2022 Super Bowl offers NBC ‘some offset’ for low Winter Olympics ratings, analyst says

David Heger, Edward Jones Senior Equity Analyst, joins Yahoo Finance Live to discuss the decline in viewership for the Beijing Winter Olympics on NBC and its streaming platform Peacock and what those lower ratings mean for Comcast.

Video Transcript

BRAD SMITH: Welcome back, everyone. Olympic ratings are on a slippery slope. Viewership is down for the Winter Games, impacting ratings for Comcast and its Peacock streaming service. To help break down the significance of this trend in declining ratings, we're joined by David Heger, Senior Equity Analyst over at Edward Jones and Yahoo Finance's Josh Shafer. Great to have you both here with us.

So David, first and foremost, let's start off with the broader impacts that these declining ratings could have for Comcast, particularly, as it looks to further monetize the number of viewers that come to its platform at a time like this.

DAVID HEGER: Well, certainly, the Olympics are an important way for Comcast to be able to highlight its new Peacock streaming service, which in the Summer Olympics, the company had a little bit of a slip-up in terms of what was available on Peacock and I think frustrated some users, where, at least this time around, it looks like they're offering pretty much all the Olympic content on Peacock. And we view it as important for gaining traction with the service and certainly for the premium services that $4.99 a month services. And we feel like especially $4.99 a month with the ad load, because we see a strong opportunity for targeted advertising on streaming services such as Peacock.

JOSH SCHAFER: And David, with the numbers that we saw from this weekend, obviously, only one weekend, but down 43% from four years ago, you had cited previously that the Super Bowl and the Olympics could be potential tailwinds for increased earnings this quarter for Comcast. Do you think that this changes your outlook at all? Or are you waiting to see what happens with the rest of viewership for the rest of the Olympics? How does this kind of impact what we might see from Comcast overall?

DAVID HEGER: Well, certainly, it's a slow start to the Olympics and obviously, a lot to go yet in terms of Olympic programming. And I think you combine that with the Super Bowl, which we have coming up here shortly as well, we still expect a strong quarter. Certainly, a Super Bowl, in particular, always does well in terms of generating ad revenue and brings in large viewership numbers.

But the Olympics, it may be a little bit trickier in terms of the impact on that front, depending how the ratings play out over the next couple of weeks. There might have to be some make-goods in terms of if the viewership comes in lower than what was expected. Our understanding is the company had been preparing advertisers for potential weakness in ratings, I think someone with the experience they saw in the Summer Olympics.

But I don't think it will have a dramatic impact on the near-term outlook. And as I said, I think Super Bowl will offer some offset as that in recent history has tended to still generate relatively strong ratings.

EMILY MCCORMICK: But in terms of the investment that NBC has put into the Olympics, NBC is paying the International Olympic Committee $7.75 billion to broadcast this through 2032. Do you think this investment is still ultimately going to pay off for NBC over the next decade?

DAVID HEGER: Well, certainly, it's going to be more of a challenge at the time. The current contract was signed. The viewership levels for events like the Olympics had not dropped off as much as what we've seen more recently. And that's where, I think, NBC's is going to have the challenge of making the migration onto the Peacock platform and trying to offset the lost subscribers that we may see on the traditional broadcast with a gain in subscribers on the Peacock platform.

And part of that may mean trying to bring on more Peacock subscribers who are sticky after the Olympics and can add value for the service by remaining as Peacock subscribers. And potentially, they get some return on the Olympic investment in that way. And perhaps, it's somewhat of a promotional cost in a sense of getting subscribers on.

The tricky part will be to keep them there after the next two weeks when the Olympics are over.

JOSH SCHAFER: David, how do you evaluate where Peacock is overall in the streaming wars? And maybe specifically with sports streaming, Peacock has Sunday Night Football, they'll have the Super Bowl, they have these Olympics, and they have English Premier League Soccer. And those are kind of they're big they're big gets, but they don't have a lot of the other sports and kind of the day to day aspect of it, like, say, Disney does with ESPN Plus. I was just curious where you think Peacock sits in the grand scheme of sports streaming. And if they need to acquire more, or if the strategy they're doing thus far seems to be working to attract people to the service.

DAVID HEGER: Well, certainly, you could make the argument from a broad point of view that subscriber levels on Peacock have ramped at a slower pace than some of the other streaming platforms. Certainly, examples like a Disney Plus ramped up quite a bit faster than what we've seen so far on Peacock. Now, the two services are aimed a little differently in terms of Disney Plus not offering sports type programming and not having an ad-supported option.

But we think that over time NBC may have to bring more sports rights on board for the streaming service to continue to expand availability of sports on the platform certainly to monetize that business from an ad point of view. Similarly, live sports would be one way to accomplish that and would be a way to continue to differentiate the service from some of the other streaming services out there.

BRAD SMITH: What kind of cash do they have on hand to help them acquire some of those licenses that are necessary? And how much of that would you expect them to put forward in trying to make sure that they do attract more attention, more eyeballs and consumption of the content, particularly sports content?

DAVID HEGER: Well, Comcast has a strong balance sheet at its disposal to make investments in content. The company already has gotten back down to their target debt levels after acquiring Sky a few years ago and, as a result, have been aggressively buying back shares and recently increased the dividend. So the company does have the cash available to make more investment.

They may walk somewhat of a fine line in balancing the increased investment in sports content with continuing to show earnings growth on the bottom line. And that's one of the challenges the more established media companies have had. Investors have an expectation for strong profitability, strong free cash flow out of the business. But at the same time, companies are having to make big investments to get the content on board to grow their streaming services. And certainly, investors are looking at streaming services as the future growth drivers for the businesses relative to the more mature cable TV channels and other parts of the broadcast business.

BRAD SMITH: All right. We're going to continue to track shares of Comcast, especially over the course of the rest of the Olympics, plus going into the Super Bowl as well. We know that we're in the midst of the Super Bowl week. David Heger, Edward Jones Senior Equity Analyst, joining us here on the day, as well as Yahoo Finance's own Josh Schafer, we appreciate--