributable to Comcast
Corporation shareholders $ 2.87 $ 2.56 $ 4.83 12.1 % (47.0 )%
Diluted earnings per common share
attributable to Comcast
Corporation shareholders $ 2.83 $ 2.53 $ 4.75 11.9 % (46.7 )%
Adjusted EBITDA(a) $ 34,258 $ 30,165 $ 27,956 13.6 % 7.9 %
All percentages are calculated based on actual amounts. Minor differences may
exist due to rounding.
Percentage changes that are considered not meaningful are denoted with NM.
(a) Adjusted EBITDA is a non-GAAP financial measure. Refer to the "Non-GAAP
Financial Measure" section on page 51 for additional information, including
our definition and our use of Adjusted EBITDA, and for a reconciliation from
net income attributable to
The comparability of our consolidated results of operations was impacted by the Sky transaction in the fourth quarter of 2018. Sky's results of operations are included in our consolidated financial statements following theOctober 9, 2018 acquisition date. Consolidated Revenue The following graph illustrates the contributions to the increases in consolidated revenue made by ourCable Communications , NBCUniversal and Sky segments, as well as by Corporate and Other activities including eliminations. [[Image Removed: revenue12920.jpg]]
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The primary drivers of the change in revenue from 2018 to 2019 were as follows: • Our acquisition of Sky in the fourth quarter of 2018, resulting in the
inclusion of a full year of results for 2019
• Growth in our
from residential high-speed internet, business services and wireless,
partially offset by decreased revenue from advertising, video and voice
• A decrease in NBCUniversal revenue primarily due to the absence of revenue
associated with our broadcasts of the 2018 PyeongChang Olympics and the
2018 Super Bowl
Revenue for our segments and other businesses are discussed separately below
under the heading "Segment Operating Results."
Consolidated Costs and Expenses
The following graph illustrates the contributions to the increases in
consolidated operating costs and expenses, representing total costs and expenses
excluding depreciation and amortization expense and other operating gains, made
by our Cable Communications , NBCUniversal and Sky segments, as well as by
Corporate and Other activities, including eliminations.
[[Image Removed: costsandexpenses12920.jpg]]
The primary drivers of the change in operating costs and expenses from 2018 to
2019 were as follows:
• Our acquisition of Sky in the fourth quarter of 2018, resulting in the
inclusion of a full year of results for 2019
• A decrease in NBCUniversal programming and production expenses primarily
due to the absence of expenses associated with our broadcasts of the 2018
PyeongChang Olympics and the 2018 Super Bowl
• An increase in technical and product support costs in our Cable
Communications segment
Operating costs and expenses for our segments and our corporate operations, business development initiatives and other businesses are discussed separately below under the heading "Segment Operating Results." Consolidated Depreciation and Amortization Expense
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Cable Communications $ 7,994 $ 8,262 $ 8,019 (3.2 )% 3.0 %
NBCUniversal 2,129 2,108 2,041 0.9 3.3
Sky 2,699 539 - NM NM
Corporate and Other 131 108 70 21.4 56.3
Comcast Consolidated $ 12,953 $ 11,017 $ 10,130 17.6 % 8.8 %
Percentage changes that are considered not meaningful are denoted with NM.
Consolidated depreciation and amortization expense increased in 2019 primarily
due to the acquisition of Sky in the fourth quarter of 2018, with a full year of
expense included in our results of operations for 2019. Additionally, during the
first quarter of 2019, we recorded adjustments to the purchase price allocation
of Sky, primarily related to intangible assets and property and equipment. This
change resulted in an adjustment recorded in the first quarter of 2019 related
to the fourth quarter of 2018 that increased depreciation and amortization
expense by $53 million .
36 Comcast 2019 Annual Report on Form 10-K
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Cable Communications depreciation and amortization expense decreased due to lower spending on scalable infrastructure and customer premise equipment, partially offset by an increase in support capital. NBCUniversal depreciation and amortization expense was flat in 2019. Amortization expense from acquisition-related intangible assets, such as customer relationships, totaled$2.0 billion ,$1.1 billion and$824 million for 2019, 2018 and 2017, respectively. Amounts primarily relate to customer relationship intangible assets recorded in connection with the Sky transaction in the fourth quarter of 2018 (see Note 8 to Comcast's consolidated financial statements) and the NBCUniversal transaction in 2011. Consolidated Other Operating Gains Consolidated other operating gains for 2018 included$200 million related to the sale of a controlling interest in our arena management-related businesses in Corporate and other (see Note 10 to Comcast's consolidated financial statements) and$141 million related to the sale of a business in ourFilmed Entertainment segment. Consolidated Interest Expense Interest expense increased in 2019 compared to 2018 primarily due to increases in our debt outstanding associated with the financing of and debt assumed in connection with the Sky transaction in the fourth quarter of 2018, as well as a$56 million charge related to the early redemption of debt that was recorded in the third quarter of 2019.Consolidated Investment and Other Income (Loss), Net Year ended December 31 (in millions) 2019 2018 2017 Equity in net income (losses) of investees, net$ (505 ) $ (364 ) $ 107 Realized and unrealized gains (losses) on equity securities, net 656 (187 ) (17 ) Other income (loss), net 287 326 331 Total investment and other income (loss), net$ 438 $
(225 )
Equity in Net Income (Losses) of Investees, Net The change in equity in net income (losses) of investees, net in 2019 compared to 2018 was primarily due to our equity method investments inHulu and Atairos Group, Inc. ("Atairos"). The losses at Hulu were primarily due to programming, advertising and marketing costs, and higher other administrative expenses. Atairos follows investment company accounting and records its investments at their fair values each reporting period with the net gains or losses reflected in its statement of income. We recognize our share of these gains and losses in equity in net income (losses) of investees, net. The income (losses) at Atairos were driven by fair value adjustments on its underlying investments. The table below summarizes the equity in net income (losses) of Hulu and Atairos in 2019, 2018 and 2017. Year ended December 31 (in millions) 2019 2018 2017 Hulu$ (473 ) $ (454 ) $ (276 ) Atairos$ (64 ) $ (31 ) $ 281 Realized and Unrealized Gains (Losses) onEquity Securities , Net The change in realized and unrealized gains (losses) on equity securities, net in 2019 compared to 2018 was primarily due to gains of$293 million related to our interest in Snap, which was sold in 2019, compared to losses of$268 million in 2018, and unrealized gains of$184 million related to our investment in Peloton Interactive, Inc. ("Peloton"). Other Income (Loss), Net The change in other income (loss), net in 2019 compared to 2018 was primarily due to the recognition of$219 million of gains related to the dilution of our Hulu ownership and$90 million of losses due to the impairment of an equity method investment. See Note 10 to Comcast's consolidated financial statements and Note 9 to NBCUniversal's consolidated financial statements for further information.
Comcast 2019 Annual Report on Form 10-K 37
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Consolidated Income Tax (Expense) Benefit
Income tax (expense) benefit reflects an effective income tax rate that differs from the federal statutory rate primarily due to state and foreign income taxes and adjustments associated with uncertain tax positions. Our effective income tax rate in 2019 and 2018 was 21.6% and 22.2%, respectively. In 2019, the effective income tax rate included$125 million of benefits related to state income tax adjustments recognized in the third quarter of 2019. In 2018, the effective income tax rate included the effects of an income tax benefit of$244 million recognized during the fourth quarter of 2018 related to a reduction of our net deferred tax liability as a result of the acquisition of Sky and$128 million recognized during the first quarter of 2018 related to the enactment of additional federal tax legislation in 2018, partially offset by$148 million of income tax expense due to state and federal tax law changes that were enacted in the third quarter of 2018. Consolidated Net Income Attributable to Noncontrolling Interests and Redeemable Subsidiary Preferred Stock The increase in net income attributable to noncontrolling interests and redeemable subsidiary preferred stock in 2019 compared to 2018 was primarily due to an increase in the redemption value of one of our noncontrolling interests. Segment Operating Results Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use Adjusted EBITDA as the measure of profit or loss for our operating segments. Adjusted EBITDA is defined as net income attributable toComcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. Adjusted EBITDA for our segments is not a non-GAAP financial measure. We reconcile the aggregate amount of Adjusted EBITDA for our reportable business segments to consolidated income before income taxes in the notes to our consolidated financial statements (see Note 2 to Comcast's consolidated financial statements and NBCUniversal's consolidated financial statements). Beginning in the first quarter of 2019,Comcast Cable's wireless phone service and certain other Cable-related business development initiatives are presented in theCable Communications segment. Results were previously presented in Corporate and Other. Prior periods have been adjusted to reflect this presentation.
38 Comcast 2019 Annual Report on Form 10-K
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Cable Communications Segment Results of Operations
Revenue and Adjusted EBITDA Residential Customer Relationships (in billions)
(in millions)
[[Image Removed: mdacable.jpg]]
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue
Residential:
High-speed internet $ 18,752 $ 17,144 $ 15,681 9.4 % 9.3 %
Video 22,270 22,455 22,874 (0.8 ) (1.8 )
Voice 3,879 3,960 4,090 (2.1 ) (3.2 )
Wireless 1,167 890 329 31.2 170.3
Business services 7,795 7,129 6,437 9.3 10.7
Advertising 2,465 2,795 2,450 (11.8 ) 14.1
Other 1,754 1,660 1,538 5.7 7.9
Total revenue 58,082 56,033 53,399 3.7 4.9
Operating costs and expenses
Programming 13,389 13,249 12,907 1.1 2.7
Technical and product support 7,973 7,569 6,846 5.3 10.6
Customer service 2,494 2,536 2,509 (1.6 ) 1.1Advertising, marketing and promotion 4,014 4,002 3,866
0.3 3.5
Franchise and other regulatory fees 1,582 1,578 1,590
0.2 (0.8 )
Other 5,364 5,418 5,126 (1.0 ) 5.7
Total operating costs and expenses 34,816 34,352 32,844
1.4 4.6 Adjusted EBITDA$ 23,266 $ 21,681 $ 20,555 7.3 % 5.5 %
Comcast 2019 Annual Report on Form 10-K 39
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Customer Metrics
Net Additions
(in thousands) 2019 2018 2017 2019 2018 2017
Customer relationships
Residential customer relationships 29,149 28,109 27,185 1,040 925 651
Business services customer relationships 2,396 2,303 2,179 94 123 135
Total customer relationships 31,545 30,412 29,364 1,134 1,048 787
Residential customer relationships mix
One product customers 10,247 9,015 8,174 1,232 840 418
Two product customers 8,923 8,992 9,018 (69 ) (25 ) 221
Three or more product customers 9,979 10,102 9,993 (123 ) 110 13
High-speed internet
Residential customers 26,414 25,097 23,863 1,317 1,234 1,036
Business services customers 2,215 2,125 2,006 89 120 132
Total high-speed internet customers 28,629 27,222 25,869 1,406 1,353 1,168
Video
Residential customers 20,288 20,959 21,303 (671 ) (344 ) (186 )
Business services customers 966 1,027 1,054 (61 ) (27 ) 35
Total video customers 21,254 21,986 22,357 (733 ) (370 ) (151 )
Voice
Residential customers 9,934 10,153 10,316 (218 ) (163 ) (231 )
Business services customers 1,342 1,297 1,236 46 60 96
Total voice customers 11,276 11,449 11,552 (173 ) (103 ) (135 )
Security and automation
Security and automation customers 1,375 1,317 1,131 59 186 239
Wireless
Wireless lines 2,052 1,236 381 816 854 381
Customer metrics are presented based on actual amounts. Minor differences may
exist due to rounding. Customer relationships represent the number of
residential and business customers that subscribe to at least one of our
services. One product, two product, and three or more product customers
represent residential customers that subscribe to one, two, or three or more of
our services, respectively. For MDUs, including buildings located on college
campuses, whose residents have the ability to receive additional services, such
as additional programming choices or our HD or DVR services, we count and report
customers based on the number of potential billable relationships within each
MDU. For MDUs whose residents are not able to receive additional services, the
MDU is counted as a single customer. Residential high-speed internet and video
customers as of December 31, 2019 included prepaid customers totaling
approximately 196,000 and 7,000, respectively. Wireless lines represent the
number of activated eligible wireless devices on customers' accounts. Individual
customer relationships may have multiple wireless lines.
2019 2018 2017
Average monthly total revenue per customer relationship $ 156.24 $ 156.23 $ 153.60
Average monthly Adjusted EBITDA per customer relationship $ 62.59 $ 60.45 $ 59.13
Average monthly total revenue per customer relationship is impacted by rate
adjustments and changes in the types and levels of services received by our
residential and business services customers, as well as changes in advertising
revenue. While revenue from our residential high-speed internet, video and voice
services are also impacted by changes in the allocation of revenue among
services sold in a bundle, the allocation does not impact average monthly total
revenue per customer relationship.
Each of our services has a different contribution to operating margin. We use
average monthly Adjusted EBITDA per customer relationship to evaluate the
profitability of our customer base across our service offerings. We believe this
metric is useful particularly as we continue to focus on growing our
higher-margin businesses, including residential high-speed internet and business
services.
Cable Communications Segment - Revenue
We are a leading provider of high-speed internet, video, voice, wireless, and
security and automation services to residential customers in the United States
under the Xfinity brand; we also provide these and other services to business
customers and sell advertising. We generate revenue primarily from residential
and business customers that subscribe to our services, which we market
individually and as bundled services. We also generate revenue from selling
through our allocation of scheduled advertising time on cable networks that is
received as part of distribution agreements with these networks to local,
regional and national advertisers.
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High-Speed Internet
We offer high-speed internet services with downstream speeds that range up to 1
gigabit per second ("Gbps") and fiber-based speeds that range up to 2 Gbps. We
also deploy wireless gateways to customers that combine an internet and voice
modem with a Wi-Fi router to deliver reliable internet speeds and enhanced
coverage through an in-and-out-of-home Wi-Fi network. Customers with xFi-enabled
wireless gateways may also personalize and manage their Wi-Fi network remotely,
which includes viewing and changing their Wi-Fi password, identifying which
devices are connected to their in-home network, setting parental controls and
schedules, advanced security, as well as other features. We believe our customer
base will continue to grow as consumers choose our high-speed internet service
and seek higher-speed offerings.
Revenue increased in 2019 primarily due to an increase in the number of
residential high-speed internet customers. The remaining increase in revenue in
2019 was due to an increase in average rates.
Video
We offer a broad variety of video services packages that may include premium
networks, pay-per-view services and our On Demand service. Our video customers
may also subscribe for additional fees to our HD and DVR services.
Revenue was flat in 2019 primarily due to a decline in the number of residential
video customers, offset by an increase in average rates.
We have experienced, and expect that we will continue to experience, declines in
the number of residential video customers due to competitive pressures, and we
expect that our video revenue will continue to decline as a result of the
competitive environment and shifting video consumption patterns. We believe our
X1 platform helps us compete more effectively against this competition, and have
also continued to employ sales and marketing programs, such as promotions,
bundled service offerings and service offerings targeted at specific market
segments.
Voice
We offer voice services that provide local and long-distance calling and other
related features.
Revenue decreased in 2019 primarily due to a decline in the number of
residential voice customers.
We expect that the number of residential voice customers and voice revenue will
continue to decline.
Wireless
We offer wireless phone services to customers that may choose to pay for
services on an unlimited data plan or per gigabyte of data used.
Revenue increased in 2019 primarily due to an increase in the number of customer
lines.
Business Services
We offer a variety of products and services to businesses. Our service offerings
for small business locations primarily include high-speed internet services, as
well as voice and video services, that are similar to those provided to
residential customers, as well as cloud-based cybersecurity services, wireless
backup connectivity, advanced Wi-Fi solutions, video monitoring services and
cloud-based services that provide file sharing, online backup and web
conferencing, among other features. We also offer Ethernet network services that
connect multiple locations and provide higher downstream and upstream speed
options to medium-sized customers and larger enterprises, as well as advanced
voice services, along with video solutions that serve hotels and other large
venues. In addition, we provide cellular backhaul services to mobile network
operators to help them manage their network bandwidth.
We have expanded our service offerings to include a software-defined networking
product for medium-sized and enterprise customers. Larger enterprises may also
receive support services related to Wi-Fi networks, router management, network
security, business continuity risks and other services. These service offerings
are primarily provided to Fortune 1000 companies and other large enterprises
with multiple locations.
Revenue increased in 2019 primarily due to an increase in the number of
customers receiving our services and an increase in average rates.
Advertising
As part of our distribution agreements with cable networks, we generally receive
an allocation of scheduled advertising time that is sold through our advertising
business to local, regional and national advertisers. In most cases, the
available advertising units are sold by our sales force. In some cases, we work
with representation firms as an extension of our sales force to sell a portion
of the advertising units allocated to us. We also represent the advertising
sales efforts of other multichannel video providers in some markets. In
addition, we generate revenue from the sale of advertising on our digital
platforms. We also provide technology, tools, data-driven services and
marketplace solutions to customers in the media industry, which allow
advertisers to more effectively
Comcast 2019 Annual Report on Form 10-K 41
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engage with their target audiences. Revenue is affected by the strength of the advertising market, general economic conditions, and cyclicality related to political campaigns and issue-oriented advertising. Revenue decreased in 2019 primarily due to a decrease in political advertising revenue. Excluding political advertising revenue, advertising revenue was consistent with the prior year. In 2019, 5% of our advertising revenue was generated from our NBCUniversal segments, compared to 4% and 5% in 2018 and 2017, respectively. These amounts are eliminated in our consolidated financial statements but are included in the amounts presented above. Other Other revenue primarily includes revenue related to our security and automation services. We also receive revenue related to residential customer late fees and from other services, such as the licensing of our technology platforms to other multichannel video providers. Revenue increased in 2019 primarily due to an increase in revenue from our security and automation services and the timing of the licensing of our technology platforms to other multichannel video providers. Cable Communications Segment - Operating Costs and Expenses Programming Expenses Programming expenses, which represent our most significant operating expense, are the fees we incur to provide content to our customers. These expenses are affected by the programming license fees charged by content providers, the fees charged for retransmission of the signals from local broadcast television stations, the number of customers we serve and the amount of content we provide. Programming expenses increased in 2019 primarily due to an increase in retransmission consent and sports programming fees, partially offset by a decline in the number of video subscribers. We anticipate that our programming expenses will increase at rates higher than those experienced in 2019, due to the timing of contract renewals in 2020. Technical and Product Support Expenses Expenses include costs to complete service call and installation activities, as well as costs for network operations, product development, fulfillment and provisioning, as well as the cost of wireless handsets and tablets sold to customers and monthly wholesale wireless access fees. Expenses increased in 2019 primarily due to expenses related to the continued development, deployment and support of our products and services, expenses related to the continued growth in business services, and increased costs associated with our wireless phone service. Wireless phone service costs increased primarily due to an increase in the number of lines. Customer Service Expenses Expenses include the personnel and other costs associated with handling the sale of services to customers and customer service activity. Expenses decreased in 2019 primarily due to lower personnel costs as a result of decreased customer call activity. Advertising, Marketing and Promotion Expenses Expenses include the costs associated with attracting new customers and promoting our service offerings. Expenses were flat in 2019 primarily due to an increase in spending associated with attracting new customers, offset by the absence of advertising expenses associated with the 2018 PyeongChang Olympics. Franchise and Other Regulatory Fees Franchise and other regulatory fees represent the fees we are required to pay to federal, state and local authorities under the terms of our cable franchise agreements. Franchise and other regulatory fees were flat in 2019. Other Expenses Expenses primarily include personnel costs, advertising expenses, and building and facilities costs. Other operating costs and expenses decreased in 2019 primarily due to increased costs incurred in the prior year as we continued to scale our wireless phone service, partially offset by higher personnel costs in the current year.
42 Comcast 2019 Annual Report on Form 10-K
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Cable Communications Segment - Operating Margin Our operating margin is Adjusted EBITDA as a percentage of revenue. The most significant operating costs and expenses are the programming expenses we incur to provide content to our video customers, which increased 1.1% in 2019. Our operating margin was 40.1%, 38.7% and 38.5% in 2019, 2018 and 2017, respectively. We continue to focus on growing our higher-margin businesses, particularly residential high-speed internet and business services, and on improving losses related to our wireless phone service and overall operating cost management. Losses from our wireless phone service were$401 million ,$743 million and$480 million in 2019, 2018 and 2017, respectively. NBCUniversal Segments Overview
2019 NBCUniversal Segments Operating Results(a)
Revenue Adjusted EBITDA
[[Image Removed: mdanbcugrapha01.jpg]]
(a) Charts exclude the results of NBCUniversal Headquarters, other, and eliminations.
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue
Cable Networks $ 11,513 $ 11,773 $ 10,497 (2.2 )% 12.2 %
Broadcast Television 10,261 11,439 9,563 (10.3 ) 19.6
Filmed Entertainment 6,493 7,152 7,595 (9.2 ) (5.8 )
Theme Parks 5,933 5,683 5,443 4.4 4.4
Headquarters, other and eliminations (233 ) (286 ) (262 ) NM NM
Total revenue $ 33,967 $ 35,761 $ 32,836 (5.0 )% 8.9 %
Adjusted EBITDA
Cable Networks $ 4,444 $ 4,428 $ 4,053 0.4 % 9.3 %
Broadcast Television 1,730 1,657 1,251 4.4 32.5
Filmed Entertainment 833 734 1,276 13.5 (42.5 )
Theme Parks 2,455 2,455 2,384 - 3.0
Headquarters, other and eliminations (690 ) (676 ) (746 ) NM NM
Total Adjusted EBITDA $ 8,772 $ 8,598 $ 8,218 2.0 % 4.6 %
Percentage changes that are considered not meaningful are denoted with NM.
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Cable Networks Segment Results of Operations
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue
Distribution $ 6,790 $ 6,826 $ 6,081 (0.5 )% 12.3 %
Advertising 3,478 3,587 3,359 (3.0 ) 6.8
Content licensing and other 1,245 1,360 1,057 (8.5 ) 28.6
Total revenue 11,513 11,773 10,497 (2.2 ) 12.2
Operating costs and expenses
Programming and production 5,107 5,357 4,599 (4.7 ) 16.5
Other operating and administrative 1,499 1,453 1,326 3.2 9.5
Advertising, marketing and promotion 463 535 519
(13.6 ) 3.2
Total operating costs and expenses 7,069 7,345 6,444
(3.8 ) 14.0 Adjusted EBITDA$ 4,444 $ 4,428 $ 4,053 0.4 % 9.3 % Cable Networks Segment - Revenue Distribution Revenue is generated from the distribution of our cable network programming to traditional and virtual multichannel video providers and is affected by the number of subscribers receiving our cable networks and the fees we charge per subscriber. Year ended December 31 (in % Change % Change millions) 2019 2018 2017 2018 to 2019 2017 to 2018 Distribution$ 6,790 $ 6,826 $ 6,081 (0.5 )% 12.3 % Distribution, excluding 2018 PyeongChang Olympics 6,790 6,590 6,081 3.0 8.4 Revenue was flat in 2019 compared to 2018, which included the revenue associated with our broadcast of the 2018 PyeongChang Olympics. Excluding$236 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, distribution revenue increased in 2019 compared to 2018 primarily due to increases in the contractual rates charged under distribution agreements and the timing of contract renewals, partially offset by increased declines in the number of subscribers at our cable networks. Advertising Revenue is generated from the sale of advertising units sold on our cable networks and digital properties. Advertising revenue is primarily based on the price we charge for each advertising unit, which is generally based on audience ratings, the value of our viewer demographics to advertisers and the number of advertising units we can place in our cable networks' programming schedules. Advertising revenue is affected by the audience ratings of our programming, the strength of the national advertising market and general economic conditions. Year ended December 31 (in % Change % Change millions) 2019 2018 2017 2018 to 2019 2017 to 2018 Advertising$ 3,478 $ 3,587 $ 3,359 (3.0 )% 6.8 % Advertising, excluding 2018 PyeongChang Olympics 3,478 3,445 3,359 1.0 2.6 Revenue decreased in 2019 primarily due to the absence of revenue associated with our broadcast of the 2018 PyeongChang Olympics. Excluding$142 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, advertising revenue increased reflecting higher prices for advertising units sold, partially offset by declines in audience ratings at our networks.Content Licensing and Other Revenue is generated primarily from the licensing of our owned programming inthe United States and internationally to cable and broadcast networks and subscription video on demand services, as well as from the sale of our owned programming on DVDs and through digital distribution services such as iTunes. In addition, our cable television studio production operations generate revenue from programming the studio produces for third-party networks and for subscription video on demand services. Revenue decreased in 2019 primarily due to the timing of content provided under our licensing agreements. In 2019, 2018 and 2017, 15%, 14% and 15%, respectively, of our Cable Networks segment revenue was generated from ourCable Communications segment. These amounts are eliminated in Comcast's consolidated financial statements but are included in the amounts presented above.
44 Comcast 2019 Annual Report on Form 10-K
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Cable Networks Segment - Operating Costs and Expenses
Programming and Production Costs
Costs include the amortization of owned and acquired programming, sports rights,
direct production costs, residual and participation payments, production
overhead, costs associated with the distribution of our programming to
third-party networks and other distribution platforms, and on-air talent costs.
Costs decreased in 2019 primarily due to the absence of costs associated with
our broadcast of the 2018 PyeongChang Olympics.
Other Operating and Administrative Expenses
Other operating and administrative costs and expenses include salaries, employee
benefits, rent and other overhead expenses.
Expenses increased in 2019 primarily due to higher employee-related costs and
increases in costs associated with our various digital properties.
Advertising, Marketing and Promotion Expenses
Expenses consist primarily of the costs associated with promoting programming on
our cable networks and digital properties.
Expenses decreased in 2019 primarily due to lower spending on marketing related
to our programming and digital properties, as well as the absence of spending on
marketing related to the 2018 PyeongChang Olympics.
Broadcast Television Segment Results of Operations
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue
Advertising $ 5,712 $ 7,010 $ 5,654 (18.5 )% 24.0 %
Content licensing 2,157 2,182 2,114 (1.1 ) 3.2
Distribution and other 2,392 2,247 1,795 6.4 25.2
Total revenue 10,261 11,439 9,563 (10.3 ) 19.6
Operating costs and expenses
Programming and production 6,547 7,789 6,440 (15.9 ) 20.9
Other operating and administrative 1,564 1,547 1,391 1.1 11.1
Advertising, marketing and promotion 420 446 481
(5.9 ) (7.3 ) Total operating costs and expenses 8,531 9,782 8,312 (12.8 ) 17.7 Adjusted EBITDA$ 1,730 $ 1,657 $ 1,251 4.4 % 32.5 % Broadcast Television Segment - Revenue Advertising Revenue is generated from the sale of advertising units sold on our broadcast networks, owned local broadcast television stations and digital properties. Advertising revenue is primarily based on the price we charge for each advertising unit, which is generally based on audience ratings and the value of our viewer demographics to advertisers, and the number of advertising units we can place in our broadcast networks' and owned local television stations' programming schedules. Advertising revenue is affected by the strength of the national and local advertising markets, general economic conditions, cyclicality related to political campaigns and issue-oriented advertising, and the success and ratings of our programming. % Change % Change Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018 Advertising$ 5,712 $ 7,010 $ 5,654 (18.5 )% 24.0 % Advertising, excluding 2018 PyeongChang Olympics and 2018 Super Bowl 5,712 5,929 5,654 (3.7 ) 4.9 Revenue decreased in 2019 primarily due to the absence of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018Super Bowl . Excluding$1.1 billion of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018Super Bowl , advertising revenue decreased due to the absence of revenue associated with Telemundo's broadcast of the 2018FIFA World Cup RussiaTM, as well as the impact of continued declines in audience ratings, partially offset by higher pricing for advertising units sold.
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Content Licensing Revenue is generated from the licensing of our owned programming inthe United States and internationally to various distribution platforms, including to cable and broadcast networks, and to subscription video on demand services. In addition, our broadcast television studio production operations develop and produce original content that they license to broadcast networks, cable networks and local broadcast television stations owned by us and third parties, as well as to subscription video on demand services. The production and distribution costs related to our owned programming generally exceed the revenue generated from the initial network license, which means the subsequent licensing of our owned programming series following the initial network license is critical to their financial success. Content licensing revenue decreased in 2019 primarily due to the timing of content provided under our licensing agreements. Distribution and Other We generate distribution and other revenue primarily from fees for retransmission consent of our owned local broadcast television stations and associated fees received fromNBC -affiliated local broadcast television stations, as well as from the sale of our owned programming on DVDs and through digital distribution services. The sale of our owned programming is driven primarily by the popularity of our broadcast networks and programming series and therefore fluctuates based on consumer spending and acceptance. Distribution and other revenue also includes distribution revenue associated with our periodic broadcasts of theOlympic Games . % Change % Change Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018 Distribution and other$ 2,392 $ 2,247 $ 1,795 6.4 % 25.2 % Distribution and other, excluding 2018 PyeongChang Olympics 2,392 2,135 1,795 12.0 19.0 Revenue increased in 2019 primarily due to increases in fees recognized under our retransmission consent agreements, which was partially offset by the absence of$112 million of revenue resulting from our broadcast of the 2018 PyeongChangOlympics . Broadcast Television Segment - Operating Costs and Expenses Programming and Production Costs Expenses relate to content that originates on our broadcast networks and owned local broadcast television stations, as well as owned content that is licensed to third parties. These costs include the amortization of owned and acquired programming costs, sports rights, direct production costs, residual and participation payments, production overhead, costs associated with the distribution of our programming to third-party networks and other distribution platforms, and on-air talent costs. Expenses decreased in 2019 primarily due to the absence of costs associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018Super Bowl . Other Operating and Administrative Expenses Other operating and administrative costs and expenses include salaries, employee benefits, rent and other overhead expenses. Expenses increased in 2019 primarily due to increases in overhead expenses, partially offset by decreases in employee-related costs. Advertising, Marketing and Promotion Expenses Expenses consist primarily of the costs associated with promoting our owned and acquired television programming, as well as the marketing of DVDs and costs associated with our digital properties. These expenses decreased in 2019 primarily due to decreased spending on marketing related to our sports and local programming.
46 Comcast 2019 Annual Report on Form 10-K
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Filmed Entertainment Segment Results of Operations
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue
Theatrical $ 1,469 $ 2,111 $ 2,192 (30.4 )% (3.7 )%
Content licensing 3,045 2,899 2,956 5.1 (1.9 )
Home entertainment 957 1,048 1,287 (8.7 ) (18.6 )
Other 1,022 1,094 1,160 (6.7 ) (5.7 )
Total revenue 6,493 7,152 7,595 (9.2 ) (5.8 )
Operating costs and expenses
Programming and production 2,949 3,446 3,500 (14.4 ) (1.5 )
Other operating and administrative 1,131 1,189 1,260 (4.9 ) (5.7 )
Advertising, marketing and promotion 1,580 1,783 1,559 (11.4 ) 14.3
Total operating costs and expenses 5,660 6,418 6,319 (11.8 ) 1.6
Adjusted EBITDA $ 833 $ 734 $ 1,276 13.5 % (42.5 )%
Filmed Entertainment Segment - Revenue
Theatrical
Revenue is generated from the worldwide theatrical release of our produced and
acquired films for exhibition in movie theaters and is significantly affected by
the timing of each release and the number of films we distribute, as well as
their acceptance by audiences. Theatrical revenue is also affected by the number
of exhibition screens, ticket prices, the percentage of ticket sale retention by
the exhibitors and the popularity of competing films at the time our films are
released. The success of a film in movie theaters is a significant factor in
determining the revenue a film is likely to generate in succeeding distribution
platforms.
Revenue decreased in 2019 primarily due to the strength and volume of releases
in our 2018 film slate, partially offset by the releases in our 2019 film slate.
The following key titles released in each respective fiscal year were
contributors to the drivers of changes in theatrical revenue:
Worldwide Theatrical Releases
2019 2018
Fast & Furious: Hobbs & Shaw Jurassic World: Fallen Kingdom
How to Train Your Dragon: The Hidden World Dr. Seuss' The Grinch
Secret Life of Pets 2 Mamma Mia! Here We Go Again
Us Fifty Shades Freed
Content Licensing
Revenue is generated primarily from the licensing of our produced and acquired
films to cable, broadcast and premium networks, and to subscription video on
demand services.
Revenue increased in 2019 primarily due to the timing of when content was made
available under licensing agreements.
Home Entertainment
Revenue is generated from the sale of our produced and acquired films on DVDs to
retail stores and rental kiosks, and through digital distribution services and
video on demand services provided by multichannel video providers. Revenue is
significantly affected by the timing and number of our releases and their
acceptance by consumers. Release dates are determined by several factors,
including the timing of the exhibition of a film in movie theaters, holiday
periods and the timing of competitive releases. The overall DVD market continues
to experience declines due to the maturation of the DVD format from increasing
shifts in consumer behavior toward digital distribution services and
subscription rental services, both of which generate less revenue per
transaction than DVD sales, as well as due to piracy.
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Revenue decreased in 2019 primarily due to higher sales of 2018 releases in the
prior year period, partially offset by sales of 2019 releases in the current
year period. The following key titles released in each respective fiscal year
were contributors to the drivers of changes in home entertainment revenue:
Home Entertainment Releases
2019 2018
How to Train Your Dragon:
Fifty Shades Freed
Dr. Seuss' The Grinch Mamma Mia! Here We Go Again
Other
Revenue is generated from Fandango, our movie ticketing and entertainment
business, consumer products, the production and licensing of live stage plays,
and the distribution of filmed entertainment produced by third parties.
Revenue decreased in 2019 primarily due to a decrease in revenue from consumer
products and the absence of revenue associated with the sale of a business in
2018, partially offset by an increase in revenue from our movie ticketing and
entertainment business.
Filmed Entertainment Segment - Operating Costs and Expenses
Programming and Production Costs
Expenses include the amortization of capitalized film production and acquisition
costs, residual and participation payments, and distribution expenses. Residual
payments represent amounts payable to individuals hired under collective
bargaining agreements to work on productions and are calculated based on
post-theatrical revenue. Participation payments are primarily based on film
performance and represent contingent consideration payable to creative talent,
to third parties that have entered into cofinancing agreements with us and to
other parties involved in the production of a film. The costs associated with
producing films have generally increased in recent years and may continue to
increase in the future.
Expenses decreased in 2019 due to higher amortization of film production costs
in 2018 compared to 2019.
Other Operating and Administrative Expenses
Expenses include salaries, employee benefits, rent and other overhead expenses.
Expenses decreased in 2019 primarily due to the absence of expenses associated
with the sale of a business in 2018.
Advertising, Marketing and Promotion Expenses
Expenses consist primarily of expenses associated with advertising for our
theatrical releases and the marketing of our films on DVDs and in digital
formats. We incur significant marketing expenses before and throughout the
release of a film in movie theaters. As a result, we typically incur losses on a
film prior to and during the film's exhibition in movie theaters and may not
realize profits, if any, until the film generates home entertainment and content
licensing revenue. The costs associated with marketing films have generally
increased in recent years and may continue to increase in the future.
Expenses decreased in 2019 primarily due to higher spending on the marketing of
releases in the prior year.
Theme Parks Segment Results of Operations
% Change % Change
Year ended December 31 (in millions) 2019 2018 2017 2018 to 2019 2017 to 2018
Revenue $ 5,933 $ 5,683 $ 5,443 4.4 % 4.4 %
Operating costs and expenses 3,478 3,228 3,059 7.7 5.5
Adjusted EBITDA $ 2,455 $ 2,455 $ 2,384 - % 3.0 %
Theme Parks Segment - Revenue
Revenue is generated primarily from guest spending at Universal theme parks.
Guest spending includes ticket sales and in-park spending on food, beverages and
merchandise. Guest spending depends heavily on the general environment for
travel and tourism, including consumer spending on travel and other recreational
activities.
Revenue increased in 2019 due to increases in guest spending driven by new
attractions, such as Hagrid's Magical Creatures Motorbike AdventureTM in
Orlando , and also higher attendance due, in part, to natural disasters that
negatively impacted attendance in Japan in 2018.
48 Comcast 2019 Annual Report on Form 10-K
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Theme Parks Segment - Operating Costs and Expenses Expenses consist primarily of theme park operations, including repairs and maintenance and related administrative expenses; food, beverage and merchandise costs; labor costs; and sales and marketing costs. Expenses increased in 2019 primarily due to higher costs to operate the parks and attractions. NBCUniversal Headquarters, Other and Eliminations Expenses incurred by our NBCUniversal businesses include overhead, personnel costs and costs associated with corporate initiatives. Expenses increased in 2019 primarily due to higher employee-related costs. Sky Segment Results of Operations Sky's results of operations are included in our consolidated financial statements following theOctober 9, 2018 acquisition date, impacting the comparability of results of operations from fiscal year 2018 to fiscal year 2019, and as a result, actual growth rates are not meaningful. The discussion below compares Sky's actual results for 2019 to pro forma results for 2018. The pro forma segment information includes adjustments as if the Sky transaction occurred onJanuary 1, 2017 . Pro forma data is also adjusted for the effects of acquisition accounting and eliminating the costs and expenses directly related to the transaction, but does not include adjustments for costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the Sky business sinceJanuary 1, 2017 , nor of our future results. 2019 2018 % Change 2018 to 2019 Pro Actual Forma Constant Year ended December 31 (in October 9 to Pro Forma Pro Forma Combined Currency millions) Actual December 31 Adjustments(a) Combined Growth Growth(b) Revenue Direct-to-consumer$ 15,538 $ 3,632 $ 12,445$ 16,077 (3.4 )% 1.4 % Content 1,432 304 944 1,248 14.7 19.7 Advertising 2,249 651 1,838 2,489 (9.6 ) (5.4 ) Total revenue 19,219 4,587 15,227 19,814 (3.0 ) 1.7 Operating costs and expenses Programming and production 8,865 2,137 6,685 8,822 0.5 5.4 Direct network costs 1,746 399 1,225 1,624 7.5 12.3 Other 5,509 1,359 5,115 6,474 (14.9 ) (10.8 ) Total operating costs and expenses 16,120 3,895 13,025 16,920 (4.7 ) (0.1 ) Adjusted EBITDA$ 3,099 $ 692 $ 2,202$ 2,894 7.1 % 12.2 % All percentages are calculated based on actual amounts. Minor differences may exist due to rounding. (a) Pro forma amounts include the results of operations for Sky for the period
adjustments.
(b) Constant currency growth is a non-GAAP financial measure. Refer to the
"Non-GAAP Financial Measures" section on page 51 for additional information,
including our definition and our use of constant currency, and for a
reconciliation of Sky's constant currency growth rates.
Customer Metrics
Net Additions
2019 2018 2019 2018
(in thousands) Actual Actual Actual Pro FormaTotal customer relationships 23,994 23,600 394 735
Sky customer relationships represent the number of residential retail customers that subscribe to at least one of Sky's four primary services of video, high-speed internet, voice and wireless phone service. Commercial retail customers include hotels, bars, workplaces and restaurants with an active subscription for the purpose of providing Sky services to customers. Sky reports commercial customers based on the number of commercial agreements per venue in theU.K. , a residential equivalent unit based upon the multiple of residential customer revenue inItaly and the number of active venues (bars and restaurants) or rooms (hotels and clinics) inGermany .
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2019 2018 % Change 2018 to 2019
Constant
Pro Forma Currency
Actual Pro Forma Growth Growth(a)
Average monthly direct-to-consumer
revenue per customer relationship
(a) Constant currency growth is a non-GAAP financial measure. Refer to the
"Non-GAAP Financial Measures" section on page 51 for additional information,
including our definition and our use of constant currency, and for a
reconciliation of Sky's constant currency growth rates.
Average monthly direct-to-consumer revenue per customer relationship is impacted by rate adjustments and changes in the types and levels of services received by Sky's customers. Each of Sky's services has a different contribution to Adjusted EBITDA. Sky Segment - Revenue Direct-to-Consumer Revenue is derived from subscription and transactional revenue from residential and business customers. Subscription revenue includes revenue from residential and business subscribers to video, high-speed internet, voice and wireless phone services, including OTT subscriptions and income from set-top boxes, wireless phone handset and tablet sales, installation, service calls and warranties. Transactional revenue includes the purchase of physical and digital content, OTT daily and weekly passes, and pay-per-view programming. Revenue decreased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue increased primarily due to increases in customer relationships, partially offset by decreases in average revenue per customer relationship. Content Revenue is derived from the distribution of Sky's owned television channels on third-party platforms and the licensing of owned and acquired programming to third-party video providers. Revenue increased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue increased reflecting the wholesaling of sports programming, including exclusive sports rights acquired inItaly andGermany and the monetization of Sky's slate of original programming. Advertising Revenue is derived from the sale of advertising and sponsorships across Sky's owned television channels and where it represents the sales efforts of third-party channels. Revenue decreased in 2019 compared to 2018. Excluding the impact of foreign currency, revenue decreased reflecting the impact of changes in legislation related to gambling advertisements in theU.K. andItaly that occurred in the third quarter of 2019, as well as overall market weakness. Sky Segment - Operating Costs and Expenses Programming and Production Costs Expenses primarily relate to content originating on Sky's channels. These costs include the amortization of owned and acquired programming costs, sports rights, direct production costs, residual and participation payments, production overhead, and on-air talent costs. These expenses also include the fees associated with programming distribution agreements for channels owned by third parties, which are generally based on the number of customers who are able to watch the programming and the platforms on which the content is provided. Expenses were flat in 2019 compared to 2018. Excluding the impact of foreign currency, expenses increased primarily due to an increase in the cost of sports programming contracts. Direct Network Costs Expenses primarily include costs directly related to the supply of high-speed internet and voice services, including wireless phone services, to Sky's customers. This includes call costs, monthly wholesale access fees and other variable costs associated with Sky's network. In addition, it includes the cost of mobile handsets sold to customers. Expenses increased in 2019 compared to 2018. Excluding the impact of foreign currency, expenses increased primarily due to increases in costs associated with Sky's wireless phone service as a result of increases in the number of customers receiving the service.
50 Comcast 2019 Annual Report on Form 10-K
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Other Expenses Expenses include costs related to marketing, fees paid to third-party channels where Sky represents the advertising sales efforts, subscriber management, supply chain, transmission, technology, fixed networks and general administrative costs. Expenses decreased in 2019 compared to 2018. Excluding the impact of foreign currency, expenses decreased primarily due to contract termination costs and costs related to a settlement in the prior year, and a favorable settlement in the current year. We anticipate that expenses will increase in 2020 compared to 2019 due to the launch of high-speed internet service inItaly , as well as continued acceleration of Sky Q across all of our markets. Corporate and Other Results of Operations Year ended December 31 (in % Change % Change millions) 2019 2018 2017 2018 to 2019 2017 to 2018 Revenue$ 333 $ 513 $ 864 (35.0 )% (40.7 )% Operating costs and expenses 1,393 1,772 1,973 (21.3 ) (10.2 ) Adjustment for legal settlement - (125 ) (250 ) NM NM Adjustment for Sky transaction-related costs (180 ) (355 ) - NM NM Adjusted EBITDA$ (880 ) $ (779 ) $ (859 ) (12.9 )% 9.3 % Percentage changes that are considered not meaningful are denoted with NM. Corporate and Other - Revenue Revenue primarily relates to Comcast Spectacor, which owns thePhiladelphia Flyers and theWells Fargo Center arena inPhiladelphia, Pennsylvania . Revenue decreased in 2019 primarily due to the sale of a controlling interest in our arena management-related businesses in the second quarter of 2018. Corporate and Other - Operating Costs and Expenses Expenses primarily include overhead, personnel costs, the costs of other business initiatives, such as the development of Peacock and operating costs and expenses associated with Comcast Spectacor. Expenses decreased in 2019 primarily due to costs directly related to the Sky transaction and a legal settlement in the prior year, as well as the absence of costs associated with our arena management-related businesses. The decrease was partially offset by an increase in other costs associated with the Sky transaction, including expenses resulting from the replacement of share-based compensation awards and costs related to integration activities, as well as start up costs associated with Peacock. Corporate and Other Adjusted EBITDA excludes Sky transaction-related costs and costs associated with a legal settlement. We plan to launch Peacock in 2020 and expect to incur significant costs to develop and scale our direct-to-consumer streaming service. Non-GAAP Financial Measures Consolidated Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of certain of our businesses and from intangible assets recognized in business combinations. It is also unaffected by our capital and tax structures, and by our investment activities, including the results of entities that we do not consolidate, as our management excludes these results when evaluating our operating performance. Our management and Board of Directors use this financial measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. It is also a significant performance measure in our annual incentive compensation programs. Additionally, we believe that Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of Adjusted EBITDA may not be directly comparable to similar measures used by other companies. We define Adjusted EBITDA as net income attributable toComcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related
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to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. We reconcile consolidated Adjusted EBITDA to net income attributable toComcast Corporation . This measure should not be considered a substitute for operating income (loss), net income (loss), net income (loss) attributable toComcast Corporation , or net cash provided by operating activities that we have reported in accordance with GAAP. Reconciliation from Net Income Attributable toComcast Corporation to Adjusted EBITDA Year ended December 31 (in millions) 2019 2018 2017 Net income attributable to Comcast Corporation$ 13,057 $
11,731
266 131 187
Income tax (benefit) expense 3,673 3,380 (7,569 )
Investment and other (income) loss, net (438 ) 225 (421 )
Interest expense 4,567 3,542 3,086
Depreciation 8,663 8,281 7,914
Amortization 4,290 2,736 2,216
Other operating gains - (341 ) (442 )
Adjustment for Sky transaction-related costs 180 355 -
Adjustment for legal settlement - 125 250
Adjusted EBITDA $ 34,258 $ 30,165 $ 27,956
Constant Currency
Constant currency and constant currency growth rates are non-GAAP financial
measures that present our results of operations excluding the estimated effects
of foreign currency exchange rate fluctuations. Certain of our businesses,
including Sky, have operations outside the United States that are conducted in
local currencies. As a result, the comparability of the financial results
reported in U.S. dollars is affected by changes in foreign currency exchange
rates. In our Sky segment, we use constant currency and constant currency growth
rates to evaluate the underlying performance of the business, and we believe it
is helpful for investors to present operating results on a comparable basis year
over year to evaluate its underlying performance.
Constant currency and constant currency growth rates are calculated by comparing
the prior year results adjusted to reflect the average exchange rates from the
current year rather than the actual exchange rates that were in effect during
the respective prior year.
Reconciliation of Sky Constant Currency Growth Rates
% Change
2018 to
2019 2018 2019
Constant
Year ended December 31 (in millions, except per customer Constant Currency
data) Actual Currency Growth
Revenue
Direct-to-consumer $ 15,538 15,326 1.4 %
Content 1,432 1,196 19.7
Advertising 2,249 2,376 (5.4 )
Total revenue 19,219 18,898 1.7
Operating costs and expenses
Programming and production 8,865 8,406 5.4
Direct network costs 1,746 1,555 12.3
Other 5,509 6,173 (10.8 )
Total operating costs and expenses 16,120 16,134 (0.1 )
Adjusted EBITDA $ 3,099 $ 2,764 12.2 %
Average monthly direct-to-consumer revenue per customer
relationship $ 54.41 $ 54.98 (1.0 )%
52 Comcast 2019 Annual Report on Form 10-K
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Liquidity and Capital Resources
Our businesses generate significant cash flows from operating activities. We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements, including fixed charges, through our cash flows from operating activities; existing cash, cash equivalents and investments; available borrowings under our existing credit facilities; and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion of our cash flows in repaying our debt obligations, funding our capital expenditures, investing in business opportunities and returning capital to shareholders. We maintain significant availability under our revolving credit facilities and our commercial paper programs to meet our short-term liquidity requirements. Our commercial paper programs provide a lower-cost source of borrowing to fund our short-term working capital requirements. See Note 7 to Comcast's consolidated financial statements for additional information on our revolving credit facilities. As ofDecember 31, 2019 , amounts available under our revolving credit facilities, net of amounts outstanding under our commercial paper programs and outstanding letters of credit and bank guarantees, totaled$9.2 billion . Comcast, NBCUniversal andComcast Cable are subject to the covenants and restrictions set forth in the indentures governing our public debt securities and in the credit agreements governing the Comcast revolving credit facility. The financial covenant in the credit facility pertains to leverage, which is the ratio of debt to EBITDA, as defined in the credit facility. We test for compliance with this financial covenant on an ongoing basis. As ofDecember 31, 2019 , we met this financial covenant by a significant margin. We do not expect to have to reduce debt or improve operating results in order to continue to comply with this financial covenant. In addition, theUniversal Studios Japan term loans contain certain financial covenants. As ofDecember 31, 2019 ,Universal Studios Japan was in compliance with all of these covenants. Operating Activities Components of Net Cash Provided by Operating Activities Year ended December 31 (in millions) 2019 2018
2017
Operating income$ 21,125 $ 19,009 $ 18,018 Depreciation, amortization and other operating gains 12,953 10,676
9,688
Noncash share-based compensation 1,021 826
751
Changes in operating assets and liabilities (2,335 ) (1,313 ) (546 ) Payments of interest (4,254 ) (2,897 ) (2,820 ) Payments of income taxes (3,231 ) (2,355 ) (4,057 ) Proceeds from investments and other 418 351
227
Net cash provided by operating activities$ 25,697 $ 24,297
The variance in changes in operating assets and liabilities in 2019 compared to 2018 was primarily related to the timing of film and television costs and our broadcast of the 2018Super Bowl at NBCUniversal, partially offset by the timing of collections on receivables and our broadcast of the 2018 PyeongChangOlympics . The increase in interest payments in 2019 was primarily due to higher levels of debt outstanding, including the issuance of new debt in 2018 associated with the financing of the Sky transaction. The increase in income tax payments in 2019 was primarily due to reduced tax payments in 2018 as a result of federal income tax overpayments in 2017. Investing Activities Net cash used in investing activities in 2019 consisted primarily of capital expenditures, purchases of investments, cash paid for intangible assets and the construction ofUniversal Beijing Resort . Net cash used in investing activities in 2018 consisted primarily of cash paid for acquisitions, cash paid for capital expenditures, cash paid for intangible assets and purchase of investments. Capital Expenditures Capital expenditures increased in 2019 primarily due to the acquisition of Sky in the fourth quarter of 2018, with a full year of capital expenditures for 2019. Sky capital expenditures totaled$768 million in 2019, reflecting the continued deployment of Sky Q and high-speed internet services. Capital expenditures in our NBCUniversal segments increased 19.7% to$2.1 billion in 2019 primarily due to an increase in spending at our Universal theme parks, including construction of an additional theme park inOrlando, Florida . Our most significant recurring investing activity has been capital expenditures in ourCable Communications segment, and we expect that this will continue in the future.Cable Communications' capital expenditures decreased 10.5% in 2019 compared to
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2018 primarily due to lower spending on scalable infrastructure and customer premise equipment. The table below summarizes the capital expenditures we incurred in ourCable Communications segment in 2019, 2018 and 2017. Year ended December 31 (in millions) 2019 2018 2017 Customer premise equipment$ 2,659 $ 2,917 $ 3,337 Scalable infrastructure 2,000 2,555 2,369 Line extensions 1,392 1,484 1,367 Support capital 858 767 905 Total$ 6,909 $ 7,723 $ 7,978 We expect our capital expenditures for 2020 will be focused on the continued investment in scalable infrastructure to increase network capacity in ourCable Communications segment; increased investment in line extensions for the expansion of both business services and residential; and the continued deployment of wireless gateways, our X1 platform, cloud DVR technology, Sky Q, and international OTT platforms. In addition, we expect to continue to invest in existing and new attractions at our Universal theme parks, including the additional theme park being constructed inOrlando, Florida . Capital expenditures for subsequent years will depend on numerous factors, including acquisitions, competition, changes in technology, regulatory changes, the timing and rate of deployment of new services, the capacity required for existing services, and the timing of new attractions at our theme parks. Cash Paid for Intangible Assets In 2019, cash paid for intangible assets increased primarily due to the acquisition of Sky in the fourth quarter of 2018, with a full year of expense included in our results of operations for 2019, and to a lesser extent, expenditures for software in ourCable Communications segment. Our Sky segment's cash paid for intangible assets totaled$707 million in 2019 and consisted primarily of expenditures for software development related to Sky Q and high-speed internet services. In 2018, cash paid for intangible assets consisted primarily of expenditures for software in our Cable Communication segment, and to a lesser extent, expenditures for software in our NBCUniversal segments. Acquisitions and Construction ofReal Estate Properties Acquisitions and construction of real estate properties primarily included the construction of theComcast Technology Center inPhiladelphia, Pennsylvania , which was completed in 2019. Construction ofUniversal Beijing Resort Construction ofUniversal Beijing Resort includes costs related to the construction of the Universal theme park and resort inBeijing, China . See Note 8 to Comcast's consolidated financial statements and Note 7 to NBCUniversal's consolidated financial statements for further information onUniversal Beijing Resort . Purchases of Investments Purchases of investments in 2019 and 2018 were primarily related to capital contributions to Hulu and Atairos. Other Other investing activities in 2019 were primarily related to distributions received from equity method investments. Other investing activities in 2018 were primarily related to proceeds received from the sale of an investment and proceeds from the settlement of derivative contracts. Financing Activities Net cash used in financing activities in 2019 consisted primarily of repayments of debt, dividend payments and repurchases of common stock under our employee plans, partially offset by proceeds from issuance of senior notes and a collateralized obligation. Net cash provided by financing activities in 2018 consisted primarily of proceeds from borrowings, including the financing of the Sky acquisition, partially offset by repayments of debt, repurchases of common stock under our share repurchase program and employee plans, and dividend payments. In 2019, we made debt repayments of$14.4 billion , including$6.1 billion of optional repayments of term loans due 2021 to 2023,$5.2 billion of senior notes due 2020 and$3.0 billion of senior notes due 2019. InAugust 2019 , we received proceeds of approximately$5.2 billion under a term loan facility due 2024 which is presented as a collateralized obligation, the principal amount of which is fully secured by the minimum guaranteed proceeds under the put/call provisions related to our investment in Hulu. InNovember 2019 , we issued$1.6 billion of senior notes due 2030,$1.35 billion of senior notes due 2039 and$1.8 billion of senior notes due 2050. The proceeds from the collateralized obligation and the senior notes were used to repay debt. In 2019, we made borrowings of$728 million under theUniversal Beijing Resort term loan.
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In 2019, we made net repayments of$673 million under our commercial paper programs and made net repayments of$615 million under Sky's £1 billion revolving credit facility, which was terminated inFebruary 2019 . InDecember 2019 , we announced our election to exercise our option to redeem at par$1.49 billion of senior notes due 2046 inFebruary 2020 . We have made, and may from time to time in the future make, optional repayments on our debt obligations, which may include repurchases or exchanges of our outstanding public notes and debentures, depending on various factors, such as market conditions. See Note 7 to Comcast's consolidated financial statements and Note 6 to NBCUniversal's consolidated financial statements for additional information on our financing activities. Share Repurchases and Dividends EffectiveJanuary 1, 2017 , our Board of Directors increased our share repurchase program authorization to$12 billion , which does not have an expiration date. As ofDecember 31, 2019 ,$2 billion remained under this authorization. Under the authorization, we may repurchase shares in the open market or in private transactions. We have paused our share repurchase program in order to accelerate the reduction of indebtedness we incurred in connection with the acquisition of Sky, and no common shares were repurchased in 2019 under the authorization. Under our share repurchase program authorization, we repurchased a total of 140 million shares of Class A common stock for$5.0 billion in 2018, and 131 million shares of Class A Common stock for$5.0 billion in 2017. Our Board of Directors declared quarterly dividends totaling$3.9 billion in 2019. We paid dividends of$3.7 billion in 2019. InJanuary 2020 , our Board of Directors approved a 10% increase in our dividend to$0.92 per share on an annualized basis. We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors. The chart below summarizes our dividends paid in 2019, 2018 and 2017. In addition, we paid$504 million and$320 million in 2019 and 2018, respectively, related to employee taxes associated with the administration of our share-based compensation plans. Dividends Paid (in billions)
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Contractual Obligations
Payment Due by Period
As of
Years 4-5 More than 5 Debt obligations(a)$ 103,100 $ 4,274 $ 14,535 $ 14,362 $ 69,929 Collateralized obligation(a)(b) 5,166 - - 5,166 - Capital lease obligations 790 181 171 61 377 Operating lease obligations 5,626 877 1,460 1,046 2,243 Purchase obligations(c) 66,559 23,902 17,571 9,200 15,886 Other long-term liabilities reflected on the balance sheet(d) 6,493 2,011 1,353 1,044 2,085 Total(e)(f)$ 187,734 $ 31,245 $ 35,090 $ 30,879 $ 90,520
Refer to Note 7 and Note 17 to Comcast's consolidated financial statements. (a) Excludes interest payments.
(b) Collateralized obligation relates to a
principal amount of which is fully secured by the minimum guaranteed proceeds
under the put/call provisions related to our investment in Hulu. See Note 10
to Comcast's consolidated financial statements.
(c) Purchase obligations consist of agreements to purchase goods and services
that are legally binding on us and specify all significant terms, including
fixed or minimum quantities to be purchased and price provisions. Our
purchase obligations related to
programming contracts with cable networks and local broadcast television
stations; contracts with customer premise equipment manufacturers; contracts
with communications vendors and multichannel video providers for which we
provide advertising sales representation; contracts to acquire handsets and
other equipment; and other contracts entered into in the normal course of
business.
amounts payable under fixed or minimum guaranteed commitments and do not
represent the total fees that are expected to be paid under programming
contracts, which we expect to be significantly higher because these contracts
are generally based on the number of subscribers receiving the programming.
Our purchase obligations related to NBCUniversal and Sky include commitments
to acquire film and television programming, and broadcast rights relating to
sporting events, such as the
creative talent agreements, including obligations to actors, producers and
television personalities, and various other television commitments. Purchase
obligations do not include contracts with immaterial future commitments.
(d) Other long-term liabilities reflected on the balance sheet consist primarily
of mandatorily redeemable subsidiary preferred shares; deferred compensation
obligations; and postretirement, pension and postemployment benefit
obligations. A contractual obligation with a carrying value of
is not included in the table above because it is uncertain if the arrangement
will be settled. The contractual obligation involves an interest held by a
third party in the revenue of certain theme parks. The arrangement provides
the counterparty with the right to periodic payments associated with current
period revenue and, beginning in
NBCUniversal to purchase the interest for cash in an amount based on a
contractual formula. The contractual formula is based on an average of
specified historical theme park revenue at the time of exercise, which amount
could be significantly higher than the carrying value. As of
2019, the value of the contractual obligation was
inputs to the contractual formula as of that date. See Note 17 to Comcast's
consolidated financial statements for additional information related to this
arrangement. Liabilities for uncertain tax positions of
associated interest and penalties are not included in the table above because
it is uncertain if or when these amounts will become payable. Our total
recorded liability of
are also not included in the table above because we cannot make a reliable
estimate of the period in which these obligations will be settled.
(e) Our contractual obligations do not include our commitment to invest up to
billion at any one time as an investor in Atairos due to our inability to
estimate the timing of this funding. As of
commitment is
date (see Note 10 to Comcast's consolidated financial statements).
(f) Total contractual obligations are made up of the following components.
(in millions)
Liabilities recorded on the balance sheet
$ 187,734
Off-Balance Sheet Arrangements
As ofDecember 31, 2019 , we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. Recent Accounting Pronouncements
See Note 9 to Comcast's consolidated financial statements and Note 8 to NBCUniversal's consolidated financial statements for additional information related to recent accounting pronouncements, including the impact of the adoption of the updated accounting guidance related to leases.
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Critical Accounting Judgments and Estimates
The preparation of our consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe our judgments and related estimates associated with the valuation and impairment testing of goodwill and cable franchise rights, the accounting for film and television costs, and the valuation of acquisition-related assets and liabilities are critical in the preparation of our consolidated financial statements. Management has discussed the development and selection of these critical accounting judgments and estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosures relating to them, which are presented below. See Notes 4, 8 and 12 to Comcast's consolidated financial statements. Valuation and Impairment Testing ofGoodwill and Cable Franchise Rights We assess the recoverability of our goodwill and indefinite-lived intangible assets, including cable franchise rights, annually, or more frequently whenever events or substantive changes in circumstances indicate that the assets might be impaired. The assessment of recoverability may first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit or an indefinite-lived intangible asset is less than its carrying amount. A quantitative assessment is performed if the qualitative assessment results in a more-likely-than-not determination or if a qualitative assessment is not performed.Goodwill Goodwill results from business combinations and represents the excess amount of the consideration paid over the identifiable assets and liabilities recorded in the acquisition. We test goodwill for impairment at the reporting unit level and have concluded that our reporting units are generally the same as our reportable segments. We evaluate the determination of our reporting units periodically or whenever events or substantive changes in circumstances occur. When performing a quantitative assessment, we estimate the fair value of our reporting units primarily based on a discounted cash flow analysis that involves significant judgment, including market participant estimates of future cash flows expected to be generated by the business and the selection of discount rates. When analyzing the fair values indicated under discounted cash flow models, we also consider multiples of Adjusted EBITDA generated by the underlying assets, current market transactions and profitability information. We performed a qualitative assessment for our reporting units in 2019. This assessment considered changes in our projected future cash flows and discount rates, recent market transactions and overall macroeconomic conditions. Based on this assessment, we concluded that it was more likely than not that the estimated fair values of our reporting units were higher than their carrying values and that the performance of a quantitative impairment test was not required. Assets and liabilities resulting from a business combination are initially recorded at fair value and the risk of goodwill impairment is reduced as the value of the businesses in a reporting unit increases and as the carrying value of the reporting unit decreases due to the amortization of the historical cost of acquired long-lived assets over time.Goodwill in ourCable Communications segment and our NBCUniversal segments has resulted from the combination of legacy businesses and newly acquired businesses and as a result, the fair values of the reporting units are significantly in excess of the respective carrying values. The goodwill in our Sky segment resulted from our acquisition of Sky in the fourth quarter of 2018. Given this was a recent transaction, the fair value is in close proximity to the carrying value of the Sky reporting unit. Changes in market conditions, laws and regulations, and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an impairment charge. Cable Franchise Rights Our cable franchise rights assets result from agreements we have with state and local governments that allow us to construct and operate a cable business within a specified geographic area. The value of a franchise is derived from the economic benefits we receive from the right to solicit new customers and to market additional services in a particular service area. The amounts we record for cable franchise rights are primarily a result of cable system acquisitions. Typically when we acquire a cable system, the most significant asset we record is the value of the cable franchise rights. Often these cable system acquisitions include multiple franchise areas. We currently serve approximately 6,400 franchise areas inthe United States . We have concluded that our cable franchise rights have an indefinite useful life since there are no legal, regulatory, contractual, competitive, economic or other factors which limit the period over which these rights will contribute to our cash flows. Accordingly, we do not amortize our cable franchise rights.
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For purposes of our impairment testing, we have grouped the recorded values of our various cable franchise rights into our threeCable Communications divisions or units of account. We evaluate the unit of account periodically to ensure our impairment testing is performed at an appropriate level. When performing a quantitative assessment, we estimate the fair value of our cable franchise rights primarily based on a discounted cash flow analysis that involves significant judgment, including the estimate of future cash flows and the selection of discount rates. When analyzing the fair values indicated under the discounted cash flow models, we also consider multiples of Adjusted EBITDA generated by the underlying assets, current market transactions and profitability information. In 2019, we performed a qualitative assessment of our cable franchise rights. At the time of our previous quantitative assessment in 2018, the estimated fair values of our franchise rights exceeded the carrying value of the Northeast, Central and West divisions by 29%, 46% and 58%, respectively. We also considered various factors that would affect the estimated fair values of our cable franchise rights in our qualitative assessment, including changes in our projected future cash flows associated with ourCable Communications segment; market transactions and macroeconomic conditions; discount rates; and changes in our market capitalization. Based on this assessment, we concluded that it was more likely than not that the estimated fair values of our cable franchise rights were higher than the carrying values and that the performance of a quantitative impairment test was not required. Changes in market conditions, laws and regulations and key assumptions made in future quantitative assessments, including expected cash flows, competitive factors and discount rates, could negatively impact the results of future impairment testing and could result in the recognition of an impairment charge. Film and Television Costs We capitalize film and television production costs, including direct costs, production overhead, print costs, development costs and interest. We amortize capitalized film and television production costs, including acquired libraries, and accrue costs associated with participation and residual payments to programming and production expenses. We generally record the amortization and the accrued costs using the individual film forecast computation method, which amortizes the costs using the ratio of the current period's revenue to estimated total remaining revenue from all sources ("ultimate revenue"). Estimates of ultimate revenue have a significant impact on how quickly capitalized costs are amortized and, therefore, are updated regularly. Our estimates of ultimate revenue for films generally include revenue from all sources that are expected to be earned within 10 years from the date of a film's initial release. These estimates are based on the historical performance of similar content, as well as factors unique to the content itself. The most sensitive factor affecting our estimate of ultimate revenue for a film intended for theatrical release is the film's theatrical performance, as subsequent revenue from the licensing and sale of a film has historically exhibited a high correlation to its theatrical performance. Upon a film's release, our estimates of revenue from succeeding markets, including from content licensing across multiple platforms and home entertainment sales, are revised based on historical relationships and an analysis of current market trends. With respect to television series or other owned television programming, the most sensitive factor affecting our estimate of ultimate revenue is whether the series can be successfully licensed beyond its initial license. Initial estimates of ultimate revenue are limited to the amount of revenue contracted for each episode under the initial license. Once it is determined that a television series or other owned television programming can be licensed for subsequent platforms, revenue estimates for these platforms, such asU.S. and international syndication, home entertainment, and other distribution platforms, are included in ultimate revenue. Revenue estimates for produced episodes include revenue expected to be earned within 10 years of delivery of the initial episode or, if still in production, 5 years from the delivery of the most recent episode, if later. We capitalize the costs of programming rights for content that we license but do not own at the earlier of when payments are made for the programming or when the license period begins and the content is made available for use. We amortize capitalized programming costs as the associated programs are broadcast. We recognize the costs of multiyear, live-event sports programming rights as the rights are utilized over the contract term based on estimated relative value. Estimated relative value is generally based on the ratio of the current period revenue to the estimated ultimate revenue or the terms of the contract. Advance payments for rights to multiyear, live-event sports programming are included in programming rights. Capitalized film and television costs are subject to impairment testing when certain triggering events are identified. If the fair value of a production were to fall below its unamortized cost, we would record an adjustment for the amount by which the unamortized capitalized costs exceed the production's fair value. The fair value assessment is generally based on estimated future discounted cash flows, which are supported by our internal forecasts. Adjustments to capitalized film production costs were not material in any of the periods presented.
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Fair Value of Acquisition-Related Assets and Liabilities We allocate the purchase price of acquired businesses to tangible and intangible assets and liabilities based on their estimated fair values. In determining fair value, management is required to make estimates and assumptions that affect the recorded amounts. Management's estimates of fair value are based on assumptions believed to be reasonable but that are inherently uncertain. As part of the estimation process, third-party valuation specialists are engaged to assist in the valuation of certain of these assets and liabilities. Our judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives and depreciation and amortization methods, have a material impact on our consolidated financial statements. For instance, the determination of asset lives impacts our results of operations as different types of assets have different useful lives and certain assets may be considered to have indefinite useful lives. Intangible Assets Intangible assets primarily consist of our estimates of fair value for finite-lived customer relationships and indefinite-lived trade names. Customer relationships were valued using a discounted cash flow analysis that involves significant judgment, including the estimate of future cash flows and the selection of discount rates. This measure of fair value also requires considerable judgments about future events, including attrition, contract renewal estimates and technology changes. In determining the estimated lives and method of amortization for finite-lived intangibles, we use a method and life that closely follows the undiscounted cash flows over the estimated life of the asset. Trade names were valued using the relief-from-royalty method, a form of the income approach. This measure of fair value requires considerable judgment about the value a market participant would be willing to pay in order to achieve the benefits associated with the trade name. Property and Equipment Property and equipment includes customer premise equipment as well as network assets, real estate, and other machinery and equipment. Property and equipment was valued using the reproduction and replacement cost approaches as well as a cost approach for real estate. The reproduction and replacement cost approaches measure the value of an asset by estimating the cost to acquire or construct comparable assets and adjust for the age and condition of the asset. The cost approach measures the value of real estate through an evaluation of recent, comparable transactions or current listings of available properties. Contractual Obligations Contractual obligations were adjusted to market rates using a combination of discounted cash flows and market assumptions, when available. Item 7A: Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Management We maintain a mix of fixed-rate and variable-rate debt and we are exposed to the market risk of adverse changes in interest rates. In order to manage the cost and volatility relating to the interest cost of our outstanding debt, we enter into various interest rate risk management derivative transactions in accordance with our policy. We monitor our exposure to the risk of adverse changes in interest rates through the use of techniques that include market valuation and sensitivity analyses. We do not engage in any speculative or leveraged derivative transactions. Our interest rate derivative financial instruments, which primarily include cross currency swaps, represent an integral part of our interest rate risk management program. These cross currency swaps effectively change our current fixed interest rates to different fixed interest rates. The effect of our interest rate derivative financial instruments to our consolidated interest expense was a decrease of$49 million in 2019, an increase of$2 million in 2018, and a decrease of$5 million in 2017. The effect of NBCUniversal's interest rate derivative financial instruments was not material to NBCUniversal's consolidated financial statements for any period presented. Interest rate derivative financial instruments may have a significant effect on consolidated interest expense in the future. The table below summarizes as ofDecember 31, 2019 by contractual year of maturity the principal amount of our debt, effective rates, and fair values subject to interest rate risk maintained by us.
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Estimated
Fair Value as of
(in millions) 2020 2021 2022 2023 2024 Thereafter Total December 31, 2019
Debt
Fixed rate debt $ 2,267 $ 5,801 $ 3,735 $ 3,839 $ 6,226 $ 69,020 $ 90,888 $ 102,819
Average interest rate 4.4 % 3.2 % 4.9 % 2.6 % 3.3 %
4.3 % 4.1 %
Variable rate debt $ 2,188 $ 3,324 $ 1,847 $ 3,824 $ 533 $ 1,286 $ 13,002 $ 13,023
Average interest rate 1.4 % 1.9 % 0.8 % 1.8 % 2.7 % 4.4 % 1.9 %
The average interest rates on our debt in the table above reflect the effects of
our derivative financial instruments. We estimate interest rates on variable
rate debt and swaps using the relevant average implied forward rates through the
year of maturity based on the yield curve in effect on December 31, 2019 , plus
the applicable borrowing margin.
Additionally, we have a $5.2 billion variable rate term loan presented
separately as a collateralized obligation that will mature in March 2024 . We
entered into a series of variable-to-fixed rate interest rate swaps on $3.6
billion of this term loan with average pay rate and average receive rate related
to these interest rate swaps of 1.23% and 1.80% as of December 31, 2019 and
2018, respectively. As of December 31, 2019 , the estimated fair value of the
term loan was $5.2 billion and the estimated fair value of the related interest
rate swaps was a net asset of $34 million .
See Notes 1, 7 and 10 to Comcast's and Notes 1 and 9 to NBCUniversal's
consolidated financial statements for additional information on our derivative
instruments and hedging activities.
Foreign Exchange Risk Management
We have significant operations in a number of countries outside the United
States through Sky and NBCUniversal, and certain of our operations are conducted
in foreign currencies. The value of these currencies fluctuates relative to the
U.S. dollar. These changes could adversely affect the U.S. dollar equivalent
value of our non-U.S. dollar revenue and operating costs and expenses, which
could negatively affect our business, financial condition and results of
operations in a given period or in specific territories.
As part of our overall strategy to manage the level of exposure to the risk of
foreign exchange rate fluctuations, we enter into derivative financial
instruments related to a significant portion of our foreign currency exposure
for transactions denominated in other than the functional currency. We enter
into foreign currency forward contracts that change in value as currency
exchange rates fluctuate to protect the functional currency equivalent value of
non-functional currency denominated assets, liabilities, commitments, and
forecasted non-functional currency revenue and expenses. In accordance with our
policy, we hedge forecasted foreign currency transactions for periods generally
not to exceed 30 months. As of December 31, 2019 and 2018, we had foreign
exchange contracts on transactions other than debt with a total notional value
of $6.3 billion and $5.8 billion , respectively, including contracts at
NBCUniversal of $1.4 billion and $1.2 billion , respectively. As of December 31,
2019 and 2018, the aggregate estimated fair value of these foreign exchange
contracts was not material.
We use cross-currency swaps as cash flow hedges for foreign currency denominated
debt obligations when those obligations are denominated in a currency other than
the functional currency. Cross-currency swaps effectively convert foreign
currency denominated debt to debt denominated in the functional currency, which
hedge currency exchange risks associated with foreign currency denominated cash
flows such as interest and principal debt repayments. As of both December 31,
2019 and 2018, we had cross-currency swaps designated as cash flow hedges on
$3.7 billion of our foreign currency denominated debt. As of December 31, 2019
and 2018, the aggregate estimated fair values of cross-currency swaps designated
as cash flow hedges were a net asset of $373 million and $399 million ,
respectively.
We are also exposed to foreign exchange risk on the consolidation of our foreign
operations. We have foreign currency denominated debt and use cross-currency
swaps to hedge our net investments in certain of these subsidiaries. Transaction
gains and losses resulting from currency movements on debt and changes in fair
value of cross-currency swaps designated as net investment hedges are recorded
within the currency translation adjustments component of accumulated other
comprehensive income (loss). The aggregate amount of our net investment in
foreign subsidiaries that have been hedged using cross-currency swaps and
foreign currency denominated debt was $14.0 billion and $15.6 billion , as of
December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, the
aggregate estimated fair value of the cross-currency swaps was a net liability
of $373 million and $587 million , respectively. As of December 31, 2019 and
2018, there were pre-tax cumulative translation gains of $339 million and
pre-tax cumulative translation losses of $4 million , respectively, related to
these net investment hedges recorded in accumulated other comprehensive income
(loss).
We have analyzed our foreign currency exposure related to our foreign operations
as of December 31, 2019 , including our hedging contracts, to identify assets and
liabilities denominated in a currency other than their functional currency. For
those assets and
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liabilities, we then evaluated the effect of a hypothetical 10% shift in
currency exchange rates, inclusive of the effects of derivatives. The results of
our analysis indicate that such a shift in exchange rates would not have a
material impact on our 2019 net income attributable to
We manage the credit risks associated with our derivative financial instruments through diversification and the evaluation and monitoring of the creditworthiness of counterparties. Although we may be exposed to losses in the event of nonperformance by counterparties, we do not expect such losses, if any, to be significant. We have agreements with certain counterparties that include collateral provisions. These provisions require a party with an aggregate unrealized loss position in excess of certain thresholds to post cash collateral for the amount in excess of the threshold. The threshold levels in our collateral agreements are based on our and the counterparty's credit ratings. As ofDecember 31, 2019 and 2018, we were not required to post collateral under the terms of these agreements, nor did we hold any collateral under the terms of these agreements.
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