After 50 years, Comcast still looks forward

Roberts father and son , with the iconic Billy Penn atop City Hall. Now, their Comcast Center towers.
Roberts father and son , with the iconic Billy Penn atop City Hall. Now, their Comcast Center towers.
Posted: November 11, 2013

With Comcast Corp. revenue topping $60 billion and a cast of new, high-powered friends, among them golfing buddy President Obama, media mogul Brian L. Roberts remains fiercely driven.

In an expansive and relaxed interview on the occasion of the 50th anniversary of Comcast, Roberts, 54 and chief executive officer since 2002, said his zeal for business and his leadership of the nation's largest cable-TV company remain undiminished.

The family-controlled company's momentum, Roberts believes, can be sustained in the coming years, as Comcast emerges from its legacy cable-TV operation as a different enterprise.

"We're not looking backward," Roberts said. "Every minute we are celebrating, the Googles of the world are moving forward. We are thinking about what's next for employees, consumers, the city."

Someone described Comcast, a contraction of communications and broadcasting, as a 50-year-old start-up. "That's the vibe I want," Roberts said. "What has been amazing about Comcast is our ability to reinvent ourselves."

The company launched as a "community television" provider, taking TV signals off the air and delivering them to rural homes in the 1960s. Now it is developing a WiFi service to convert mobile phones and tablets into mini-TVs with high-definition color inside millions of subscriber homes.

One of the all-important technological advances for the company is unfolding now, Roberts said, with Comcast's new X-class channel guides. Beginning with the X1 and soon-to-be-released X2, the guides connect home TVs directly into Comcast's "cloud" computers, allowing the company to improve its channel guide without technician service calls to replace set-top boxes. The guides will add apps such as weather forecasts and Facebook, and personalize TVs to an individual's entertainment interests.

Comcast believes its X1 platform, which was mostly developed in Philadelphia, could be adopted by other cable-TV companies.

And Comcast is investing hundreds of millions of dollars into NBCUniversal theme parks in Florida and California, and billions of dollars into TV and cable-TV sports rights.

Tupelo to tomorrow

It was Nov. 13, 1963, nine days before the assassination of President John F. Kennedy, that Ralph J. Roberts, now 93 years old, purchased a 1,500-subscriber cable system in Tupelo, Miss., and two unbuilt Mississippi cable-TV franchises, in Laurel and West Point, for about $250,000. The legal papers were signed at a Philadelphia law firm on Chestnut Street.

Comcast won't celebrate the anniversary internally Wednesday because of a scheduling conflict. Instead it will be marked Nov. 20, when the corporation offers its 129,000 employees free breakfast or lunch. Executives will serve free breakfast at Ralph's Café in the company's Center City tower. Executives will participate in a live video broadcast via closed-circuit television from corporate offices in Philadelphia, the Silicon Valley, New York, and the Comcast-owned Telemundo studios in the Miami area.

There is a lot to talk about. Comcast, now one of the nation's largest companies, has its fans and detractors. The company's value on Wall Street is well more than $100 billion, and its human resources departments process more than one million job applications a year.

Comcast has seemingly outflanked two big perceived threats to its TV business in recent years: wireless and Internet video. Reid Hastings, the chief executive officer of Netflix, the giant Internet video provider, acknowledged in a recent conference call with Wall Street analysts that Netflix has had "zero" impact on "cord-cutting," or moving subscribers off their cable-TV service.

Cable division head Neil Smit has said Comcast is transforming itself into a "software company" from a construction company that strung tens of thousands of miles of fiber-optic and telecommunications lines under roads or on telephone poles across most of the nation. The cable division itself, the focus of customer ire only a few years ago, has improved its operations with self-install kits and modestly improving customer-satisfaction metrics.

The Philadelphia region and beyond is watching: Can Comcast keep its momentum for a 10 more years, or 50 years? Is it making the smart moves to do so? Can it fend off Washington lawmakers who might want to regulate it more rigidly? Can it navigate the treacherous telecommunications industry as it competes with Verizon Communications Inc., AT&T Inc., DirecTV, Dish Network, Google, and others? Roberts says he hopes so.

Major corporations have practically abandoned Philadelphia as a headquarters town over the last several decades. Comcast at 50, meanwhile, is the city's claim to 21st-century economic modernity and viability.

"We trade on that consciously," said Randall Miller, professor at St. Joseph's University and observer of local civic affairs. "We got hospitals and universities, and we got Comcast."

From 'fast follower' to leader

Comcast's future was never a foregone conclusion - not in the 1960s, when it was launched to augment over-the-air broadcast TV, nor in the 1990s, when it faced an aging network infrastructure, cable-TV rate regulation, new banking rules, and satellite-TV competitors. But it was during the 1990s that Comcast and other cable companies spent tens of billions of dollars in network upgrades for the Internet, an investment now paying dividends.

"Everybody used to think of the cable industry as a relic of old media," said Craig Moffett, one of the nation's leading telecommunications analysts. "But that was not what it was. The industry was building a digital video platform, and cable companies have benefited more from that platform than any other companies in the world."

Over the next two years, Roberts noted in the recent interview, the number of Internet subscribers, people who pay monthly for Comcast's high-speed broadband service, will likely surpass the number of cable-TV subscribers.

"We are not a cable company anymore," Roberts said.

The number of Comcast Internet subscribers, in fact, rose 64 percent over the last six years to 20.3 million in 2013 from 12.4 million in early 2007. By comparison, the number of Comcast TV customers fell by 16 percent over the same period, to 21.6 million from 25 million.

Moffett praises Comcast for going from being a "fast follower" in the cable-TV industry to "being the industry's technology leader." Comcast didn't conceive, for example, of the "triple play" package of cable TV, phone, and Internet in the mid-2000s. Comcast executives thought it was a terrible idea at first. But when it proved a success, Comcast marketed it heavily and today considers those customers part of its core business.

Moffett agrees with Roberts that Comcast's new X-class channel guides take the company to a new level. "DirecTV could claim over the last 10 years the best-available video product, and that's not true anymore," Moffett said.

But Moffett added, if there is a "big hole" in the Comcast story, it would be cable-TV rates that have risen far faster than inflation for about 15 years.

"The overriding challenge for the TV ecosystem is the out-of-control programming costs, and Comcast is in an awkward position in that its businesses are on both sides of that debate," Moffett said.

What he means is that one part of Comcast, the legacy cable business, delivers entertainment and news to its millions of TV subscribers and is expected to negotiate the lowest possible price for those channels. The other, newer part of Comcast, NBCUniversal, is one of the largest providers of news and entertainment and would like the highest possible price for its TV and cable channels.

So one side of the corporation would like the lowest possible price for entertainment channels, but the other side of Comcast is expected to seek the highest possible price for its channels.

There are "nagging suspicions" in the TV-distribution industry, Moffett said, that Comcast may not be as vigilant on holding down programming costs for TV subscribers as it would be if it did not own NBCUniversal.

Comcast purchased a controlling 51 percent interest in NBCUniversal in 2011 from General Electric after a lengthy government review. Comcast purchased the remaining 49 percent earlier this year.

Other cable operators privately express concern that Comcast "hedged its bets" with NBCUniversal, Moffett said. "If the industry does not find a way to arrest the cost spiral, the pay-TV model as we know it today will collapse under its own weight," he added.

Moffett does not believe that Comcast can grow as exuberantly over the next 20 years as it did over the previous 20. "That's not an indictment," he said. "That's just math."

Telecom Gilded Age?

Susan Crawford, professor at the Benjamin N. Cardozo School of Law at Yeshiva University in New York and a frequent Comcast critic, wrote Captive Audience: The Telecom Industry and the Monopoly Power in the New Gilded Age, which was published in 2012. She has called Comcast the "communications equivalent" of Standard Oil.

Still, Crawford said in a phone interview, she has "absolute grudging admiration" for the Philadelphia company and cracked that her book was an argument to buy Comcast stock.

"They are a beautifully managed company. They are extraordinarily adept at engaging all levels of government," Crawford said. "There is President Obama golfing with Brian Roberts in Martha's Vineyard. That's pretty good. Smooth."

She said Comcast had a "lock on their markets and their footprint. They have the ability and incentive to shape Americans' view of the world. People who understand this are concerned."

She cautioned: "Just because they are an extraordinarily successful private company does not mean that their interests align with America's. As more and more Americans come to rely on high-capacity connections for everything they do, it is troubling that for so many Americans, their only choice for a high-capacity connection is Comcast."

Choosing Philadelphia

Ed Rendell, the former Philadelphia mayor and Pennsylvania governor, said Comcast had become to Philadelphia what Coca-Cola is to Atlanta. Comcast kicks off significant wage-tax revenue for the city and is, Rendell said, the "No. 1 go-to" company for organizations looking for charitable contributions.

Comcast occupies the tallest U.S. building between New York and Chicago, has one of the largest payrolls in Philadelphia, and breathes economic life into the city's neighborhoods with its young workers. The company employs 6,000 in Philadelphia and 129,000 nationwide.

For years, the threat has been that some other city, or the suburbs, would steal Philadelphia's corporate headquarters or its well-paid employees. Now, in a remarkable turnabout, NBC employees in New York are wondering whether they will be relocated to Philadelphia as Comcast folds the content conglomerate into its corporate structure.

Comcast has confirmed that it is looking at constructing a second tower near the Comcast Center to bring 1,000 employees in leased offices around town into its "urban campus." Of a new tower, Roberts said: "I have a concept in mind of what I think we need, and if we can figure it out, we will announce it at the proper time."

Mayor Nutter calls the company "hugely important to the city. You are talking about a company with global reach. They could be anywhere, and they chose to be in Philadelphia." The prospect of the company's departing the city for the suburbs or another city has "never been a topic of conversation," Nutter said.

Miller, the St. Joe's professor, notes that Comcast is different from Philadelphia's industrial giants of years past, such as Sun Oil Co. or Rohm & Haas. These were companies with big refineries or chemical plants that shipped products around the region, country, or globe. Comcast is a more diffuse national company with significant and equally important operations in any number of large metropolitan areas - Boston, New York, Washington, Chicago, Houston, Los Angeles, and San Francisco.

"They could move anywhere," Miller said. "They don't have to be here. Comcast could just pack up its tent and move to Chicago without much hardship. In that sense, we need them more than they need us."

What's next

Comcast will roll out a new advertising slogan this month: "Welcome to What's Next." The company is excited to stream all of its television content to smartphones and tablets. This sounds easy, but it's quite complicated, explained Charles Herrin, a senior vice president of product design and development. Comcast engineers had to encode the streams so they can be received by the devices, its lawyers had to negotiate content rights, and the project team had to wait for the new X-class channel guide.

"It's a huge mistake not to embrace social media," Roberts said. "We need to stay in touch and stay relevant to young people."

Consistency of management, adapting to change, and a long-term view have been three of Comcast's corporate attributes through the decades. Ralph Roberts founded the company in 1963 and surrounded himself with two cofounding executives he trusted, Julian Brodsky and Dan Aaron.

Ralph Roberts didn't really step away as a hands-on executive until he was in his 70s. It was Brian's company when he did. So far, none of Ralph's grandsons or granddaughters has taken a job at the company. Brian is still a relatively young man and controls about one-third voting control of the company.

How long will he remain CEO?

"As long as my health holds up and the board will have me," Roberts said, tapping his knuckles on the wood table in the 52d-floor conference room. "I wouldn't know what else to do."


bfernandez@phillynews.com

215-854-5897 @bobfernandez1

|
|
|
|
|