A combination of a tough economy, the end of promotional sign-up periods, and service provider competition contributed to a third-quarter loss of 275,000 basic video subs at Comcast Corp. (Nasdaq: CMCSA, CMCSK), a healthy cut above the 189,000 losses that Wall Street was expecting.
Comcast has shed about 622,000 video subs so far this year. Despite those losses, third-quarter video ARPU (average revenue per unit) rose 10.4 percent, to $129.75, as the customers that continued to stay on opted for advanced service tiers and products.
Comcast president Neil Smit said on this morning's call that 42 percent of those third-quarter video losses were basic subscribers. As for the budding "cord-cutting" trend, he said a "small number of customers" are opting to get video over the air, while the effect from over-the-top, broadband-fed services remained relatively negligible.
Comcast gained in all other aspects of its subscription business, including high-speed Internet, voice, and digital video, though the rate of growth is showing signs of slowing. Business services were once again a bright spot, with revenues rising 54.4 percent, to $333 million, in the period. (See Comcast Chases Big[ger] Business .)
Table 1: Q2 Sub Counts
Q3 2009
Q3 2010
Cumulative Sub Total (End of Q3)
Total video net adds
-132,000
-275,000
22.93 million
Digital video adds
+463,000
+219,000
19.45 million
High-speed Internet adds
+361,000
+249,000
16.69 million
Digital voice adds
+375,000
+228,000
8.35 million
Source: Comcast
On the financial front, Comcast beat analyst expectations and posted better year-on-year revenues, but saw profits decline in part to costs tied to its pending acquisition of NBC Universal .
Table 2: Financial Snapshot
Q3 2009
Q3 2010
Change (%)
Revenues ($B)
8.45
9.48
+12%
Net Income ($B)
0.944
0.867
-8%
EPS ($)
0.33
0.31
-6%
Source: Comcast
Table 3: The Street Vs. Comcast
Analysts' Consensus Estimate Q3 2010
Actual Q3 2010
Revenues ($B)
9.36
9.48
EPS ($)
0.30
0.31
Source: Comcast and Thomson Reuters
CDN expansion
Although Comcast's core video sub base continues to erode, the MSO is still investing in and expanding the reach of its video-optimized content distribution network (CDN). (See Comcast's 'Project Infinity' Takes Flight .)
Initially targeted at traditional video-on-demand (VoD) services fed to set-top boxes, the CDN, which today reaches about 20 percent of Comcast's footprint, presently has the capacity to offer about 70,000 hours of content, but currently provides access to roughly 25,000 video "choices," including 11,000 movies.
"By the end of this year a majority of our markets will have this level of choice," Comcast chairman and CEO Brian Roberts said.
To help customers search and discover all that VoD content, he said Comcast is on track to launch its Web-based Xfinity Remote later this year. That product, which will run on Web browsers and Apple Inc. (Nasdaq: AAPL) iPads and iPhones, will eventually support Android-based devices, as well, Roberts said. (See To Xfinity... & Beyond! and CableLabs Preps iPad App Framework .)
"We're excited about the iPad," Roberts said, adding that it gives Comcast "a chance to start from scratch" when it comes to the development of video guides and navigation tools.
The MSO has completed its all-digital/analog reclamation initiative in about 65 percent of its footprint, and has deployed more than 15 million Digital Terminal Adapter (DTA) devices in support of it so far. (See Comcast's $1B Bandwidth Plan .)
Even with the surge of over-the-top traffic from sources such as Netflix Inc. (Nasdaq: NFLX), Smit said the MSO remains "comfortable" with its current monthly consumption cap of 250 gigabytes, noting that the average consumption for subs is in the range of 2GB to 4GB. (See Comcast Draws the Line at 250GB.)
So parsing the data in the story, Comcast has lost about 2.6% of its subscribers this year (622K net lost), but revenues per subscriber are up over 10%. That sounds like relatively good news, other than the shrinkage part. Any major cause for concern here?
I don't think it's a major concern yet, since revenues are still rising while capex is falling, but they can't just shrug it off, either -- high margin services like HSD and VoIP have served to more than backfill basic video lossesl, but even those subscription growth rates are starting to taper off.
Biz services offers a nice growth engine, particularly as Comcast moves up to go after the middle of that market plus cell backhaul, and they're investing heavily into that. But they'll also need to figure out a way to plug the video leak short of slashing prices to the bone. One way to do that, as we've speculated and heard some evidence of, is to go over the top with video subscription services outside of Comcast's traditional franchise areas. JB
Is there really a solid revenue case for expanding outside of market with OTT services? What kind of money is that going to bring in, and at what cost? Will it be enough to perpetuate the myth of infinite scale?
What's the over/under on customer acquisition cost for something like this, compared with the revenue expectation? That will be a key question for network operators to answer.
That's a good question, but any answer would be purely speculative at this point since we don't know how they might price and package it. Will they do on-demand streaming only coupled with by-mail DVDs (thanks, or maybe no thanks, to that Blockbuster deal have), bundle in linear TV services? Those will all factor in. But , you're point is well taken, it won't do much good if it costs them $900 to acquire a new sub in an OTT, out of franchise market world, and they sell it for $9/mo. JB
The economics of it are certainly worth noodling, though I have yet to see any of the cable guys address the numbers since it's all supposed to be secret. They're building the CDN and they already have that Xfinity TV Online service launched, so they're already putting forth the spend on that whether they go with an OTT strategy or not. But Netflix seems to be on a pretty good run with its subscription streaming, though I'd like to get a better look at their bandwidth costs. JB
They didn't specify how many subs in that figure went to competitors, got rid of cable TV subscription for over-the-air access, or got out of Dodge, etc. JB
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