|As of Q3 2018||Residential + Business Subscribers||Change over Q3 '17|
Commentary on Q3 2018 results
Comcast risks NBCU, pay TV future by ignoring D2C delivery
The arguments for not launching direct-to-consumer (D2C) products are beginning to ring hollow for Comcast. The dynamics of the company’s business show consumers are increasingly eschewing the company’s video products.
X1 TV second to broadband
Video penetration of homes passed reached a peak in 2009 of 46%. As of Q3 2018, it has declined 8% to reach 38.2%. Comcast has also been losing video subscribers for the past six quarters and seems headed for a 400,000 loss in 2018.
Broadband, on the other hand, is now the driver for the company’s cable business. It continues to grow strongly, gaining 362,000 subscribers, an increase of 5% over the same quarter last year. Penetration of homes passed is just shy of 50%. Increasingly, however, customers are opting to subscribe to broadband alone as the allure of bundled products wears thin.
The triple-play bundle is in decline
The number of customers taking a single service reached a low of 29.2% in 2016. Since then, it has been steadily rising, reaching 32% in the latest quarter. Conversely, double and triple play customers have fallen 1.2% and 2.2% respectively over the same period. Given the strong growth of broadband and the decline of both voice and video over the same period, it is safe to say more and more customers are only interested in broadband from Comcast.
Why is bundling increasingly unappealing to consumers? Consider a young couple looking for broadband for the first time. They can get Internet plus basic with local live TV channels (no DVR) from Comcast in the Bay Area for $39.99 a month for the first year, increasing to $59.99 after that. Broadband alone at the same speed costs $34.99 increasing to $49.99 after the first year.
Many young people do not watch live TV at all and can use a monthly vMVPD if there is something specific they want to watch. In other words, the addition of local channels without on-demand access is valueless to them. Any broadcast TV shows of interest they can catch online through services they probably already have, like Hulu.
The effectiveness of SVOD aggregation
What of the importance of SVOD aggregation with TV within X1? As a retention tool, it seems to be having an impact. Comcast narrowed the Q3 losses from 125,000 in 2017 to 106,000 in 2018. Most of the improvement came from home video subscribers rather than businesses.
As a tool to attract new subscribers, SVOD aggregation looks like a bust. Most people already have Netflix without Comcast’s help. Moreover, if a consumer doesn’t care about live TV, they certainly aren’t going to pay $50 or more to get X1 TV with Netflix blended in.
Failing to launch D2C bad for Comcast in the long run
In the long run, Comcast’s dogged refusal to launch D2C services is bad for both its cable business and NBCU. Sky, which Comcast has just bought, reversed its declining video subscriber base by launching the D2C service NowTV. As well, it does not seem to be cannibalizing Sky’s satellite service.
Looking at NBCU Q3 results, who can blame Comcast for shying away from D2C products. Broadcast revenue was up 15% year-over-year and cable network revenue up 11%. However, the underlying trends are not good for traditional television. For example, in the 2017-2018 season, Sunday Night Football on NBC saw a rating decline of 13% and the number of viewers of NBC overall fell 14% between 2016 and 2017. NBC cannot keep expecting advertisers to pay more while reaching fewer viewers.
The many people taking Comcast broadband alone are likely seeing little or no NBCU content. Meanwhile, Netflix, Hulu, Amazon, and YouTube increasingly fill their viewing time. Ignoring D2C delivery is putting the future audience for NBCU content at risk.
Why it matters
People are increasingly buying broadband alone from Comcast.
Neither NBCU nor Comcast cable have D2C products they can offer to broadband-only customers.
Ignoring the D2C opportunity jeopardizes NBCU’s future and could reverse the decline in pay TV subscribers.
Tables and graphs on this page are derived from public Comcast quarterly earnings statements and from the analysis and calculations of nScreenMedia
|For Q3 2018||Revenue||Change (over Q3 '17)|
|Annual Total||$84.5B 2017||+5.1% over 2016|