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CEO INTERVIEW - Brian Roberts of Comcast Corp.: Cable guy

Fresh from blunting the major threats once posed by satellite and phone companies, the cable giant's CEO discusses how he's preparing the company for a YouTube world.

Brian Roberts has spent most of his adult life building the tiny cable television company his father founded four decades ago in Tupelo, Mississippi, into the world's biggest distributor of television programming, with 24 million cable TV subscribers. But the going hasn't always been smooth for Philadelphia-based Comcast Corp. Most recently, Roberts, 47, has fended off threats from satellite and telephone companies building the technology to displace cable and become single sources of TV, Internet and phone service. Comcast's future looked shaky enough in 2004 that Roberts gambled big on integrating content with distribution, making a $54 billion hostile bid for Walt Disney Co. When that effort failed, he focused inward, improving Comcast's technology so it could offer interactive TV, faster Internet service and a cable-based phone service. The so-called triple-play strategy is paying off: The company signed up a record number of Internet subscribers last year, taking its total to 11.5 million; it has scooped up 2 million phone customers in two years, and in 2006 it grew new subscriptions of all types by 70 percent. This year it expects a further 30 percent increase. Soaring profits and cash flow have driven Comcast shares up 40 percent in the past year, to $41 apiece.

Now Roberts must contend with a host of new rivals. Telecommunications impresario Craig McCaw's Clearview, among others, is experimenting with new wireless Internet technology called WiMax -- a sort of Wi-Fi on steroids -- that some feel may eventually displace wired broadband. Then there's wildly popular video-sharing service YouTube -- acquired last year by Google for $1.7 billion -- which some see as the future of viewing habits. The long-term threat for Comcast: Advances in technology could one day render its core cable TV business a dinosaur. Roberts, who has run the company since 1990, isn't standing pat. He continues to negotiate content partnerships with the likes of Sony Corp., Metro-Goldwyn-Mayer and -- yes -- Disney. He has also informally discussed potential collaboration with one of the founders of YouTube. Roberts recently discussed these topics with Institutional Investor Assistant Managing Editor Justin Schack.

Institutional Investor: Do you worry that online technology like YouTube and new viewing devices may do to cable systems what Apple's iTunes store and the iPod have done to music distribution?

Roberts: Cable is well-positioned to benefit from the sea change that is absolutely occurring in the industry. We're seeing the emergence of YouTube and others that are in a different format. They're short-form; they're fun. They're not necessarily traditional media. At an industry dinner recently, I had the chance to meet one of the founders of YouTube, and I asked if maybe we could put some of their best content on our on-demand service and call it YouTube on Demand. Right now they're content to remain the hot PC product. Maybe the idea isn't quite right because today the videos that their customers are uploading aren't the quality to be on 50-inch plasma televisions, but they're great on a PC. But five years or ten years from now, I think it's very possible. We just announced a partnership with Facebook where we're going to attempt to have Facebook users upload videos, and we'll make the best of them available on demand.

But what if, down the line, video over cable gives way to full-length TV programs, movies and other formats distributed through Internet technology and PCs or other devices?

Right now video over the Internet is a friend. YouTube represented 4 percent of the bits going over our pipes in the latter part of the year, and it didn't even exist 18 months ago. That is powering a lot of the broadband adoption in this country. We sold more high-speed Internet last year than we did in any year in our history. We're working on a project to speed our Internet connection up, to 50 to 100 megabits per second, so that consumers who are attracted to broadband applications like YouTube will say, "I want the best broadband" and choose Comcast because it's faster and provides better service. If some of that impinges on the existing business, we'll adapt. But right now I think most cable programmers are trying to figure out how to have the Internet be an enhancement to their core offering, not a replacement.

Do you see the Internet displacing cable TV at all in the future?

It's going to take a long time to imagine a day where people don't want television separate from their computer, but we would be foolish not to want to be the most progressive company in Internet and in television -- and to also have the most progressive phone service. We're selling 40,000 to 50,000 new phone subscriptions a week. Within about three years fully half of our customer relationships will not be television relationships. We're transforming the company into an entertainment and telecommunications company.

Why have you been more successful with phone service than phone companies have been with TV?

It's a lot harder to do television. It's taken us 40 years to get where we are with TV today. We've gone from three channels to hundreds of channels, 8,000 shows on demand, high definition and interactivity. Phone calls are basically a lot simpler. Recently, I heard a wireless executive say that one minute of video airtime on a cell phone uses 100 times the bandwidth that a phone call does. If you translate that to the wireline equivalent, it's probably 100 times harder to do television than it is to do phone.

Some see WiMax supplanting wired broadband Internet access one day. How do you fend off that threat?

Most engineers will tell you that they don't think that WiMax will be able to handle sufficient volume for a long time. We think it's certainly going to be a great addition to consumer applications and provide another reason for everybody to get broadband. But in the home, people will still want to have a big PC and a big monitor and the absolute fastest speed.

Do you ever look back on your bid for Disney with relief that it didn't work out?

I try to look forward, not back. Disney's doing incredibly well. Last year we made a deal with them that enables us to accelerate some of our digital deployment of their content. Starting next season we'll have Desperate Housewives and Lost on demand for free for our customers. We're excited with where we are.

What new businesses are you focusing on?

The small and medium-size business market is a fabulous opportunity for us in digital voice. We're extending the consumer business into commercial enterprises that have ten or fewer phone lines. We think there's $12 billion to $15 billion of potential revenue there, in our market footprint, and growing. Capturing just 20 percent of that -- the same goal a lot of people think we're going to get to pretty quickly in the consumer market -- would give us a $2.5-billion- to $3-billion-in revenue business over the next five years. The beauty of it is, we use the same strategy and infrastructure.

Any others?

Interactive advertising. Over the next five years, we think we can develop it into the Holy Grail of advertising, similar to the incredibly successful model that Google has achieved in which ads are targeted one-to-one at individual consumers. Our on-demand service is interactive, one-to-one, and we're trying to figure out whether there is some way to transfer that technology to advertising. It will be hard to pull off, but it's a huge opportunity.

There's a lot of debate today about whether CEOs are overpaid. What's your view?

In a capitalist model the market for true executive talent is very competitive. There are excesses. I understand the debate, and I think it's healthy. But at the same time, I don't like the brain drain that is happening away from public companies to private equity. It's a potentially alarming trend. Public companies in some cases are not keeping up with the amazing payouts -- combined with supertough incentives -- that private-equity-owned companies are giving to managers. General Electric is a great example. They lost one of their top managers to a very small company that was taken private, VNU, supposedly making ten times as much as the chairman of GE [former GE vice chairman David Calhoun became VNU's CEO in August]. So what should the board of GE do about that? I don't know. But you don't want to lose all your best managers to private equity. I see that trend as much as I see the anecdotes of where the system runs amok. We're fortunate in that we reversed that trend by recruiting our new CFO, Mike Angelakis, from Providence Equity Partners, which has a fantastic track record. A large share owner, I want to see the very best people working in our company. And as I visit with our investors, I tell them the same thing.