Comcast: The (seemingly) biggest loser wins the game?

In the age of rapid cord cutting, how is Comcast thriving?

DRRAMAAAA!

With about 40% of its revenue generated from NBCUniversal [1], 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 [2], 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 [1]. And yet Comcast has continued to show consistent growth and earnings quarter after quarter [1]. 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 [3]. 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 [4]. 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 [1].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” [5] 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 [6].

Having said all this, Xfinity’s revenues will increasingly rely on pricing power as internet penetration plateaus [7]. 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 [7], if Comcast is not constantly improving upon its service and its brand, today’s winner could become tomorrow’s loser.

 

References

  1. “Q4 2017 Comcast Investor Presentation .” News release. Accessed January 30, 2018. https://www.cmcsa.com/static-files/438f0b62-b934-481c-bce7-b70fac681fc1
  2. Perez, Sarah. “56.6 million US consumers to go without pay TV this year, as cord cutting accelerates.” TechCrunch. September 13, 2017. Accessed January 30, 2018. https://www.techcrunch.com/2017/09/13/56-6-million-u-s-consumers-to-go-without-pay-tv-this-year-as-cord-cutting-accelerates/.
  3. “Company Overview.” Comcast. August 22, 2012. Accessed January 30, 2018. https://corporate.comcast.com/news-information/company-overview.
  4. Team, Trefis. “Comcast’s Outlook Remains Solid Despite Revenue Decline.” Forbes. October 27, 2017. Accessed January 30, 2018. https://www.forbes.com/sites/greatspeculations/2017/10/27/comcasts-outlook-remains-solid-despite-revenue-decline/#1713aec02cbe.
  5. 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.
  6. “Q4 2015 Comcast Investor Presentation .” News release. Accessed January 30, 2018. https://www.cmcsa.com/static-files/4307f631-a6c8-4372-aeca-2dc45372ff6d
  7. Nolter, Chris. “What a nationalized 5G plan would mean for Google, Comcast, Verizon and others.” TheStreet. January 29, 2018. Accessed January 30, 2018. https://www.thestreet.com/story/14465752/1/nationalized-5g-plan-winners-and-losers.html.

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2 thoughts on “Comcast: The (seemingly) biggest loser wins the game?

  1. I agree that Comcast has smartly pivoted into the the HSI business, which will continue to be the largest growth engine (assuming, as you correctly pointed out, that they can continue to command premium pricing) of the Comcast portion of the business (though they are making a large investment into mobile, which may become the second large revenue stream). However, I think it is premature to say that Comcast is abandoning the NBCU portion of the business, and recent news proves this out. First, Comcast was an aggressive bidder for the Fox assets that eventually went to Disney. Disney paid $65BN for those assets, and one would assume Comcast would have paid similar, no small investment. In addition, Comcast has invested close to, if not more than, $1BN in Snap, Buzzfeed, and Vox. What’s clear about all of these moves is that Comcast recognizes that entertainment is moving away from a B2B relationship toward a B2C relationship, and all of these investments better position them in that environment. The next logical move for Comcast on the NBCU side is to understand what it wants to do with its piece of Hulu ownership, and if they want to launch its own D2C service.

  2. Definitely agree that Comcast is well-diversified and that its HSI business has helped offset some of the losses in the broadcasting business. I think a huge opportunity for Comcast NBCU lies in digital advertising, which is seen through their investments in Snap, Buzzfeed, and Vox (which you have already pointed out). In addition, there is a lot of value that can be extracted from the merger of the two businesses, especially in programmatic advertising. Comcast could now track users across not only its digital content platforms through NBCU but also “offline” through its cable channel. This user data and information could be extremely valuable for advertisers that are looking to target the right segment of users at the right time. For example, Comcast is currently working with Rubicon Project that would allow advertisers to buy “inventory” on its Xfinity.com. So I could see this as a huge opportunity for Comcast to fully leverage its two major businesses and create new and advanced forms of digital advertising capabilities.

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