Co-CFO cable guys' focus: dual revenue streams. (Cover Story).

In the duel for dual revenue streams -- subscribers and advertisers -- Comcast Corp. is on top of its game. With its financial team led by co-CFOs John Alchin and Lawrence S. Smith, it seems to have a strong business model to reel in revenues through its three core components: cable, commerce and content. It's growing primarily by adding subscribers through acquisitions, while also investing in select strategic business areas. To its advantage, Comcast's infrastructure is organized to support its customers' growing demands for anytime/anyplace data and digital delivery.

In the last two years, 4 million subscribers were added through a series of acquisitions. If and when the hard-fought bid for AT&T Broadband is approved and completed (it is expected to close after September of this year), that will mean integrating an additional 13.5 million on top of the 8.5 million at year-end -- to a total of 22 million subscribers.

Even during the recent economic slowdown, Comcast was growing revenue. Cash flow in the cable division grew by 12 percent in 2001, and is expected to grow to an even greater degree -- between 12 to 14 percent -- this year. Last year the company generated about $10 billion of revenue, with about 50 percent of that coming from the cable division.

Founded in Pennsylvania in 1963, Comcast is the third-largest U.S. cable company; with the AT&T deal, it will jump to the number 1 spot. Closing the AT&T deal will also settle an old score for Comcast which lost out on nabbing MediaOne when AT&T came in with a higher bid. Executive Vice President Lawrence S. Smith says that over the last several years, AT&T has re-clustered its collection of by doing swaps and trades. "When all is done, Comcast will have something like 79 percent of our combined subscribers in systems with at least 250,000 subscribers, and have a significant presence in 17 of the country's top 20 DMAs (demographic metropolitan areas)," adds John Alchin, Executive Vice President and Treasurer.

In the 12 years since he's been with the company, Alchin has worked closely with Smith, to the point where he says, "We finish each other's sentences." Alchin manages the external CFO role, the capital formation and investment community activities, and also manages the treasury functions Smith, who joined the company in 1988, has responsibility for the internal CFO functions: finance operations that include tax and accounting, as well as corporate development.

Contrary to other retail businesses, the commerce division is showing no signs of an economic slowdown. Its TV-retail shopping network, QVC -- which now has operations in the United Kingdom, Germany and Japan as well -- grew 16.6 percent last year, generating $722 million dollars, including the $19 or so million it lost starting up in Japan. QVC is broadcast live to 120 million homes, and remains a key revenue source for Comcast. In addition to its 57 percent ownership position of QVC, Smith explains, that like all the other cable companies that carry it, a royalty is paid by QVC to all the cable companies for sales made in their territories.

Comcast also has a small stake in a company it owns with QVC, Global Sports, which acts as a back office for sporting goods supplies. It represents branded names (Nike, Wilson, Sports Authority) by consolidating inventories, hosting their Web sites, taking customer orders, billing and shipping in vendors' packaging.

Even the advertising slowdown hasn't affected Comcast much, says Smith. The businesses most affected [are those] in the content creation area -- E! Entertainment Television, The Golf Channel, Outdoor Life and to a much lesser degree, the sports channels. "But on a consolidated basis, only 6 to 7 percent of our revenue is derived from advertising, and revenue for each was up over 25 percent last year," he says. They're niche-oriented, he explains, and besides, even in those businesses, a large percentage of revenues is subscription-generated, since Comcast gets paid from the cable companies carrying those channels.

Growth From Digital and Data

In cable, Comcast's competition is satellite. But, is a threat? "About 60 percent of the population has cable, so one of our opportunities is to get the other 40 Percent; satellite has 15 percent of that 40 percent," says Smith. In fact, prior to the AT&T deal a decision had to be made: join the satellite guys or get bigger in cable. "We didn't think the Justice Department would let us do both," he says.

"There are things satellite can't do, as we can now," says Alchin. "Video on demand (VOD) is something satellite is trying to replicate; also they [the satellite companies] can't do two-way high-speed data the way we can." So, "not only would it be difficult for us from a regulatory standpoint; but we like our platform better."

Another competitive battle involves Comcast's cable modems vs. telephone companies' DSL (digital subscriber line). "We have an advantage in that we have invested as a company over $5 billion, and as an industry upwards of tens of billions of dollars, rebuilding all of our plant over the last few years to deploy cable modems virtually everywhere," argues Alchin. Current projections show that 85 percent of subscriber homes will have access to the modems by year-end, he says

Smith says Comcast now has the competitive edge, and needs to exploit it. "Once people have hooked up with their high-speed cable modem through their cable company, they will be reluctant to switch back, or go to telephone, unless we do something drastically wrong. So, we're pushing hard to take advantage of the moment, and are trying to put a lot of our customers on to the high-speed cable."

Clearly, two rapidly growing business areas for Comcast are digital cable and data delivery via high-speed modem (high-speed Internet connection). Alchin says by the end of this year, Comcast expects to have 1.4 million modem customers and 3 million digital customers.

So, does the future point to a connectivity that enables consumers to make purchases from their homes -- without moving off their spots? Smith says that's still in a laboratory stage. Based on research conducted by QVC, he says, ultimate couch potatoes want the ability to press a button and get the product they see on the screen. "There is a fair amount of effort going into that, and these things always take longer than everyone guesses.

"The easier that you make it, the more you are going to get. The question is: how material is it really going to be? Recall all the dot-com selling, like pet food via the Internet. You've got to transport it, and it's heavy; and there's not a great margin in pet food. So, where do you make money in these models? And, [notwithstanding QVC, a niche market] we're really somewhat skeptical about television -- although, if it's going to happen, we want to be a part of it."

RELATED ARTICLE: Comcast [R]

Partial List of properties

Cable

3rd largest U.S. cable company;

over 8.4 million customers

2.336 million digital cable subs

948,100 high-speed Internet customers

3 million VOD-ready homes

Commerce

57% ownership in QVC

QVC's Biggest Day in 15-year history

December 2, 2001

Sold 30,000 Dell computer systems

$80 million in sales

Content

E! Entertainment

style

The Golf Channel

Outdoor Life Network

Comcast SportsNet

Comcast-Spectator -- Phila. 76ers (NBA),

Phila. Flyers (NHL)