Comcast Corp
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Comcast Corp
Earnings Call Analysis
Q2-2024 Analysis
Comcast Corp
In the second quarter, our total revenue decreased 2.7% to $29.7 billion. This decline was largely due to tough comparisons against the previous year's blockbuster film releases, such as the Super Mario Bros. Movie and Fast X, that drove unprecedented earnings. However, our Connectivity & Platforms demonstrated resilience with revenue holding steady at $20.2 billion, thanks to our strategic focus on broadband and wireless services.
Our Connectivity & Platforms segment delivered robust performance. Residential Connectivity revenue grew 6% with significant contributions from domestic broadband (3% growth), domestic wireless (17% growth), and international connectivity (14% growth). Business Services Connectivity also saw a 6% revenue growth. Notably, our ARPU for broadband increased by 3.6% this quarter, driven by strategic customer segmentation efforts. Despite intense market competition and seasonal subscriber losses, we managed to retain a substantial customer base and launched new NOW products targeting price-conscious consumers.
Our Content & Experiences segment faced challenges this quarter with a 7.5% decrease in revenue, down to $10.1 billion, and an 11% drop in EBITDA. The Theme Parks, part of this segment, saw an 11% decline in revenue and a 24% drop in EBITDA, primarily due to lower attendance at domestic parks post-COVID normalization and lack of new major attractions. Nonetheless, we remain optimistic about the long-term potential of our parks, particularly with new attractions like Donkey Kong Country in Osaka and the upcoming Epic Universe park.
Media revenue increased by 2%, and EBITDA rose by 9%, driven largely by Peacock, our streaming service which saw a 28% revenue growth. The number of our paid subscribers grew 38% year-over-year to 33 million subscribers. Despite a lack of major new content this quarter, we focused on subscriber retention, contributing to a $300 million year-over-year improvement in Peacock's EBITDA. We anticipate continued growth in Media EBITDA in the second half of the year, supported by significant upcoming content such as the Olympics and NFL games.
Our Studios segment experienced a 27% decrease in revenue and a 51% drop in EBITDA. This was affected by timing in the film slate and tough comparisons to last year's hits. Optimistically, our film slate for the latter half of the year is strong, and we expect better performance with upcoming major releases.
We generated $1.3 billion in free cash flow this quarter despite a $2 billion rise in cash taxes. Our capital spending decreased by 10% to $3.4 billion, reflecting our strategic investments in growth areas like our domestic broadband network and the Epic Universe theme park. We returned $3.4 billion to shareholders, including $2.2 billion in share repurchases—since the buyback program restarted three years ago, we've reduced our share count by 16% and returned just under $50 billion to shareholders through buybacks and dividends.
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Good morning, ladies and gentlemen, and welcome to Comcast's Second Quarter Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded.
I will now turn the call over to Executive President, Investor Relations, Ms. Marci Ryvicker. Please go ahead, Ms. Ryvicker.
Thank you, operator, and welcome, everyone. Joining us on today's call are Brian Roberts, Mike Cavanagh, Jason Armstrong and Dave Watson.
I will now refer you to Slide 2 of the presentation accompanying this call, which can also be found on our Investor Relations website and which contains our safe harbor disclaimer. This conference call may include forward-looking statements subject to certain risks and uncertainties.
In addition, during this call, we will refer to certain non-GAAP financial measures. Please see our 8-K and trending schedule issued earlier this morning for the reconciliations of these non-GAAP financial measures to GAAP.
With that, I'll turn the call over to Mike.
Thank you, Marci, and good morning, everyone. Before I hand it over to Jason, I'd like to comment on 3 key elements from the quarter: one, broadband; two, parks; and three, the NBA.
So first is broadband, where the competitive intensity that we've seen for the past several quarters and which is particularly felt in the market for price-conscious consumers remains essentially unchanged. But throughout to this period, our broadband strategy has been consistent, and we remain confident in our plan.
We are focused on generating healthy broadband revenue growth by striking the right balance between rate and volume and relying heavily on market segmentation that I'll speak to in a minute. As a result, in the second quarter, ARPU grew 3.6%, which was within our historical range of 3% to 4%.
Despite the competitiveness of the recent past, we've maintained a market-leading base of 32 million broadband customers by refining our go-to-market approach to create options that fit each of our customers' lifestyles and budgets. Providing the best products with flexibility and choice at different value points has served us extremely well for many years and remains the core of our playbook.
Of particular note this quarter, we launched our suite of NOW products, which are high-quality Internet, mobile and streaming TV offerings designed to be incredibly simple with attractive all-in pricing, with no contracts or credit checks. These are great options for the price-conscious segment and especially for those impacted by the end of the government's ACP program.
While we are pleased with our enhancement to our offerings for the price-conscious segment, the reality is that the vast majority of our customer base subscribes to more premium products, where we feel great about our market position relative to fiber, which is our true long-term competitor.
We are investing in additional network capacity, multi-gig speeds and in-home WiFi technology to capitalize on the Internet consumption trends we are seeing. One of the most important metrics we monitor is the magnitude of data traffic flowing across our network. And again, we saw a double-digit year-over-year growth this quarter, with broadband-only households consuming over 700 gigabytes of data each month. And our customers continue to take faster speeds, with around 70% of our residential subscribers receiving speeds of 500 megabits per second or higher, and 1/3 getting a gigabit or more.
These positive consumer trends play to our strengths and will only accelerate with the shift of live sports to streaming, which, together with entertainment on streaming, accounts for nearly 70% of our network traffic today.
My final thought on broadband is the importance of bundling with mobile, with 90% of Xfinity Mobile smartphone traffic traveling over our WiFi network. These 2 products work seamlessly together to benefit our customers from both the product experience and financial value standpoint.
We are very pleased with the momentum we saw in wireless this quarter, where our line additions were again above 300,000 and nicely up year-over-year. Our new converged offers resulted in better overall yield and awareness as well as higher multiline attach rates, and we are excited for some of the new mobile offers tied to the Olympics, which will be introduced to the market just in just a few days.
Now let's turn to Parks, where our results were down in both revenue and EBITDA when compared to last year's record performance, with 2/3 of the decline driven by lower attendance at our domestic parks. We attribute this to a number of factors.
First is what now appears to be a COVID recovery pull-forward of a magnitude we hadn't previously appreciated. I think it's important to zoom out and look at how this business have trended over the past few years. Going back to 2022 and 2023, Parks were clearly the early beneficiaries of substantial rebounds in tourism and travel after the pandemic, resulting in a surge in demand that contributed to us reaching record results for both of those years.
More recently, other travel options, including cruises and international tourism, given the strength of the dollar, have experienced their own surge in demand, which caused visitation rates at our parks to normalize.
The second factor affecting attendance at our domestic parks is the timing of our investments in new attractions, where we are light in Florida in advance of next year's opening of Epic and our lapping of Super Nintendo World in Hollywood is creating some headwinds for us as well.
While the Parks results are below our original expectations for the year, we still view Parks as a terrific long-term growth business for us. We couldn't be more excited about the opening of Epic Universe in 2025. As we've been releasing new details about Epic's 5 immersive worlds, the consumer reaction has been tremendous.
And recently, we opened an Epic Universe preview center in Orlando, and the foot traffic and guest enthusiasm have been off the charts. So we look forward to Epic Universe having a meaningful impact by driving incremental attendance, longer visits and higher per cap spending once the park opens in 2025.
Finally, let me talk about the NBA. Our expectation is that soon, an 11-year rights deal between ourselves and the NBA will be announced. We don't believe that the resolution of matching rights will affect the package that we expect to be awarded.
This package, which begins with the 2025-2026 season, includes: 100 NBA games each regular season across NBC and Peacock, which is more than any other media partner and more regular season games than each existing partner has under the current rights deal.
For playoffs, we will have first and second round games each year exclusively on our national platforms and 6 NBA conference final series over the course of the term of the deal, which is more playoff games on average each year than any other media partner and, exclusively for Peacock, will be approximately 50 national regular season and post-season games, including national Monday night games and double-headers.
Additional elements of the NBA package include the annual NBA All-Star Game and All-Star Saturday Night each season, the season opening,, NBA tip-off double-header each season, a special double header on the MLK holiday and select NBA games and every NBA All-Star game on Telemundo.
Beyond the NBA itself, we're excited that our package includes WNBA, where, starting in the spring of 2026, we'll have more than 50 WNBA regular season and first round playoff games each season across Peacock, NBC and USA. And we'll also have games in 7 WNBA conference semifinals and 3 WNBA final series.
For USA basketball, we will have the rights to USA men's and women's games leading up to the Olympics and FIBA World Cup. Sky Sports will air all of NBCUniversal's NBA and WNBA games in its markets. And finally, Xfinity will be the NBA and WNBA's marketing partner in the video category.
Now I'd like to take a moment to explain why we're so excited to partner with the NBA. First, it brings in a broad, diverse and youthful audience that is culturally relevant and further expands NBCUniversal's tremendous reach across broadcast and streaming. This new fan base will also allow us to create new entertainment content that will work beyond the basketball season, with exclusive opportunities for companion programming and marketing collaborations that tap into the NBA's pop culture appeal.
Second, the 9-month basketball season completes our year-round calendar for sports, which already includes the NFL, Olympics, Premier League, NASCAR, PGA Tour, Big Ten and World Cup, and our NBA package will establish must-watch Sunday, Monday and Tuesday night traditions on NBC and Peacock.
Third, we are uniquely able to drive strong value with the NBA in multiple ways, first, by growing ad sales by selling NBA ad inventory package with the rest of our marquee programming; second, by acquiring and monetizing subscribers, both on linear and Peacock; and third, by optimizing NBCUniversal programming investment across sports, entertainment and news.
The NBA's decision to partner with us is a testament to our breadth and reach, our operational excellence in sports and innovation, and our decades of experience delivering world-class content to consumers. Much like our longstanding relationships with the NFL and the Olympics, we look forward to putting the weight of our entire company behind our partnership with the NBA for decades to come.
Before I hand it over to Jason, I want to share one final thought. In just a few short days, we have the honor of kicking off the 2024 Olympic Games in Paris. This will be NBCUniversal's 18th Olympic Games as a U.S. broadcaster, dating back to 1936 when we first covered the historic even on NBC Radio. It is one of the great moments of pride for our company, and I want to thank the 3,000 people working to bring all of the action, excitement and incredible stories to our viewers across the country.
Jason, over to you.
Thanks, Mike, and good morning, everybody.
I'll start with our consolidated results on Slide 3. Total revenue decreased 2.7% to $29.7 billion. Within these results are 6 major growth drivers, including residential broadband, wireless, Business Services Connectivity, Theme Parks, streaming and premium content at our studios generated over $16 billion in revenue, well over half of our total company revenue and grew at a mid-single-digit rate over the past 12 months.
Keep in mind that in the second quarter of last year, we had one of our most successful quarterly theatrical results in our history, which included 2 of 2023's top 5 grossing films at the worldwide box office, The Super Mario Bros. Movie and Fast X and, as such, created a difficult comparison this quarter. If we exclude our Studio results, total revenue would have been consistent with the prior year.
Total EBITDA was consistent at $10.2 billion, and free cash flow was $1.3 billion. Free cash flow was impacted this quarter by higher-than-usual cash taxes, which were up $2 billion over last year's level and were impacted by a tax payment associated with our Hulu stake and other tax-related matters. As you'll recall, we received a minimum floor payment for Hulu at the end of last year.
During the second quarter, we returned $3.4 billion of capital to shareholders, including $2.2 billion in share repurchases. And over the last 12 months, we have reduced our share count by over 6%, contributing to our adjusted EPS growth of 7%.
Now let's go through our business results, starting on Slide 4 with Connectivity & Platforms. As usual, I will refer to our year-over-year growth on a constant currency basis. Revenue for total Connectivity & Platforms was consistent at $20.2 billion, as strong growth in our Connectivity businesses was offset by declines in video and voice revenue.
Residential Connectivity revenue grew 6%, comprised of 3% growth in domestic broadband, 17% growth in domestic wireless and 14% growth in international connectivity. Business Services Connectivity revenue also grew 6%.
In domestic broadband, our revenue growth was again driven by strong ARPU growth, which increased 3.6% this quarter, well within our historical range, as our team continues to effectively balance rate and volume through customer segmentation.
The environment for broadband subscribers remains intensely competitive, which, when combined with traditional negative seasonality in the second quarter, led to 120,000 subscriber losses.
Related to this, I would like to spend a minute on ACP. It has been well documented that the government ended all funding for the ACP program in June. Consistent with our approach to normal promotional roll-offs, we were proactive and prepared for this action early in the quarter, communicating with our ACP customer base and migrating many of these customers to different products and price levels. While this had a bit of an impact on ARPU in the quarter, we still feel very comfortable that we will remain well within our historical 3% to 4% ARPU growth range for the remainder of the year.
In terms of subscribers, we saw minimal impact from the end of ACP this quarter. Looking ahead, we expect the bulk of our ACP-related subscriber activity to happen in the third quarter, including losses associated with nonpay churn. While it's too early to assess the full impact, we are encouraged with the response we see from these customers to date.
Outside of ACP, we are seeing the same level of competitive intensity and expect an offset from seasonal tailwinds as the third quarter is typically a seasonally stronger quarter compared to the second.
Turning to domestic wireless. Revenue growth was mainly driven by service revenue, with some modest growth in equipment revenue this quarter as well. Customer lines increased 20% year-over-year, reaching 7.2 million in total, including 322,000 line additions this quarter.
The acceleration in line additions compared to the prior several quarters was driven by some early success, with new pricing plans launched in April targeted at multiline customers as well as continued traction with our buy-one-get-one line offer. And you will see us continue to test new ways to capitalize on the significant opportunities we see ahead for us in wireless in terms of both increasing the penetration of our domestic residential broadband customer base, which currently sits at 12% as well as selling additional lines per account.
Wireless continues to be a key growth area for us and one in which we are striking the right balance in delivering exceptional value to our customers, bundling to enhance our opportunities in broadband and continuing to drive profitability higher.
International connectivity revenue was mainly driven by broadband, which accounts for over 2/3 of our international revenue and grew at a mid-teens rate, reflecting strong ARPU growth. The remainder is wireless, which grew due to both additional lines and ARPU growth, but at a lower rate due to the variability in handset sales.
Business Services Connectivity revenue growth of 6% reflects steady growth in small business, with even faster growth in mid-market and enterprise. While the SMB market remains competitive, we are competing aggressively by delivering best-in-class products and service and growing revenue through ARPU growth, driven by higher adoption of additional products that expand our relationship with our SMB customers, like mobile, SecurityEdge, Connection Pro and WiFi Pro, as well as through targeted rate opportunities.
At the mid-market and enterprise level, our revenue growth is primarily fueled by the increase in our customers, driven by the investments we have made in this space to build sales and fulfillment as well as expanding our capabilities in managed services, wide-area networking and cybersecurity.
Finally, video and other revenue declined in the quarter. The high single-digit decline in our video revenue is a function of continued customer losses, coupled with slower domestic ARPU growth versus last year, and the lower other revenue mainly reflects the continued customer losses in wireline voice.
Connectivity & Platforms total EBITDA increased 1.6%, with margin up 90 basis points, reflecting a decline in overall expenses driven by the continued mix shift to our higher-margin Connectivity businesses, coupled with ongoing expense management.
As I have previously mentioned in prior quarters and think is worth noting here is that the only expense line item that had a meaningful increase over the last year was direct product costs, which are success based and tied to growth in our Connectivity businesses.
Breaking out our Connectivity & Platform's EBITDA results further. Residential EBITDA increased 1.1%, with margins improving 100 basis points to 39.9%. And Business Services EBITDA growth rebounded nicely this quarter, returning to a mid-single-digit rate, while margin declined 70 basis points to 57%, reflecting the investments in sales and fulfillment we are making to scale in the mid-market and enterprise space.
Now let's turn to Content & Experiences on Slide 5. Revenue decreased 7.5% to $10.1 billion, and EBITDA decreased 11% to $1.9 million. I'll detail these results further, starting with Theme Parks. Revenue decreased 11%, and EBITDA declined 24% in the quarter compared to last year's record level for a second quarter.
As Mike highlighted, 2/3 of the decline was driven by our domestic parks due to lower attendance compared to last year, largely reflecting 2 factors: normalization in demand post-COVID, combined with the timing of our domestic attractions. This is the first full quarter comparison to the highly successful opening of Super Nintendo World in Hollywood early last year, which drove that park's record results in the second quarter of last year.
And we haven't launched a major new attraction in Orlando since VelociCoaster in 2021 in anticipation of Epic Universe, which we originally planned to open this year.
On the international side, underlying growth at our park in Osaka continues, partially offset by foreign currency as well as some softness at Universal Beijing due to the local macroeconomic environment.
To reiterate, we couldn't be more bullish about the long-term trajectory of Parks. In addition to Epic Universe, we have a fantastic slate of new attractions and experiences on the horizon. Donkey Kong Country in Osaka and a Fast & Furious roller coaster in Hollywood, as well as the Universal Horror Unleashed in Las Vegas and our Universal Kids Resort coming to Texas.
Now let's turn to Media, where revenue increased 2% and EBITDA was up 9% driven by Peacock. Peacock revenue grew 28%, with 9% growth in advertising and 61% growth in distribution, driven by the 38% year-over-year increase in our paid subscriber base to 33 million.
On a sequential basis, we held subscribers fairly steady. As we noted during our last earnings call, our focus in the second quarter was on subscriber retention due to the lack of new tentpole content in the quarter. This timing and content also contributed to some relief in our expenses, which helped drive year-over-year Peacock EBITDA improvement of $300 million.
We are pleased with the progress we are making, with Media EBITDA for the first half of the year up nearly 3%, as the improvement at Peacock outweighed the pressure at our TV networks. As we look to the second half of the year, we expect continued modest growth in overall Media EBITDA, but with some variation in the degree of year-over-year improvement between the quarters driven by the timing of sports, entertainment launches and marketing.
Beginning in the third quarter, we are loaded with incremental content, including the Olympics, Sunday Night Football, which will have an additional game fall into the third quarter, as well as Peacock's exclusive NFL game from Brazil and the return of Big Ten. Given the timing of this content, EBITDA growth will be skewed to the fourth quarter.
At Studios, revenue decreased 27% and EBITDA decreased 51%, reflecting both the timing of our film slate and a tough comparison relative to last year's second quarter, which included the tremendously successful Super Mario Bros. Movie as well as Fast X.
We have said our film slate is weighted to the back half of the year, which we believe will drive better year-over-year performance, and we're off to a strong start. Despicable Me 4 had a terrific opening weekend earlier this month, making the Despicable Me series of movies the first animated franchise in history to cross the $5 billion mark. And Twisters is off to a strong start, landing at #1 at the box office this past weekend. And we're excited about our upcoming titles, including Wild Robot in September and Wicked in November.
I'll wrap up with free cash flow and capital allocation on Slide 6. As I mentioned earlier, we generated $1.3 billion in free cash flow this quarter, which includes a $2 billion increase in cash taxes over last year's level.
Total capital spending declined 10% compared to last year, with the $3.4 billion spending reflecting the significant investments we continue to make to support our growth drivers, such as expanding our footprint and further strengthening our domestic broadband network, scaling our streaming business and supporting the continued build of our Epic Universe theme park ahead of its opening in 2025.
Turning to return of capital. For the quarter, we returned a total of $3.4 billion to shareholders. This includes share repurchases of $2.2 billion and dividend payments of $1.2 billion. Notably, since we restarted our buyback program just 3 years ago, we have reduced our share count by 16% and returned just under $50 billion to shareholders through a combination of buybacks and dividends, prudently balancing investments we've made in the business around our 6 core growth drivers, protecting a strong balance sheet and providing strong capital returns to shareholders.
Now let me turn it over to Brian for some closing remarks. Brian?
Thanks. And just to tie everything together, what Mike and Jason have just said, and as our results continue to show, I really believe we are dealing with the competitive landscape shifts exceptionally well. And that's because we have a great team across the company that knows how to execute and innovate. We have the scale, balance sheet and relevancy to compete with anyone.
So if you think about what we're doing to position ourselves for growth, we've expanded our broadband network by 1.2 million new homes passed in the last 12 months, the most in the company's history, and we plan to continue to do that.
We're upbeat about the long term in Parks, despite this quarter and are about to finish building the biggest, most technologically advanced theme park to hit the U.S. market in decades with Epic Universe next year.
And as you've seen recently, instead of engaging in a process to buy content companies, we have focused primarily on organic opportunities like the NBA, one of the most coveted sports franchises across the globe, which will help drive growth for us well into the future.
With that, let's hand it over to Marci to take your questions.
Thanks, Brian. Operator, we are ready to open the line for questions, please.
[Operator Instructions] Our first question today is coming from Ben Swinburne from Morgan Stanley.
And Mike, thanks for all the detail on the NBA contract. Appreciate that. I wanted to ask about Parks and broadband. Maybe, Jason, on broadband, you made some comment ACP and how Dave and the team are managing it. Seems like it's going well.
It seemed like you were implying third quarter losses might be down from Q2. I don't want to put words in your mouth, but you talked about an offset around seasonality. I'm just wondering if maybe you could revisit that and a little bit about how you guys are managing it from a product and marketing point of view in the third quarter. And presumably, that's the end. We can move on beyond the 3Q. We can put ACP behind us. So wanted to ask about that.
And then on Parks, when you guys look at your pacing data, which I imagine you've got months ahead of you that you can see, is there any -- do you see any turn? Or should we be thinking about year-on-year pressure on this segment moving at least through the end of the year and into next year as we get ready for Epic? Any more color on sort of what the outlook looks like would be appreciated.
Ben, this is Dave. I'm going to jump in a little bit on the ACP part first. So on -- I think it's important to just cover a little bit of context, and then we'll get to the outlook and view of Q3.
Most of the enrolled ACP customers, as we said before, have been with us and they are on a postpaid basis. So I think that's an important thing to remember. And our strategy has been consistent. We've been looking to help the ACP customers stay connected through a variety of options, starting with Internet Essentials. And since 2011, we've connected millions in the largest, most comprehensive private sector Internet adoption program in the country.
The good news is that our ACP customers are eligible to switch to our Internet Essential tiers that we have, and we have a couple. In addition, we have Xfinity Mobile, and we have good offers through this transition and to help them save money on their monthly bills.
The Internet Essential customer -- the plus tier customers could take a free line of Xfinity Mobile for a year. And ACP customers who add Xfinity Mobile can get an additional free unlimited line for a year. So -- and then we just started with NOW Internet, NOW Mobile. And so nothing material on that, but I think it puts us in good position as we complete the transition.
We've spent -- as Jason said, we've spent a lot of time thinking about this, been very proactive, prepared for this. And in many ways, it's similar to the promotional role activity that we've managed for decades. So we're used to that.
On the -- from a subscriber viewpoint, also as Jason said, we saw a minimal impact in ACP in Q2. Looking forward, we expect the bulk of the ACP subscriber-related activity to happen in the third quarter, including losses associated with nonpay churn. Very focused on retention. It's early, but the biggest impact, I think, we're going to see will be on the nonpay side and as we're just getting into the beginning of the nonpay cycles.
Encouragingly, we're not seeing much voluntary churn in this group. So our goal, we'd like to get through the ACP impact as quickly as possible. And right now, we're planning to take a reserve on incremental nonpay activity in the third quarter. But again, it is too early to quantify, and we just won't know until we're further through the cycle.
So we have a normal disconnect process that we manage for a long period of time. And again, this is the post-pay universe that we have managed through. So that is our view. I think it will be primarily within Q3, but encouraged by at least the voluntary churn aspect.
Jason?
Yes. I think Dave said it perfectly. As you think about third quarter, Ben, I think unpacking it and similar to what we saw in the second quarter, the competitive environment remains intense, but it's stable. It's sort of no worse, no better than we've seen over the past couple of quarters. So I think that's the starting point.
Second, as we pointed out, it's a quarter where we do get seasonal tailwinds. The same things that were headwinds in the second quarter largely become tailwinds in the third quarter.
And then there's ACP that works against that, where we will see an impact. As Dave said, the intention is to be largely through the impact by the end of the third quarter between actions we've seen and then a reserve we will take.
And so that's the thing we have to make sure we're executing very well against. But as Dave said, it's early trends on that, whether it's voluntary churn or trends we've seen so far in nonpay and building nonpay and reserves around that are encouraging.
And Ben, it's Mike on Parks. So to hit on that again, and I appreciate the question, I think we've covered a lot in the earlier remarks, but I'll start where Brian last finished, which is we couldn't be more excited about -- and confident in the long-term trajectory of the Parks business, particularly as we look ahead to next year with Epic Universe, which is truly -- looking truly unbelievable. And then other attractions coming. Hollywood is going to get a coaster, and Donkey Kong Country into Osaka in the latter part of this year, timing TBD on both of those.
But in the near term, I think that the domestic attendance challenge that was -- what drove 2/3 of the poor comparison, the factors causing that, which is really the COVID pull-forward that we talked about and the timing of attractions, particularly in Hollywood lapping Super Nintendo.
And in Florida, the fact that we originally planned to have Epic opened this year, but with COVID pushed it back and so have a lull in the action. We haven't started a new big attraction since VelociCoaster in 2021.
So as a result of that, I think the factors, even though we're excited about Hollywood Horror Nights in the second half of the year and a little bit of moving past the lapping, I think the trends that we are experiencing likely continue until we get to Epic opening up sometime next year.
Thanks, Ben.
Next question is coming from Craig Moffett from MoffettNathanson.
A little bit more on ACP, if I could. Mike, could you just give us any early insight you've got on the delinquency rate for people that are 30 days or 60 days past due, just so we can sort of get a sense of what nonpays may look like?
And then presumably, there was some impact, certainly there was in the first quarter, of just lower gross adds in the category because new enrollments were shut off and somebody moving across the street, for example, would lose it at their old address, but not be able to get it at their new one. Do you have any estimate for how much ACP impact there might have been in the gross add category?
And then just two -- one just simple housekeeping question. You typically report cable margins on the conference call in the script. I didn't hear it. Maybe I missed it, but I'm wondering if you could tell us what cable margins were in the quarter.
I'll let Dave handle the ACP question, Craig. It's Mike.
Craig, Dave. So in terms of delinquency rates, there's nothing you're watching us. It's just that we have a normal process that we manage through based on due dates, invoices, and it goes anywhere from 2 to 3 months.
There's nothing at this point to report on at this stage. We watch it closely. Other than to go back to what I said, we've been very proactive. And I think that we're helped by experience and promotional roles and the fact that we try to put customers into packages that made sense for them proactively. So there's a lot of work that went into that ahead of time, but nothing at this stage, and we'll give more as we go.
In terms of -- the question in terms of lower gross adds impacts on Connects, it was not material that we saw in Q2, beside maybe just a little bit in terms of things that we said, but it wasn't a substantial impact in Q2. And we think the bulk of what we're seeing is really going to be on the nonpay side, which will occur in Q3.
Craig, let me get the margin question real quick. So I would say the way we're looking at the business is really across Connectivity & Platforms, so looking at it that way and managing the business that way. But to unpack it, legacy cable margin, if you wanted to look at it that way, the margin was up 110 basis points in the quarter. So really strong operating improvement to 48.4%.
Could I squeeze in one more? And just what your thinking is right now about BEAD and whether we might see more capital investment on the BEAD side?
Yes. This is Dave. BEAD, we're looking at it very closely. It is going to be worked out on a state-by-state basis. We're optimistic in a lot of cases, but we'll have to look for the guidelines and the specifics tied to it. Nothing at this point would suggest we're going to be beyond the capital intensity that we've already given out.
I think with all -- we're optimistic. One of the points that Brian mentioned, the 1.2 million that we've done in the last 12 months is astounding, and the machine is really going. So we're leaning in, going forward, but BEAD will be on a state-by-state basis.
Next question is coming from Jessica Reif Ehrlich from Bank of America.
I have an NBA question and also one on advertising. The benefits that you outlined are pretty obviously as getting the NBA, but it does come at a significant price. I was hoping you could walk us through how you expect to make a positive financial return and maybe elaborate a little more on what role Peacock will play since there's a clear benefit there. But how does it affect -- how does this new deal impact programming spend for other areas, including general entertainment?
And then as part of Peacock, maybe you could talk about the Stream Saver, the bundle with Netflix and Apple TV, and the response you've had.
And then on advertising, the upfront is now done. Maybe you can talk about -- a little bit about the unique selling position you've had relative to others and what the volume is overall, pricing, et cetera, just what you're seeing in the overall market.
Sure. Jessica, it's Mike. So I think it essentially covered everything that I wanted to cover and can cover at this stage on NBA in the prepared remarks. Obviously, when the NBA makes its ultimate announcements, we'll -- that will be another moment where we can go deeper.
But just to point generally is that we are looking at the NBA, as we all said, as some of the premier content that is culturally relevant, excellent audience, widens out the calendar year for us across Peacock and NBC, can do a lot with the demographics that followed the NBA around other programming.
So when you think about the business case for it, when you look at the long term and as we are managing the Media business, Broadcast and Peacock as one, I think the unique reach that we have and ability for a sport like the NBA to reach so far with our existing broadcast business and use, as I said earlier, plenty of exclusive games for Peacock to drive excellent acquisition in Peacock.
And we've talked about before using NBA, and as we've talked about before, sports has been a great source of acquisition for us in Peacock and a great source of value to consumer. But what's very interesting to us is how significant the viewership is of sports viewers on Peacock of things other than sports.
So when you take a zoom out and think about the total picture of what we're trying to do, which is to bring our excellent TV Media assets into the future, I think you can -- we view the NBA as an excellent piece in that puzzle and it will allow us to rebalance programming from other areas.
Obviously, we'll fill a few nights on NBC with this content versus other content. And we'll use this to do acquisition spend in Peacock and lighten up in some other places. But the long-term goal for Peacock is to have a service that is a balance of sports, entertainment and news. And so our content teams are now very focused on that new audience and what we're going to be able to do to drive entertainment content with the advantage of being linked closely to the NBA and to the audience of thousand.
And then on advertising, so second quarter, pretty -- only a slight step-down from the first quarter. But clearly, we had a much heavier load of sports in the first quarter than the second quarter. And so that -- adjusting for that, I'd say, again, that the advertising market is -- remains pretty stable. And we feel very well positioned for the second half of the year with the Olympics coming up starting this Friday, elections and a great slate of content coming to NBC and Peacock.
In terms of the upfront, we're pleased with our results. Total volume for us is going to be basically in line with last year as is linear price. We got well over $1 billion in upfront volume for Peacock again, which -- and nice growth over what we had last year.
And so if you step back, we'd say the overall upfront market was pretty solid. We moved quickly given our -- strength of our assets to secure the volume that we got. So we feel we were success in this more challenging upfront given the arrival of so many of the new players, especially in the AVOD and SVOD space. So that's the report on the upfront, but we're moving forward and feel like the team did quite a good job.
Thanks, Jessica.
Our next question today is coming from John Hodulik from UBS.
Great. Maybe on the cable side, a little bit better trends in both video and wireless. On the video side, what's driving the improvement there? Do you expect it to continue? And are you seeing any effects of the launch of the NOW brand?
And then in wireless, you guys talked about some new pricing and promotion. But do you guys think you're benefiting at all from some of the ACP losses on the prepaid side? And I don't know if you guys saw yesterday, Verizon announced they've sort of turned off 400,000 subscribers. I think we'll see something similar with the rest of the wireless companies. But do you think this underlying growth is sustainable? Or do you think that ACP is somehow boosting the growth at this point?
John, Dave. So in terms of video, as Jason said, it's -- our video losses are lower than the ones that last year, it is tied. We did take a slightly less rate increase and -- this year than last year. And the key for us on video is just positioning video with broadband, and that video does help in that regard.
We've seen positive churn in terms of video. Reimagining video around the NOW TV product and IP, and that has been steady. It's still early, but it has been helpful.
So video, I think for the right segment, we offer a lot of value and we continue to position it, I think, very well with broadband. But difficult and still in terms of some of the fees and things that we have, but I think an important category for us.
So on -- in terms of the Mobile side, NOW Mobile is not material at this point. Way too early. The acceleration in line adds over Q1, driven by the early success of the new pricing plans. Really competitive now in multiline pricing. Launched in April, targeted it for a while. Now it's scaling, and it's really gotten traction as well as the buy-one-get-one line offer to our base. So wireless is such an important part of our overall strategy and key that it's 12% penetration. We've got great runway ahead.
Business Mobile is just getting going, and it's a great position for us. In terms of convergence, I think we're uniquely positioned in terms of ubiquitous offers across our entire footprint.
And Mobile will be front and center as we approach the Olympics. And we will have a great offer with broadband, with mobile being able to tie all this together. So very excited with it.
The comment, just one other part in terms of the -- what happened in terms of Verizon, unpacking that, the only thing I'll say is I think it's an important distinction that our ACP customers are postpaid versus their prepaid. It's a different group, a different dynamic. And so not really -- yes, we're just getting going on our NOW products. And so it's very, very early on. Excited about that, and I think we're introducing it at a very good moment, but it's not material at this stage.
Thanks, John. .
Next question is coming from Jonathan Chaplin from New Street.
I guess, for Jason, 2 quick ones on content costs in the Connectivity business. They came in quite a bit lower than we expected. And I'm wondering if you can give us a little bit more color on what's driving the trend there and how sustainable it is.
And then we're trending a little bit lower than guidance on CapEx so far this year. I'm wondering if that's just timing related, if it picks up in the back half of the year.
And then, Mike, I'm not sure if you -- I heard you loud and clear on having sort of said what you can on the NBA deal. I'm wondering if you can just give us a little bit of context around the timing of costs and revenues, though. When -- I recognize it's forward-looking, but when do -- when should we expect to see the cost from the new contracts start to hit?
Thanks, Jonathan. Why don't I start with CapEx? Dave will hit content costs, and then Mike with NBA.
So on CapEx, you're right. We've had some variability this year. I would say relative to the initial guidance we gave, both on the Content & Experiences side, where we talked about this is the final significant year of Epic spending and then we get relief beyond this; and then on the Connectivity & Platforms side, which I think is probably where more of your question was, we gave a capital intensity envelope as we entered the year.
We also said we intend to do 1.1 million plus in terms of homes passed. We're obviously trending a little bit above that at this point, but still feel comfortable with the capital intensity envelope that we gave.
And so there are some timing aspects around equipment purchases within the year. I would say, still feel comfortable with the existing capital intensity envelope. And within that, doing more and more homes passed at a really efficient rate. I think that's a testament of how the team is executing here.
Jonathan, Dave. So just on the content cost side of things, so that's also timing related. We -- there -- in the sports side, well-known thing in terms of RSNs and -- but there are other timing-related things. Every contract with a programming partner is different. Every relationship is different. So I won't go into the specifics.
But it is key that we focus on, for us, flexibility, increasing market choice. We segment the marketplace, both video and broadband and together, and that is important that we're competitive in every segment. And at the end of the day, we're focusing on value, combining linear streaming considerations on a case-by-case basis. But mostly, at this point, it was timing related.
And Jonathan, it's Mike. On NBA, I wish it were sooner, but the contract doesn't start until the 2025-2026 season. So it's a fall of 2025 that we would start to bear the expense of the right side of it. And obviously, that is also, as we build into that, when we would begin to see the benefits of subscriber acquisition around the NBA.
And this is Brian, just want to just close out perhaps Mike's opening comments on the NBA. It doesn't -- opportunities like this come along very rarely when there's a long-term relationships up for grabs. Inside and we'll have -- when the -- it gets all announced, the detail that Mike described, we have probably more content than anybody. And it's all, I think, at a value that we'll be able to, as one of the other questions asked, support and demonstrate.
And one of our real advantages here is the way we're running the Media business. And Mike created one group with our existing assets like NBC and our growing asset like Peacock, and putting that together is very appealing for the reach, for the consumer access, for the innovation that we'll have in the years ahead. And you'll see some of that innovation during the Olympics.
There will be a lot of content on NBC, but way more content on Peacock, and it allows for the trends that we're seeing in viewing behavior. So it's a very exciting moment, and I think we'll have more to say in the weeks ahead.
Thanks, Jonathan.
Next question is coming from Michael Ng from Goldman Sachs.
I just have two, one the Business Services, one on wireless. First on Business Services, I was just wondering if you talk about some of the key initiatives or things that might be changing at Comcast business following Ed's appointment as President to more aggressively pursue the mid-market or enterprise. What are you seeing in terms of the competitive side within SMB? Is it just fixed wireless? Or is there more to that?
And then on wireless, given the strong potential upgrade cycle on the back of AI smartphones and the iPhone 16, I was just wondering if you could talk about the Xfinity Mobile strategy to capitalize this on this from a promotional marketing perspective. What levers are you planning to pull this holiday to potentially lean into wireless to help the broadband business and wireless at large?
Got it. Thank you. This is Dave. So a couple of things. Let me start with business. As you said, it is competitive in the small business categories. It's competitive in category, but -- and in particular, the small business one. There certainly is some fixed wireless that you -- we've -- that we've seen.
I saw it in the Verizon results, pretty high percentage of the fixed wireless that -- or in the small business thing. And we're -- we look at that closely. We are intensely focused on our competitive playbooks, and we're going to constantly compete for share.
But we're also focused on revenue per relationship. And so in the small business area before getting into mid-market, we're doing a lot of product upgrades, adding value and speed, WiFi, security. And so we've made good progress and revenue focus around in small business. And it's such a huge opportunity for us and still in terms of small business.
But Ed is stepped right in. It's a terrific team in the Business Services group that he's working with. And there really is, I think, a unique opportunity. When you look at the overall addressable market, it is $60 billion, less than 20% there and a huge chunk of this will be mid-market and enterprise. And we're -- and you add on top of that international opportunities that we're beginning to coordinate and work well with Dana and the team at Sky.
So we really are seeing nice relationship growth in mid-market and enterprise. That's the starting point. But in addition to all of our strategies, we're adding more products and attaching new products on these relationships and going beyond just connectivity into a full managed relationship basis.
So Ed is driving that, and we're in a good competitive position for growth. And I think we have a good ability to increase ARPU across an increasing higher end base of customers.
So on the mobile side of upgrade, it is -- with every single upgrade moment, we pay close attention to that one, too. And we're optimistic. We're in good position. We have a great trade-in program for mobile that we've had in place now for a while.
And then in addition to that, we go in and out in terms of subsidies on top of that trade-in program. And then when good upgrade moments happen, we are the switching provider. So when people -- we have great core rates, and we have good handset offers and good position for it. So being a switching provider, we're, I think, in a unique position to really take advantage of that.
And when you look at is going into the optimism for Q3, one of the most important programs that we'll do, along with the handset upgrade initiative on mobile, will be the Olympics. And the Olympics are such a unique opportunity for us to showcase the best broadband, the best mobile service offering.
Combining those two things together in such an attractive offer, on top of that is the greatest UI in the marketplace that helps you find whatever you want. So really excited about that, look for that in the next couple of days, but mobile will be front and center along with broadband when that happens.
Thanks, Mike.
Our final question today is coming from Steven Cahall from Wells Fargo.
So with mid splits now reaching over 40% of the footprint, I was just wondering if you have an updated outlook on when you think you'll be at DOCSIS 4.0 for most of your broadband passings.
And maybe within this, you could just update us on where fiber overlap is. But also as you get through this network investment architecture that you laid out earlier this year, when you think about the capital intensity and C&P coming down, and we'll start to see that benefit in growing free cash flow. So timing on that, I think, would be really interesting.
And then how are you thinking about getting to just breakeven on Peacock? You talked about Media EBITDA on a total basis, growing in the first half and in the second half, too. It seems like if the Peacock losses keep getting better at this pace, you could be close to breakeven this time next year, but I know you've got NBA coming. So just wondering if we could think about that benchmark quite yet.
Steven, this is Dave. Let me start and then hand it over on the Peacock side. So we're 42% mid split right now. We expect to be 50% by year-end. And the DOCSIS 4.0 that follows, multiple markets so far, it's early. No specifics in terms of the final rollout on that.
But it really is tracking very well on top of the -- a lot of new footprint expansions, the 1.2 million over the last 12 months, with these upgrade programs moving along very well. And it tracks to where the customers are and our steady focus around the higher end.
And one of the things that we see, we have the most effective and efficient build that's ubiquitous, that is addressing speed, capacity, coverage. And it's helps us because as we're doing this, remember, we're virtualizing huge parts of the network and avoiding future node splits.
So it's very efficient in helping us with the 70% of our customers are 500 megabits or higher, 1/3 are taking 1 gig. And it's tracking to maybe one of the biggest tailwinds that is out there, and that's the fact that our network consumption is still low double digits increasing. And that's not stopping. And so we're putting ourselves in position with a great upgrade program. And so that, to me, is, I think, a great advantage that we do have.
In terms of competition, in terms of fiber, we're now 50% in terms of the overbuilt. We expect by the end of '25, that will get to 60%. It will probably go higher than that. We have a long track record of competing against fiber, 20 years at this point.
So we do think fiber is, quite frankly, the longer-term competitor we're keeping our eye on, compete fiercely against fixed wireless and every competitor. But we anticipate where they're building, what they're doing and keeping track of all of that.
So like our results and encouraged. When you look going into Q3, one of the reasons of optimism is that voluntary churn that continues to perform very well. And I think it's our superior network, combined with better products and extreme focus on competition.
Steven, I would just round that out on the capital intensity question because I think embedded in that was sort of a long-term capital intensity question.
If you look at what we're doing now, the path towards mid-splits, which, as Dave mentioned, really good progress there, that kicking off DOCSIS 4.0. And then adding 1.2 million homes passed, which is a record for us in the last 12 months, and doing that all within through the existing capital intensity envelope, which is one of, if not the lowest, in the industry. So very good progress there.
As you think about longer term, a lot of people ask this question in the context of, is there the next big thing coming in terms of the network upgrade. We feel very comfortable between mid splits and DOCSIS 4.0, that leading to multi-gig symmetrical speeds that, that is the network for the future. So we don't see the next big thing coming.
The one area that I'd point out, we'd love to do more homes passed. We've accelerated the rate from 800,000 in the past couple of years up to currently 1.2 million. We won't gate capital intensity because of that. If those are good returns and things we should be, we'd love to do more there.
Steven, on Peacock and Media EBITDA, I think you heard us right. Anyway, you heard me right. I've been talking since I've been doing this that I don't really look at Peacock stand alone. It's an interesting exercise, and I'm happy to share the numbers of what the loss is on Peacock as we're building it, but strategically to not pursue that path would leave the existing Media business on a downward trend.
So I think we are thinking about it over multiple years. I'm very confident that what we're doing around Peacock and the Media business together, operating together, is going to put us on a path to optimize that business.
And as you said, I think this is a year where we see the growth in Peacock offsetting the decline in some of our linear businesses, and that's basically a trend I would expect to see carry forward.
There's going to be ebbs and flows. As Brian said, something like NBA is once in a generation almost to get an opportunity like that. So obviously, we'll make some adjustments, and it might pause our trajectory for the year.
We take it on board, but I think it's part and parcel of the idea that we're bringing the Media business to a better future by investing behind Peacock and doing it together with all our assets, entertainment, sports and news, as what our Media business will look to be in the future.
So thank you, everybody. I think that's it. I stole Marci's line. Go ahead.
Thanks, Steve. This concludes our second quarter earnings call. Thanks for joining us.
That does conclude today's question-and-answer session and today's conference call. A replay of the call will be available starting at 11:30 a.m. Eastern Time today on Comcast Investor Relations website. Thank you for participating. You may all disconnect.