nScreenMedia OTT multiscreen media analysis

Comcast will prosper whatever happens with cord-cutting

revenue share 2008 2016

Comcast had its best quarter for video in 9 years, adding 53,000 subscribers (up 0.2% year-over-year) in Q1 2016 versus a decline of 8,000 in Q1 2015. It now has 22.4 million video subscribers overall. It also increased video revenue 4%, to $5.5B. Broadband also continued to grow strongly, increasing 6% year-over-year to 23.8 million subscribers.

Growing in a contracting market is a difficult feat to pull off. Comcast has done it by making a huge investment in its infrastructure, completely replacing its television platform. This is paying off, as it is able to offer a tangibly better interface and features than most direct competitors.

At the same time, competitors are switching their pay television strategies. AT&T has stopped promoting, and improving, its IPTV U-verse product in favor of DirecTV. Dish is focusing its growth aspirations on its OTT offering, Sling TV. Verizon is finished with the roll-out of FiOS in existing neighborhoods, and could be readying a switch in its FiOS TV product to the Intel OnCue software it acquired in 2014.

It is doubtful, however, that X1 alone will be enough to reverse the overall decline in the pay TV market. And that means the reversal of fortunes Comcast is seeing in video is likely a temporary phenomenon. That said, it is certainly providing the company plenty of time to figure out an OTT strategy. Neil Smit, Comcast’s President and CEO of cable, was asked about DirecTV’s plan to launch a suite OTT services later this year. He commented:

“There’s no reason we couldn’t do something very similar from a technology perspective or a rights perspective. We would just have to go get the rights to deploy the product.”

The strength of the X1 video platform is that it can easily be used to launch other IP-based TV services. For example, the company leveraged the technology to launch the broadband-based Streampix service and IPTV product Stream. As to being able to license content for OTT delivery, ownership of NBCU certainly can’t hurt. Comcast is also looking to expanding the content it owns, with rumors swirling that it is about to buy Dreamworks Animation, the maker of animated features such as Shrek and Kung Fu Panda.

Whatever happens to the video market, Comcast is liable to continue to prosper. Over the last 8 years, it has dramatically reduced its reliance on video revenue. In 2008, it delivered 59% of the total revenue for the company. In 2015, it accounted for just 29%. Over the same period content revenue has gone from zero to 37%. Given that mainstream content is likely to continue to do well, regardless of the delivery mechanism, this seems like a good move for company. The flexibility of the X1 platform should also allow it to quickly launch OTT video products as and when the market conditions demand it.

Despite all the good news for its cable TV business, nScreenMedia still expects the company to finish the year with around the same number of video subscribers it started with: 22.3 million. Average video revenue per subscriber should increase about $3 per month, to around $84. This increase will be well ahead of inflation, but lower than the probable increase in programming cost.

Why it matters

Comcast has turned around its video business by investing heavily in a new TV platform, X1.

X1 can also be used to quickly launch OTT services.

The company has shifted its reliance from pay TV to content as the biggest revenue driver.

Comcast seems well prepared to prosper even as the pay TV market continues to shrink and the OTT expands rapidly.


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