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CandW discuss Comcast Q2 2018 and perplexing inaction on DTC

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Comcast’s second-quarter results show that the company’s video renaissance is over. What’s more, the company seems to have no immediate plans to stem the losses.

Listen to the CandW podcast discussing the results and read the details below.

Comcast’s second-quarter results

The standout in Comcast’s Q2 2018 results was broadband. The business delivered 260,000 new customers, up 5% from the same quarter last year. Revenue also increased an impressive 9% year-over-year (YoY.) Broadband delivered growth for the whole cable business even though video and voice both declined.

Comcast video sub gains and losses 2013-2018

Video subscribers fell 140,000 (down 1% YoY,) the fifth straight losing quarter and biggest video subscriber loss since Q2 2013.  In the past, Comcast has been able to increase video ARPU enough to continue to grow revenue, even though the number of subscribers was falling. Those days are over. In the second quarter, revenue fell 2% YoY, and ARPU declined 0.2% YoY.

Video service decline blamed on vMVPDs

Brian Roberts, Comcast Chairman, and CEO laid the blame for the losses in video subscribers at the door of the services like Sling TV and YouTube TV:

“As anticipated, continuing competition from virtual MVPDs contributed to our 140,000 video customer net losses in the second quarter.”

He also expects the competition to intensify as vMVPDs increase their marketing campaigns. Comcast is likely signaling to the market that video subscriber losses are likely to accelerate.  nScreenMedia expects Comcast to continue to lose subscribers in Q3 and Q4 resulting in a 2018 loss of approximately 400,000 video subscribers.

Looking at AT&T’s results for Q2, Mr. Roberts appears to be right about competition from vMVPDs intensifying. AT&T is aggressively marketing DirecTV Now to its wireless customers, and the strategy seems to be paying off. The vMVPD gained 342,000 subscribers in Q2 to reach a total of 1.8 million.

No interest in a Comcast vMVPD

Comcast could be active in two areas of direct-to-consumer (DTC) online services. They have, instead, decided to adopt a wait-and-see approach.

By the company’s admission, vMVPDs are partially responsible for the decline in its video business. Nonetheless, Comcast executives show no interest in launching a similar service. AT&T is taking the opposite approach. It is actively promoting DirecTV Now, to good effect, and has just launched a new $15-a-month service called Watch. The trim bundle of premium channels lacks sports and news and is being given away free to the company’s upper-tier wireless customers.

Comcast may feel it doesn’t need a vMVPD as an incentive to buy its broadband. Certainly, with the spectacular growth in broadband customers over the last year, it’s hard to argue with that position. However, things could change fast with the introduction of 5G services. 5G could bring credible competition to Comcast’s broadband business. Having an established vMVPD service to bundle with broadband could come in very handy if broadband competition heats up. It will also help keep existing customers within the Xfinity fold.

No interest in NBCU US DTC

The second DTC opportunity is for NBCU. NBCU does not have a pay video online service in the US. It launched the comedy service, Seeso, which it shut down late last year, and has a reality-TV service in the UK called HayU. When asked about DTC opportunities in the Q2 earnings call, Stephen Burke, SEVP at Comcast and CEO of NBCU launched into an impassioned defense of live television:

“The vast majority of television viewing is not streaming. The vast majority of television viewing is not Netflix, or Amazon, or Hulu. The vast majority of television viewing continues to be linear television, particularly for big events.”

Mr. Burke may be correct when considering the average viewer. However, among large segments of the US population live TV is no longer a factor. Just 26% of 18-to-34-year-olds consider live TV as their default service. On the other hand, 35% of them say Netflix is their default TV service. What’s more, the 20+ million active Roku users now stream 2 hours and 30 minutes per day.

It may be time for Comcast to take another look at DTC online services. Though they may not help short-term profits, they will have long-term benefits for both NBCU and Xfinity services.

Why it matters

Comcast’s video business has entered long-term decline as vMVPD competition disrupts its business.

While launching its own vMVPD service won’t bring any short-term revenue, it will position the company to be more competitive in the long-term.

NBCU should also launch DTC online video services if it wants to reach young people and other large demographic groups that are disconnecting from live TV.

Comcast video and data subs 2015-2018


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