Company / division: Comcast
I’ve been watching the news from the recent TV upfronts and waiting for the definitive article that summarizes what’s been said and done, and while I’m not convinced this is it, it does a good job of characterizing the basic trends at issue. The two big underlying trends are the continuing decline of live linear viewing of traditional TV and the massive growth of online advertising, which could be presumed to have put an enormous dent in TV ad spending but actually haven’t. However, the TV companies still see online advertising platforms as a big threat, and spent an unusual amount of time during the upfronts trashing Facebook and Google (though mostly not by name) while talking up their own massive reach. At the same time, though, these companies are increasingly mimicking the very same things that make Facebook and Google’s ad platforms attractive: detailed targeting of ads and tracking of what happens after viewers see them. At the same time, the TV networks seem somewhat lost on the content side, rebooting old shows and formats, latching onto new gimmicks like live musicals, and generally showing a lack of imagination in protecting and rejuvenating their brands. Meanwhile, the strongest audiences on traditional TV are live sports fans and older generations watching procedural franchises like CSI and NCIS. And of course the big online platforms are investing in lots of both traditional sports content and some new formats of their own. Therefore, though each side would like to paint itself as providing unique value, the two are increasing converging on a similar set of content and ad capabilities, while the audience continues to shift from traditional linear TV to a host of online and streaming alternatives, which will inevitably pull ad dollars that way too.
via LA Times
Comcast reported Q1 2017 results this morning, and in keeping with past trends, the numbers were generally good. It saw another rise in TV subscribers as the cable companies continue to take share from the telcos, despite the overall trend of cord cutting, and it also saw strong growth in broadband subscribers, which now significantly outnumber its TV subs. Interestingly, it also began placing more emphasis on its home automation and security business this quarter, and reported that it has almost a million subscribers, or around 4% of its broadband base. The big theme that’s emerging from this quarter’s earnings reports from these providers is bundling – Comcast continues to see the percentage of customers taking more than one product rise over time (it’s now reached 71%), while AT&T suffered precisely because it can’t offer broadband/TV bundles to DirecTV customers. The wireless-TV bundles it can offer aren’t the ones consumers are looking for, which makes Comcast’s push into wireless somewhat questionable too. At NBCU, we’re seeing many of the same trends we’ve seen before too – subscriber numbers and viewing are down, but contractual rate increases with MVPDs are driving revenue growth anyway (of course those rate increases are rising costs on the cable side). Ad revenue was down in the cable networks business but up slightly in the broadcast business despite lower ratings because prices have been rising, though my analysis across the TV industry suggests the rate of price increases is slowing dramatically. Comcast continues to be a powerhouse across the categories where it competes (which also includes movies through Universal) but it’s facing some significant headwinds in the form of cord cutting, ratings declines, and rising content costs, which are going to take an increasing toll over the long term.
Note: you can see all my earnings posts or all Q1 2017 earnings posts specifically by clicking on the relevant tags below.
NBC Lines Up Affiliates for Streaming Distribution Deals (Apr 13, 2017)
The FCC recently held an auction of spectrum to be freed up by broadcasters and made available for wireless services, in the 600MHz band, which is well suited to long-distance and in-building coverage. T-Mobile was the only wireless carrier among the big winners, with the two largest carriers having cleaned up in the previous auction, and a cash-constrained Sprint sitting this one out too (AT&T did win licenses worth $900 million, but T-Mobile spent $8 billion). The other big bidders were DISH, which spent nearly as much as T-Mobile ($6.2 billion), and Comcast, which recently announced its wireless service based on Verizon’s network but could eventually launch its own network. Though T-Mobile has always crowed about how much spectrum it has per customer, that was always more of a reflection of its smaller number of customers rather than a massive spectrum trove, and it lacked low-band spectrum. It has now made big strides in solving that problem, and plans to put at least some of that spectrum to work right away (though much of it will be unavailable for several years while the broadcasters go through the process of vacating it, with much of that unavailable spectrum covering the densest markets). It’s also worth noting that no phones in the US today support the 600MHz band – that support is likely to come early next year with a new Qualcomm modem, so even if T-Mobile does put a third or so of its new spectrum to work this year, it won’t do anyone any good until then. So, if you’re a US wireless customer today, none of this makes any difference for now, and it’ll only make much of a difference a year or several down the line if you’re a T-Mobile customer (or in limited cases an AT&T customer). Or as and when Comcast and DISH decide to put that spectrum to use.
Comcast invests in Plume, a Wi-Fi wall plug startup – Axios (Apr 11, 2017)
This is an interesting investment for Comcast, which already has a big focus on WiFi, as evidenced by its Xfinity Mobile launch last week. Its home broadband routers double as WiFi hotspots for other Comcast customers, and it’s been investing in home automation technology too. So investing in Plume, which offers a service-based approach to WiFi, is a logical next step. Smart home systems are increasingly going to require management and control over the WiFi and other networks in the home for quality and security purposes, so going deeper into WiFi technology and management is going to be important for companies like Comcast that want a role there. The other intriguing part of this is that Plume has been working on a model where it would charge a monthly fee for that WiFi management service, something I could see Comcast doing in time either separately or as part of a smart home service. Yet more evidence, though, that the future mainstream version of the smart home is likely to be service-based. (Incidentally, read this smart piece by Stacey Higginbotham for more on Plume)
I wrote a piece last week for Techpinions about the fragmentation in the TV market as everyone launches their own streaming services, and here comes yet another example of that. It sounds like Comcast is working on a service that would combine content from NBC and the NBCU cable networks into a single subscription package, although the conditions on the Comcast-NBCU merger make it unlikely that it will debut in the next 18 months or so. But we’ve already seen the premium cable networks (HBO, Starz, and Showtime) go over-the-top, along with broadcaster CBS and NBC itself with a comedy subscription service called Seeso. As cord cutting and cord shaving eat into cable network subscriber numbers, we’re going to see lots more of this direct-to-consumer stuff. In principle, that sounds great for consumers, who will now be able to pick and choose just the content they want, but in practice they’re likely to end up spending more and dealing with multiple bills, user interfaces, and content models to get it, which is in turn going to lead to an opportunity for re-aggregation down the road.
Comcast Introduces Its Mobile Service (Apr 6, 2017)
Comcast today finally unveiled the wireless service it’s been working on for years off the back of a long-standing agreement to use the Verizon Wireless network as the underlying carrier. It should be a compelling offering for at least some customers, especially the premium 25% or so of its base to whom Comcast will offer preferential pricing. However, the unlimited offering caps out at 20GB per month before throttling kicks in, whereas the traditional carriers’ throttling kicks in at higher points and only in times of congestion, making Comcast’s unlimited in name only. WiFi is a major selling point from Comcast’s perspective, but I’m very skeptical that it’ll be a big part of users’ experience, given how few hotspots Comcast actually has in places where people spend time out of residential neighborhoods, and the fact that WiFi is often now slower rather than faster than LTE. Comcast is going to keep costs down by selling online and in its existing stores and marketing through existing channels, as well as keeping bad debt expense down by marketing to existing customers who pay their bills on time and offering only auto-billing on credit cards. Comcast will likely sell this service to up to 10% of its base in the next couple of years, which will be a nice boost to its revenues and profits, but will make only a tiny dent in the overall US wireless market – 10% penetration of its broadband base would be just 2.5 million customers, which is less than the number of new customers the big four carriers added last quarter alone.
Comcast reportedly planning streaming TV service just for its internet customers – The Verge (Mar 28, 2017)
Yet more evidence here that Comcast is readying a bigger launch of streaming TV, beyond last week’s report that it’s been signing deals for national streaming delivery of content. This streaming service is designed specifically for Comcast broadband customers who don’t also take its pay TV service, and has been offered as a sort of test in a few markets already. But it sounds like it’s gearing up for a big expansion, and that makes sense: Comcast has 2.2 million households which take broadband but not pay TV, so that’s the obvious target market for this service. But having launched this Stream service more broadly within its own footprint, it could eventually take it nationwide too, given those deals it’s been signing. I’ve been saying for a while now that I think there’s something of a game of chicken underway among the major pay TV providers about which will take a true pay TV replacement national first. Comcast was always a strong candidate, and it’s looking ever more likely that it will indeed be the one to go first.
via The Verge
I’ve held for quite a while that there’s a game of chicken going on between the various big pay TV providers over who will be first to take a streaming version of their service nationwide, and it looks like Comcast is taking steps to ensure that it can do so if and when it decides to move forward. That’s not a guarantee that Comcast actually will do so, and indeed this piece suggests Comcast has no immediate plans on this front. But it’s clearly in a very strong position to do so, as the second largest TV provider in the US and the largest cable company, and also the pay TV provider with the strongest user interface through its X1 platform. That platform could potentially run as an app on third party boxes like Roku, Amazon Fire TV, and Apple TV should it choose to run a nationwide service. And there is, of course, big upside from a revenue perspective in offering its service nationally, especially as a hedge against cord cutting within its existing footprint. The downside is that such a service would be standalone, and with content costs rising as a percentage of video revenue, margins there are being squeezed. In its footprint, Comcast can offset that by charging more for broadband or up-selling voice or home automation services as part of a bundle, but that’s not possible when selling online TV as a standalone product. Still, at some point I believe Comcast and other big pay TV providers will finally take really compelling TV offerings (rather than the watered down stuff we’re seeing from Sling and DirecTV) national, and that will be a big deal.
Cable Network Owners are Culling Underperforming Networks (Mar 21, 2017)
Today, both the Wall Street Journal and Variety published in-depth pieces on the way major cable network owners are culling some of their underperforming networks, either shutting them down entirely or shifting investment to their more successful properties. Both articles have lots of good history, and each also features an interesting graphic with lots of detail that helps readers see which are the worst performing networks. All of this is, of course, a reflection of several trends impacting the TV industry, from cord cutting to cord shaving to increasing content costs and a shift from linear live viewing to VOD and streaming. For now, the focus is on these underperforming channels, and the pieces seem to suggest there are magic subscriber numbers above which the problems are either smaller or don’t exist at all. But the reality is that even big networks like ESPN are struggling. As I argued in a my weekly Variety piece last week, the only thing keeping most cable networks from seeing negative growth is contractual rate increases, which won’t last forever. Interestingly, though, cable networks continue to be some of the most lucrative segments of the overall TV market, with high margins relative to pay TV providers and broadcasters.
I got not one but two press releases yesterday from different companies saying they had closed their acquisitions of Icontrol, and that’s because Comcast and Alarm.com split what was previously one company’s assets into two and each took the piece it was most interested in. Alarm.com gets the piece that’s most similar to its existing business, which is white label smart home systems for alarm companies, while Comcast gets the part that helps manage its own existing smart home systems and similar ones for other cable companies. Both Comcast and Alarm.com are currently focused on the service model for the smart home, which I continue to think is the most promising for mainstream adoption, but the Icontrol acquisition actually gives Alarm.com a way to pursue a DIY model too, while Comcast gets a way to start licensing its home automation platform, something it already does with its X1 set top box operating system. We’re going to see lots more acquisitions in this space over the next few years, and I’m betting a lot of them will be focused on the service model, although we’ll also see some service companies enabling the DIY model as a way to capture the smaller number of higher spending early adopters.
via CE Pro
Comcast is integrating YouTube into its set-top box — just like it did with Netflix – Recode (Feb 27, 2017)
Comcast’s Netflix integration seems to have gone well – both companies have talked about it on recent earnings calls, and although Netflix has downplayed the significance of the partnership from a user growth perspective, it’s really Comcast that benefits the most from this integration. That’s because this is basically just a way to keep people on the Comcast set top box instead of jumping to a different box to watch Netflix, and it’s very much the same strategy that applies with YouTube here. Keep people on your box, in your interface, and you at least have the opportunity of showing them more of the programming you bring to them (and for which they pay over $80 on average per month). Do that, and there’s a greater chance that they stick with your product (and your bundle) rather than canceling it or scaling it back. Keep them in your recommendations interface, and they may even in some cases become less aware of where the content is coming from, further cementing your role as the primary video provider.
This announcement was very well timed given the apparent death of FCC set top box reform reported earlier today. Comcast has argued all along that market forces will bring the choice in set top boxes consumers want, and this announcement is a useful token of that vision. It’s limited – it’s Roku only for now, and customers still have to have an old-style STB in the home as well until later this year. It also appears customers will still have to pay something for the privilege of using a box they own rather than one of Comcast’s. This is progress of a sort, but very much the kind of progress the cable companies are willing to go along with – with control, fees, and more still in place to some extent. The more interesting question is whether Comcast might use this experiment as the basis for a broader rollout of over-the-top Xfinity TV services outside its footprint – that would be far more disruptive.
Comcast is an enormous and complex company, with its US cable and broadband business but also a movie studio, theme parks, the NBC TV business, and more, and as such it’s hard to its results justice in a brief space, so I’ll focus on a couple of key areas. Firstly, it saw video subscriber growth for 2016 as a whole, the first time that’s happened in a decade. This wasn’t a surprise – Comcast’s video net adds have been trending upwards for several years, mostly because the major telcos (AT&T and Verizon) have taken their foot off the gas in selling their TV services (AT&T has instead ramped up its satellite based offerings through DirecTV). All the cable companies have benefited from this, but Comcast perhaps more than most. It’s worth noting, though, that cord cutting is accelerating overall, and Comcast is gaining share in a shrinking market, and its programming costs are also rising as a percentage of its TV revenues. We didn’t get much more clarity on Comcast’s wireless ambitions on the call, other than that the focus will predictably be on bundling. But that service should launch in H1. I’m asked a lot about the prospects for that service, but so much depends on the details of what Comcast launches – on balance, I’m fairly bearish.
These numbers get crunched every year, and are always an insight into the sometimes complex relationship between tech companies and the US government, as well as the very different strategies pursued by the various companies – Apple spends far less than some of its peers (less even than Facebook, which is a fraction of its size), while Google is always a big spender. The other thing I’m always struck by is the relatively tiny size of the spending – even Google’s $15.4m lobbying spending is minuscule in the context of its overall business – Apple’s spend was a fraction of a hundredth of a percent of its revenue for the year. It’s also interesting to see which issues the companies lobbied on: Apple lobbied mostly on technical issues directly related to its business, while Google lobbied more broadly on trade and immigration policy as well as several technical topics. All this will obviously potentially get a lot more complicated under the new administration, which has so far had a much more adversarial tone towards big tech companies than its predecessor.
CES 2017: What Makes a Smart Home Smart? – Comcast Blog (Jan 9, 2017)
I wanted to link to a news article on these announcements, but it was relatively short on meaty content and linked back to Comcast’s own blog here, so I’ve gone with that instead. This post echoes a lot of my own thinking on the smart home, which is that the retail DIY model is broken for the vast majority of ordinary consumers, and that integrated services and platforms are the way smart home technology reaches the mainstream. Vivint is selling a similar vision here, and I actually think their total offering is more promising than Comcast’s. But it’s these services companies and not the retail ones who will do best in the long-term smart home market.
Watch out, Wi-Fi systems! Comcast is transforming its Xfinity gateway to a smart digital home platform – CNET (Jan 4, 2017)
Two hot areas collide in this Comcast announcement – smart home and better whole-home WiFi. But that’s kind of the point here – better WiFi is increasingly important because a lot of smart home gear relies on it, and I’m coming to the conclusion that smart home gear will likely need to be tightly integrated into the home router/gateway, rather than piggybacking off a generic router. That puts companies like Comcast in a strong position, and it also means AT&T and others that currently use other connectivity will have to go deeper into home networking. Meanwhile, standalone off-the-shelf smart home gear makers will be increasingly isolated.