|As of Q4 2019||Residential + Business Subscribers||Change over Q4 '18|
Commentary on Q4 2019 results
Comcast pins video future on ‘free’ Flex, Peacock
The future of Comcast video is no longer X1 TV. Executives at the company accept it is in long term decline and believe the combination of broadband with a free streaming media player, Flex, and a free online TV service, Peacock, is the path to future success.
X1 TV in accelerated decline
Last year, Comcast changed strategic direction with video services. It stopped pursuing all video customers and began focusing on higher spenders. Michael Cavanagh, Comcast’s Senior EVP & CFO, put it this way:
“We’ve consistently said that there is a segment of the market that either doesn’t value a traditional pay TV service or isn’t profitable for us to serve. We’re not chasing this segment of the market, and we saw fewer new connects with these customers.”
Comcast also saw more disconnection by these lower-paying customers. The company lost 700,000 video subscribers in 2019.
The change was driven by dramatically lower profit margins on video service due to the increasing cost of programming. Comcast is working to improve the profit margin of video. With a renewed focus on customers more tolerant of higher prices, it also feels it can raise rates. At the beginning of the year, the cost of basic TV increased from $30 to $35 a month, and the broadcast TV fee was hiked 50%, to $15 a month.
The shift in strategy and focus on profit margin will accelerate the decline in video subscribers in 2020, according to Mr. Cavannagh:
“With the rate adjustments that we are implementing in 2020 as well as the ongoing changes in consumer behavior, we expect higher video subscriber losses this year.”
Comcast lost 3% of its video subscribers in 2019. Given the price increase and focus on retaining high-paying subscribers, a loss of 5% or 1+ million customers in 2020 would not be a surprise.
Flex – Comcast’s product for cord-cutters
Comcast is not abandoning cord-cutters and value-oriented video consumers. Flex, which is built on X1 infrastructure, is the video product it is pitching at them. Xfinity broadband customers get a Flex streaming media player and voice remote free with their subscription. Moreover, broadband is a service that everyone wants, and of which Comcast is a leading provider. The company added 1.4 million broadband subscribers in 2019 to reach 28.6 million in total and earned $4.8 billion in revenue in Q4. Video services delivered just $0.7 billion more in Q4, but with thin margins due to the heavy burden of programming costs.
Flex is an essential product for Comcast to get right. Even though it does not charge for it, Flex provides several strategic benefits:
- It supports broadband by allowing Comcast to continue to provide a video bundle, with all the churn-busting benefit that brings
- Customers may buy and rent movies in Comcast’s video store
- Comcast likely receives revenue from SVOD services when customers subscribe to them through Flex
- It will help drive viewership of Peacock’s ad-supported content.
Broadband+Peacock+Flex, an unbeatable bundle?
Peacock is also a strategic priority for Comcast. As viewing switches online, NBCU must share more ad revenue with online providers like Hulu, where its most recent top shows are available to watch. According to Steve Burke, Senior EVP & Chairman, NBCU, a key goal of Peacock is to claw back that advertising revenue:
“If you imagine a television show where 70% of the viewing comes from someplace other than linear television. What Peacock is designed to do is to go after that 70%, get it on our platform in a place where we’re ad-supported and we get 100% of the ad revenue.”
Peacock will be tightly integrated with Flex and available for free to the almost 30 million Comcast broadband customers. In other words, the more people using Flex, the more advertising revenue for Peacock.
Comcast envisions broadband, Flex, and Peacock coming together to create an unbeatable bundle. A bundle which Mr. Burke believes will turn Comcast into a dominant power in the streaming world, and earn a ton of money for the company:
“So, if you include Dave’s broadband business, plus Flex and Peacock, think our company is better positioned as the world moves to streaming than any other company in the world. And I think you could argue in the next 10 or 20 years, if you look at all those three businesses combined, we could make more money in streaming than anyone else, by a lot.”
Why it matters
Comcast has accepted that its cable TV service is in long-term decline.
It has built a new video bundle by combining broadband with a Flex streaming media player tightly integrated with the new Peacock online TV service.
It believes this bundle is the future of the company.
 Extra Flex boxes cost $5 a month.
Tables and graphs on this page are derived from public Comcast quarterly earnings statements and from the analysis and calculations of nScreenMedia
|For Q4 2019||Revenue||Change (over Q4 '18)|
|Annual Total||$108.9B 2019||-0.5% over 2018|