Comcast second quarter results brought investors good news: solid earnings growth. The story for subscribers, however, was mixed. While the cost of pay-TV continues to increase faster than inflation, X1 provides a much better experience.
Revenue increased across all of Comcast’s main businesses in the second quarter of 2014 over Q2 last year. The standout performance was from broadband, increasing 9.7% to $2.8 billion. Voice revenue increased 1.3% to $922 million, and video revenue increased 1.2% $5.2 billion. NBC Universal achieved a much more modest improvement of just 0.4%, to $6 billion.
Looking at subscriber numbers, the picture is a little more complex. The company trumpeted the decrease in the number of subscribers leaving pay-TV as an achievement worthy of note. However, the improvement was marginal at best. In the second quarter of 2013 Comcast lost 166,000 pay television subscribers, or 0.7%. In the second quarter of 2014, pay-TV subscribers fell 144,000, or 0.6%. Certainly nothing to get excited about.
Looking at the broader picture for pay-TV subscribers, the company has seen improvement over the last three quarters. The fourth quarter is usually very strong for the company, and last year was no exception. The company managed to increase subscribers for the first time in years, and sustained the momentum into the first quarter of 2014. The second quarter is historically very weak, and this year was no exception.
Taking all of this into account, nScreenMedia estimates that Comcast will still lose around 150,000 pay-TV subscribers for the whole year. This is an improvement on 2013, when the company lost almost twice as many. By the end of the year, the number of pay-TV subscribers and broadband subscribers will be virtually the same.
For consumers, the overall affordability of pay television continues to decline. Average revenue per unit (ARPU) increased 1.8% over the previous quarter, and has increased 2.1% since the same quarter last year. Over the last year, inflation has averaged 1.4%. Therefore, in real terms, pay television has increased 0.6% for the average subscriber.
The slightly improving picture for pay-TV at Comcast is likely due to the introduction of the X1 hybrid television service. The company has been pushing adoption heavily in a blitz of video, print and mailer advertising. As well, customers that have adopted the service seem to like it. One of the big advantages of a hybrid platform is the ability to innovate much faster using standard web processes. This has allowed Comcast to introduce a new Labs area of the X1 interface, where customers can come and trial experimental features. For example, customers can test automatically cueing up the next episode of a show just watched; the same feature that has been available in Netflix for a year or more.
Another bright spot associated with Infinity TV is the ability to purchase movies. Comcast has been very successful with this feature, even exceeding iTunes sales. This got a boost from Lions Gate Entertainment Corp., which agreed to provide bonus movie content through apps to Comcast customers. The apps will run on mobile devices and, later, on the X1 set-top box.
Unfortunately, X1 has not helped improve Comcast’s customer satisfaction performance. The company continues to appear at the bottom of performance rankings in this category. This has not been helped by the much-publicized struggles of customers trying to cancel service.
Why it matters
As a bellwether for the industry, Comcast’s modest improvement in pay-TV subscriber retention should be heartening.
However, the improvement is most likely due to heavy investment in the new X1 hybrid pay television service.
Those operators without such an advanced TV platform may still be in for a rough ride.