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Three reasons why Comcast should rethink its approach to pay TV now

Comcast video sub gains losses 2013-2018

Comcast’s Q1 results were great, with NBCU and the broadband business continuing to deliver tremendous growth. One notable exception is the company’s video business, which has succumbed to the long-term declining trend of the rest of the pay TV industry. What better time to re-think the approach to video services?

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. It lost subscribers and revenue fell for the first time in years. Here are three facts about Comcast’s pay TV services business they suggest it is time for a change in approach.

Fact 1: Video subscribers enter long-term decline

Comcast delivered its fourth quarter in a row of declining video subscribers, for a net YoY loss of 288,000. The company had not seen subscriber losses like this since the bad old days of 2013 when it lost 300,000 video customers.

The performance officially reverses the improving trends established in 2014, driven by the broad rollout of X1 to customers. X1 slowed subscriber cancellations and brought in new customers while the rest of the industry began to decline.

Fact 2: Video revenue is declining

Comcast video revenue Q1 2011-2018Comcast has been able to increase video revenue even during disastrous years such as 2013. It has 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%.

Remarkably, video ARPU (average revenue per unit) inched up twenty cents, to $84.7. Comcast increased the price of pay TV at the beginning of the year in many markets by adding special fees for regional sports networks and broadcast channels. However, this was not enough to compensate for the loss in subscribers.

Fact 3: Unrelating rise in the cost of content

Comcast ARPU versus programming costsProgramming costs continued their unrelenting march higher. In Q1 2018, Comcast paid $3.3 billion in license fees, up 3.7% quarter-over-quarter and 1.2% year-over-year. Since 2011, annual increases in programming fees have averaged 8%.

The rise in programming fees has had a disastrous impact on the profitability of Comcast’s pay TV business. Q1 2014 video ARPU was $76.4, and the per subscriber share of program license fees was $36.16. In other words, 47.4% of ARPU went directly to the programmers. Q1 2018 video ARPU was $84.7 and per subs share of license fees was $49.8, or 58.8%.

A great time to adjust how Comcast thinks about video subscribers

Increasing costs, limited ability to raise prices and a defecting customer base makes for a very sour business outlook. It could be a great time for Comcast to reinvent its approach to video. Perhaps taking a leaf out of a much smaller competitors book could be helpful. Speaking at an Amino-sponsored event at NAB 2018, Emily Schierberg, Director – Video and Applications at Cincinnati Bell articulated a new way to think about subscribers:

“In a year from now, we won’t treat all video subscribers the same. For a long time, it was ‘a video sub is a video sub,’ but as the dynamics of the video industry change, who we take on as a video subscriber will change. Some will have linear and we’ll invest with a managed set-top box, and some will just be over-the-top, and we’ll consider that a win for our broadband. People still buy content with their Internet and whether that’s over-the-top or our linear, that’s okay by us.”

Why it matters

The dynamics of the pay TV industry make it an increasingly unattractive business.

Increasing costs, a limited ability to raise prices, and a defecting customer base makes for a very sour business outlook.

Could be time to think about the business and video customers in an entirely different way.


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