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CandW discuss Comcast and AT&T’s contrasting video strategies

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Comcast’s Q1 results show a loss in video subscribers for the fourth quarter in a row. ATT, with the help of DirecTV Now, actually gained subs. Is it time for Comcast to launch a vMVPD service?

Chapter 1: Comcast’s Q1 2018 (1:40)

Comcast delivered great results for Q1 2018. The company earned $22.8 billion in revenue, up 10.7% from the same quarter last year. The biggest driver was the stellar performance of NBCU. It increased quarterly revenue 21% year-over-year (YoY), buoyed by the Winter Olympics and Super Bowl advertising bonanza. Broadband also did well, increasing subscribers 380,000 to 26.3 million and ARPU 2.5% YoY to $52.79.

The laggard in all the good news was the video business. Comcast lost 96,000 video subscribers in Q1 2018, its fourth quarter in a row of losses. The company has lost 288,000 video subscribers in the last year. It also saw a decrease in video service revenue. Video services have delivered positive quarterly gains in revenue over the same quarter in the previous year since Q1 2012. That changed in Q1 2018 when revenue fell 0.8%.

Finally, the profit margin on the video business declined again, due to the escalating cost of content. Almost half of video ARPU now goes directly to the programmers.

Chapter 2: AT&T adds video subs, thanks to DirecTV Now (9:10)

AT&T lost 187,000 DirecTV subscribers and gained 1000 U-Verse TV customers. On the other hand, the company gained 312,000 DirecTV Now customers for a total of 1.46 million. In other words, the company gained 126,000 video subscribers overall.

Revenue received from DirecTV Now is much lower and, probably, margins are much lower too. I checked the total content costs for two vMVPD services: Philo and YouTube TV. It looks very much as though YouTube TV is not charging enough to cover the cost of the TV channels they are delivering. Philo, which doesn’t include sports or local channels, is likely making a good profit on its $16-a-month tier.

Looking at the pay TV numbers, however, it looks like the profitability of traditional pay TV is also struggling.

Chapter 3: What role is video playing going forward (16:10)

Will thinks that AT&T sees its core business as wireless. Using video to support the core business makes a lot of sense. The pending introduction of the company’s second vMVPD service, called Watch, is intended to support the wireless business. It will be bundled with unlimited wireless plans at no extra charge.  

Comcast says it is now a broadband company, and profitability and growth in Q1 certainly supports that idea. However, its video strategy is not aligned with a broadband-first strategy at all.

Chapter 4: Is Comcast too wedded to X1? (20:30)

Will thinks that Comcast may be too committed to X1, and it may be preventing it from launching a vMVPD. He thinks this could be a mistake if the market is moving toward cheaper internet bundles.

Comcast is trying to by Sky. The cable giant could learn a lot of Sky’s UK strategy. Like Comcast, it has launched a high-end expensive pay TV product called SkyQ. However, it has also launched a low-cost Internet product called NowTV where consumers can access many of the Sky Satellite channels and content on a much more casual basis.  

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