With about 40% of its revenue generated from NBCUniversal , Comcast looks to be in trouble with the rapidly changing landscape of viewers’ watching habits. The rise of on-demand video streaming (SVOD) services such as Netflix, Hulu, and Youtube has produced a mass exodus from cable channels and broadcast TV , a huge portion of NBCUniversal’s bread and butter. Not only is revenue down, but content is becoming more and more expensive to produce, which has hurt the bottom line of the Universal Studios as well . And yet Comcast has continued to show consistent growth and earnings quarter after quarter . How is this possible? Turns out Comcast has diversified itself in a way that strengthens its position even if its SVOD competitors consume its TV and cable businesses.
Comcast has two core businesses –NBCUniversal is a media and entertainment business consisting of the TV and cable channels and the Universal Studios film studio, while Xfinity is a provider of residential and commercial high speed broadband internet, video, and phone service . In the last few years, increased (cable) cord cutting has meant lower revenues for NBCUniversal through decreased advertising, licensing, and distribution fees, and of course through lower subscription fees for Xfinity’s cable services . Nevertheless, Comcast made a winning bet on what turned out to be a golden goose – high speed broadband internet. The company realized that while many millennials may never subscribe to cable, they consider high speed internet (HIS) and connectivity practicallya basic necessity. And as people watch less cable and more SVOD programs, the more they rely on good network connectivity. In other words, as Comcast NBCUniversal’s competitors thrive, Comcast Xfinity’s HSI business thrives. In fact, the HSI business has grown so fast that it has offset Comcast’s other losses. Even in a mature market like the US, Xfinity has successfully added over 1 million HSI customer for 12 consecutive years and earned approximately $47 billion in revenue in 2017 alone .Figure: Comcast’s business segments and respective revenue shares
But the company did not stop there. In order to continue building on its HSI momentum, in Q3 of 2017, Comcast unveiled “Works with Xfinity”  smart home program, which allows – at no additional cost – Xfinity HIS subscribers to connect and use their smart home products from many different manufacturers. While this offering brings in no extra revenue from existing customers, and even works to help competitors of Xfinity’s IOT home security devices, this move indicates that Comcast has its eye on the long-term. Making its HSI open to all IOT devices encourages faster adoption of IOT throughout the home, pushing people to become more dependent on fast, reliable internet connections, and creating more opportunities for monetization of HSI in the near future. The numbers back up the claim that Comcast is pivoting more and more into high-tech and farther away from its entertainment businesses. Over the last two years, Comcast’s revenue share has shifted approximately 2% to Xfinity from NBCUniversal – that’s a large shift considering the size of the business and the time frame within which it was achieved .
Having said all this, Xfinity’s revenues will increasingly rely on pricing power as internet penetration plateaus . In an age where consumers are increasingly concerned about net neutrality and suspicious of the activities of large tech corporations, Comcast should think carefully about its activities and its public narrative. Especially as the competitive landscape shifts and 5G emerges (perhaps as soon as this year) to rival broadband technology , if Comcast is not constantly improving upon its service and its brand, today’s winner could become tomorrow’s loser.
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- Shields, Nicholas. “Comcast ups its smart home game with new “Works with Xfinity” program.” Business Insider. January 16, 2018. Accessed January 30, 2018. http://www.businessinsider.com/comcast-smart-home-works-with-xfinity-program-2018-1.
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