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X1 video sub progress stalls, can Instant TV fix it?

Comcast cable subs 2014-2017

Comcast announced good results for Q2 2017, with solid performance across all businesses. Video subscriber growth, however, bucked the trend with losses increasing over last year. Can the company’s new millennial-focused Instant TV recapture the video glow?

Video recovery stalls

Comcast’s video renaissance seemed to stall in Q2 2017. Though the quarter is traditionally a weak one for the cable TV business, Comcast has been gradually improving performance over the last few years. In Q2 2014, the company lost 144,000 video subscribers. The following year it reduced the loss to 69,000, and last year lost just 4,000. In Q2 2017, losses ticked up to 34,000.

Brian Roberts, Comcast’s CEO, commented in the earnings call that company continues to see existing customers switch to X1. He did not say that X1 has been an effective tool at attracting new subscribers. Given the losses seen at satellite and telco competitors, we would have expected to see at least some of them migrate to Comcast. This doesn’t seem to be the case, perhaps because of the affordability of X1.

Affordability still a problem

The average video customer is paying $85.7 a month for service at Comcast. This is 3.2% higher than one year ago and continues the trend of ahead-of-inflation increases in cable rates. The inflation rate in the U.S. for the last year through June 2017 is 1.6%.

These increases are driven by the underlying cost of content. Licensing cost increases continue to skyrocket. They grew 14.3% year-over-year and now represent 56.8% of video ARPU (average revenue per unit or customer.)

While the video business margins continue to be squeezed by this trend, NBCU is the big beneficiary. The business unit turned in another excellent quarter in part driven by a 10% increase cable TV network license rates.

comcast business revenue share 2008 2017This highlights how far Comcast has come since it purchased NBCU in 2013. In 2008, Comcast was primarily a pay TV company, with 59% of revenue derived from that business. Today, NBCU is the biggest revenue driver, contributing 39% while pay TV has shrunk to just 28%.

Instant TV aimed at millennials

Taking square aim at the affordability of pay TV, Comcast continues to ready its new Instant TV service. This is a video product the company hopes will attract millennials who no longer see television as an essential service. In the conference call Brian Roberts, Comcast CEO, said that Instant TV would not require a set-top box and that it is on target for release later this year.

Reuters has previously reported that Instant TV would be available for around $15 a month and be available on a month-to-month basis. Initially it will only be offered to customers that take the company’s broadband, but not Xfinity TV.

It’s not clear how effective Instant TV will be at attracting millennials back to traditional television. Millennials continue to migrate away from TV. Nielsen reports that in Q1 2017, viewing among the 18-to-24-year-olds fell 11% year-over-year, and was down 10% in the 25-to-34-year-olds.

Why it matters

Comcast has arguably the most advanced TV service in X1. However, it does not appear to be attracting customers from competitors.

This is in large part due to the fact that pay TV prices continue to increase well ahead of inflation, making the service less affordable.

Comcast hopes its new Instant TV service, due for release in Q3, will fix the affordability problem and attract younger viewers. It’s not at all clear that some millennials want television service at any price.


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