NBCUniversal CEO Burke says cable channels face challenges

Media companies’ most reliable cash cow -- their clusters of cable TV channels -- could be headed for some rough terrain.

On Thursday, NBCUniversal Chief Executive Steve Burke warned Wall Street not to expect cable TV channels to produce the same fat profits as they have during the last five years or so.

Since 2008, cable channels have generated among the highest margins in the business. The consistent cable programming profits boosted media companies’ earnings even when their big-ticket movies bombed at the box office, and their broadcast TV shows nose-dived in the ratings.

NBCUniversal, in particular, was particularly dependent on its portfolio of cable channels -- including USA Network, Bravo, Syfy, CNBC and MSNBC -- during the lean years after the U.S. financial crisis when General Electric owned the company.

Shifts in consumer behavior, Burke said, are beginning to crimp cable programming ratings -- and profits.

“It’s going to be more and more challenging,” Burke said of the cable programming business during Comcast’s third-quarter earnings call.

“People have more options to watch quality, professionally produced video than ever before, and they are using those options – whether it is DVR, Netflix or Hulu,” Burke said.

This summer, for the first time in several years, cable TV channels collectively took in less money in advertising commitments for the upcoming TV season than during the previous year.

Cable programmers accepted commitments totaling $9.62 billion, according to a tally released Thursday by the Cabletelevision Advertising Bureau. That is a $577 million, or 6%, drop from the previous summer, when cable ad commitments topped $10.2 billion.

Several factors contributed to the decline: Big cable channels have been generating lower ratings this year; advertisers are waiting to spend some of their dollars; and in some cases, advertisers are shifting more of their dollars to digital media.

“You are seeing a pressure on traditional ratings, in both broadcast, which has been going on for a while, and now cable,” Burke said. “That competition, combined with new technology, is making it harder and harder to deliver the ratings that we’ve all been used to.”

Ratings giant Nielsen has struggled to accurately measure TV viewership on computers and mobile devices. Nielsen also has faced challenges recruiting younger and more affluent families to participate in their audience panels.

Adding to the woes, cable channels stock their schedules with reruns of network hits. But those syndicated shows are not performing like they once did, putting more pressure on Hollywood production studios.

“It is unreasonable to assume the ratings for those channels are going to be the same,” Burke said.

In another shift, Burke said his company’s flagship cable channel, USA Network, was altering its programming format.

USA in recent years established itself as a leader in original cable programming with its “blue sky” procedural dramas that were known for bright colors, sunny locales and pleasant characters.

But USA is developing some darker, edgier serialized dramas that NBCUniversal hopes to also sell to streaming services such as Netflix, Hulu and Amazon.com.

Program sales to streaming services is one area of growth, generating “hundreds of millions of dollars” for NBCUniversal in recent years, Burke said.

For the quarter that ended Sept. 30, NBCUniversal’s cable unit still was the media company’s biggest revenue engine, generating $2.26 billion in sales. That marked an increase of less than 1%.

Operating cash flow inched up nearly 2% to $868 million.

Follow me on Twitter: @MegJamesLAT