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Comcast Not Immune to Pay-TV Declines

Mari Silbey
10/26/2017

In a wildly negative quarter for legacy pay-TV providers, Comcast did not escape unscathed. The cable company lost 134,000 residential video subscribers in the third quarter, by far the largest quarterly loss in recent memory. For reference, Comcast lost 68,000 subs in the third quarter two years ago. Since then, the company has only run into negative territory twice, including last quarter's loss of 45,000 residential video subs.

The draining of video subscribers is due in part to the effects of Hurricanes Harvey and Irma, but Comcast Corp. (Nasdaq: CMCSA, CMCSK) also acknowledges the growing pressure of cord-cutting and competition from traditional rivals, with some of those rivals "responding more aggressively than others" to the challenge of acquiring and maintaining customers.

Despite video losses, however, Comcast's overall cable business continues to do well. Even residential video revenue grew 4.2% to $5.8 billion in the quarter, a product of higher prices ("rate adjustments"), income from a major pay-per-view boxing event and the fact that customers are stacking up on new video services. Combined primarily with continued strong broadband gains and business services growth, Comcast's overall cable revenue was up 5.1% to $13.2 billion, slightly missing analyst expectations of $13.21 billion. The third-quarter earnings-per-share price for Comcast hit $0.52, topping analyst forecasts of $0.49 EPS.

Throughout the third-quarter earnings call, Comcast executives were at pains to emphasize the unique nature of their business. The focus for the cable company is on building relationships with consumers through broadband and pay-TV services, but also on adding to that foundation with new offerings, including home security, mobile access and more. It's the ability to bundle products and to continue adding new options that Comcast believes will make it resilient and profitable over the long term.

Executives cited Xfinity Home and Xfinity Mobile as examples of new additions to the Comcast bundle. The company has reported that it now serves more than 1 million Xfinity Home customers, along with more than 250,000 Xfinity Mobile accounts since that service launched in May. (See Comcast Rings In Xfinity Mobile Nationwide.)

Perhaps most importantly on the subscriber front, Comcast continued to grow its broadband subscriber numbers in the third quarter, albeit at a slower rate than in previous third quarters. The company added 182,000 residential Internet customers and 32,000 business Internet customers. The commercial services business was a notable bright spot overall, continuing to grow at a rate of 12.6% and bringing in revenue of $1.58 billion in the quarter.


For more cable market coverage and insights, check out our dedicated cable content channel here on Light Reading.


There were a couple of worthy side notes during the question-and-answer portion of Comcast's earnings call. First, executives continued to downplay the importance of the launch of Xfinity Instant TV, the skinny bundle video service Comcast is now offering to broadband only subscribers. Calling it a "good retention tool," and a tactic that the company can use "surgically," Comcast Cable President and CEO Dave Watson nonetheless emphasized that the company's primary focus is on selling the premium X1 video service. (See Comcast Reveals Instant TV & the IPTV Future.)

Meanwhile, several members of the leadership team pointed out that Comcast has now effectively made the transition from being a video-first company to a broadband-first business. Chairman and CEO Brian Roberts laid that out by saying, "If you call it broadband connectivity, both residential and business, that's now a 20-billion-dollar-a-year business. That is a big portion of our company."

It's also the foundation for future growth as new trends, including the Internet of Things, smart homes, a smart energy grid, virtual reality and more begin to take hold.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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Joe Stanganelli
Joe Stanganelli
10/28/2017 | 9:54:33 PM
Re: Cord Cutting
@KBode: And, unfortunately, many people forget that regulatory costs and compliance costs get directly passed on to the consumer in the form of these fees.

This isn't to say "NO REGULATIONS EVER!" Merely pointing out that we're eager to take out our pitchforks and demand greater regulation -- which creates more compliance costs, which increase our bills. Then we get even angrier at the industry and demand even more regulation. And so it goes ad taedium.
KBode
KBode
10/27/2017 | 4:08:10 PM
Re: Cord Cutting
"At least when Netflix's prices go up, they very loudly and publicly announce it, everyone gets mad, but then at least customers can make an educated decision about whether or not to do business with Netflix -- and then it's done."

 

Well right, and when you factor in the industry's abysmal customer service, users really do see it as a better value in many instances.

Meanwhile on the other end, you have cable operators whose advertised price is nothing like what the final cost will be to the end user, something being made worse by the industry's use of the new "broadcast TV fee." 
KBode
KBode
10/27/2017 | 12:51:18 PM
Re: Cord Cutting
Yeah those HOA exclusives remain a problem. The FCC's rules need updating because companies like Comcast have been wiggling around them for years, as Susan Crawford highlighted last year:

 

https://www.wired.com/2016/06/the-new-payola-deals-landlords-cut-with-internet-providers/
Phil_Britt
Phil_Britt
10/27/2017 | 12:33:19 PM
Re: Cord Cutting
Joe, 

Good point you made about HOA's and condos. Being a single-family homeowner for 30 years, I hadn't thought about that.
Joe Stanganelli
Joe Stanganelli
10/27/2017 | 12:26:27 PM
Re: Cord Cutting
Competing on price has become problematic because video content can very easily (and already has, to some extent, although we've since seen some correction) become a race to the bottom. The real issue isn't price per se so much as it is monthly cost creep. Transparency is a far bigger issue.

At least when Netflix's prices go up, they very loudly and publicly announce it, everyone gets mad, but then at least customers can make an educated decision about whether or not to do business with Netflix -- and then it's done. Any customers they keep (the vast majority of them) thereby justify the cost increase to themselves, so their unhappiness is less apt to linger or impact their loyalty.

My take, anyway.
Joe Stanganelli
Joe Stanganelli
10/27/2017 | 12:23:02 PM
Re: Cord Cutting
@Phil: And even if there is local competition among cable providers, often there is no choice anyway for people who rent, live in a condo community, or are part of a HOA.

Happened to some family members of mine. They were happy with their freely chosen cable provider. Then the HOA made everybody switch to the same one.
Phil_Britt
Phil_Britt
10/27/2017 | 7:56:07 AM
Re: Cord Cutting
Competition on price is only theoretical. Most places there are choices between cord-cutting, satellite and cable, but only in a few markets is there more than a single cable provider. So most cable companies consider service only as an afterthought, at best,
KBode
KBode
10/26/2017 | 1:54:15 PM
Cord Cutting
Broadcast and cable executives continue to believe they can just ride this storm out, and it will magically go away if they add a few more bells and whistles to their latest set top box. They don't seem to realize yet that they will HAVE To ultimately compete on price, bundle flexibility, and customer support. 
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