Cable giant Comcast Corp.'s second-quarter profit increased 15% as more customers signed up for its high-speed Internet service.
The Philadelphia company added 203,000 high-speed subscribers during the April-June quarter, more than making up for losing 144,000 homes with cable TV channel subscriptions. If current trends continue, Comcast should boast more Internet customers than those paying for cable TV by the end of 2015.
Comcast's prowess providing Internet service to 21.3 million customers is helping its bottom line. But it could potentially draw a red flag with regulators weighing the company's potential $45-billon takeover of Time Warner Cable. The combined company would control 40% of the high-speed Internet market.
"Could Comcast be judged too powerful?" analyst Craig Moffett questioned.
He thinks the huge presence Comcast would have could come back to bite the company. It will especially be a sensitive area for regulators considering the flurry of proposed deals that are on the table — including AT&T's potential $49-billion acquisition of DirecTV and 21st Century Fox's interest in buying Time Warner Inc.
"All these deals create an obvious problem for policymakers," said Moffett, a principal at MoffettNathanson Research. "Media consolidation is always unpopular and all the more so now as merger mania has seemingly run amok."
Comcast's planned acquisition of Time Warner Cable "looks a little less inevitable than it once did," Moffett said.
Most observers, including Moffett, still believe that Comcast eventually will win the government's approval.
For its part, Comcast countered that its market share would not reach 40% when including the booming business of wireless Internet service. Comcast's more expansive definition, which takes in wireless Internet, would lower its potential penetration to closer to 20% of the nation.
Federal regulators are reviewing Comcast's acquisition, and could approve it early next year. If Comcast wins government approval, it would be the nation's dominant cable television and Internet service provider with nearly 30 million customers, including nearly 1.8 million in Los Angeles.
Consumer activists have decried Comcast's ambitions, arguing the acquisition would make the company too powerful as an Internet gatekeeper.
Shareholders think otherwise. The stock closed Tuesday at $54.63, up 1.5%, or 81 cents, after the company reported that profit beat analyst projections for the quarter ended June 30.
Comcast generated net income of $1.99 billion, or 76 cents a share, compared with $1.73 billion, or 65 cents in the year-earlier period. Revenue grew 3.5% to $16.84 billion.
"High-speed Internet has been a real driver," said Tuna Amobi, media and entertainment analyst with S&P Capital IQ. "This is part of the longer-term shift that we have been seeing with sustained growth in Comcast's Internet and business services division."
Amobi noted that Comcast's loss of cable TV subscribers turned out to be smaller than what analysts had been expecting. The company now has 22.5 million video subscribers.
The second quarter is typically tough for Comcast and other cable companies because college students often terminate their cable connections as they return home for the summer. However, the period marked Comcast's best second quarter in six years for customer retention.
The company's revenue engine continues to be its cable TV, Internet and phone service business, with 5.4% growth to $11 billion. Operating cash flow for that unit came in at $4.6 billion, an increase of 5.3%.
Comcast said it spent $44 million in costs associated with its proposed takeover of Time Warner Cable.
NBCUniversal posted a strong quarter, buoyed by ratings gains at the NBC broadcast network. The unit generated revenue of $6 billion, an increase of less than 1%. Operating income jumped 20% to $1.4 billion.
There was also strong revenue growth at its cable networks and increased attendance at its theme parks in Orlando, Fla., and Los Angeles.
However, film studio Universal Pictures, based in Los Angeles, turned in softer results because of a thinner film slate. Film revenue declined 15.3% to $1.18 billion. Universal Pictures mustered a hit in "Neighbors," starring Seth Rogan and Zac Efron, but the studio had tough comparisons to the year-earlier period when it was riding high from its "Fast and Furious" and "Despicable Me 2" films. Universal also had fewer releases in the quarter.
"Our focus now is on building a strong slate in 2015 and beyond," Comcast Chief Executive Brian Roberts told analysts on a conference call.
Revenue from cable networks, including USA, Bravo and E!, increased 2.6% to $2.47 billion. The broadcast unit, which includes NBC, Telemundo and local stations, generated 4.9% higher revenue to $1.81 billion. NBC finished the TV season in first place in the important advertising demographic of viewers age 18 to 49.
"The broadcast turnaround seems to be taking hold," Amobi said. "And the theme parks were steady as she goes."
Theme park revenue increased 12.8% to $615 million. More patrons visited the parks, particularly during the spring holidays. During the quarter, the unit was gearing up for the "The Wizarding World of Harry Potter" attraction in Orlando, which opened this month.Copyright © 2015, Los Angeles Times