Comcast: The Economics Of Offering Cheaper, Better Streaming TV Service 'Unproven'

from the don't-try-too-hard dept

As cable operators consolidate and AT&T and Verizon continue to hang up on millions of unwanted DSL customers they don't want to upgrade, cable's monopoly control over the U.S. broadband market is actually stronger than ever. In most markets, cable broadband's "competition" still consists of either a cash-strapped telco incapable of offering speeds greater than 6 Mbps, or no competition at all. That's why we've seen Comcast rush to impose usage caps on many of these captive markets; an effort to protect legacy TV revenues from Internet video -- a move only made possible by a lack of competition.

Despite this lack of competition, Comcast has at least flirted with the idea of adapting to streaming competition and offering a cheaper, more flexible streaming TV option of its own. About a year ago the company launched a product creatively-dubbed "Stream," which for $15 a month offers Comcast broadband customers access to its traditional cable service. But despite the company's promise that every market would see this service by the end of 2016, the rollout of this product appears to have stalled, in large part because it appears Comcast only wanted to appear innovative.

The company made that position abundantly clear on this week's earnings call, when it effectively tried to claim that the "economics" of offering better, cheaper TV service don't work:
"Neil Smit, the CEO of Comcast Cable (as opposed to the whole Comcast company), told investors that, “We haven’t seen an OTT model that really is very profitable for us."

That doesn’t speak well for its “Stream” streaming service, which is still in a very small pilot test. Smit continued, “We think that … the bundle is still the best value. And concerning single-play and broadband, we do market that. We think there’s going to continue to be streaming services and OTT services that come through and broadband will continue to grow as we continue to invest in the network and the WiFi capabilities.”
In other words, we don't want to offer a truly innovative, less expensive streaming solution, because customers would stop paying for our bloated, extremely expensive legacy cable bundles. You will take the traditional, bloated cable bundle -- and you will like it.

Comcast CEO Brian Roberts piled on, attempting to claim that the economics of offering a streaming video service are "unproven":
"OTT economics are unproven to us, and out of footprint” — meaning, to people who aren’t already Comcast cable or internet subscribers — “it’s not clear that that’s the right strategy for us,” Roberts said. “So we’re about a business model where we’re able to grow the customer base, have customers that have multiple products, really high value and ever-reducing churn and innovative new products you that bolt on. Now, it’s not clear how you do that where you don’t have a network, but we’re innovating all the time, and we’re happy with the strategy we have,” he concluded."
Yes, gosh, how do you offer TV service in areas where you don't have a network? Perhaps Netflix, Hulu and Amazon have some idea? Perhaps AT&T, which is planning not one but three out-of-legacy-network streaming services later this year, could give Comcast a hand? The reality is the economics are "unproven" for Comcast because offering better, more flexible, cheaper TV service would cannibalize the company's existing pay TV subscriber base. This is a company that has worked tirelessly over the years to eliminate competition, why would it ruin things by effectively competing with itself?

Comcast has made its plans to tackle the streaming video threat very clear. By pricing TV and broadband significantly lower than broadband alone, Comcast leverages its mono/duopoly in broadband to drive users to TV bundles they may not even actually want. From there, Comcast intends to cap and meter usage, ensuring that these captive customers still give Comcast its pound of flesh, even if they find it financially viable to shell out more for a standalone broadband connection.

Of course the "economics" of doing things differently don't work; under the economics of monopoly control, Comcast has absolutely no real incentive to try.

Filed Under: over the top, streaming, streaming tv
Companies: comcast


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  • icon
    That Anonymous Coward (profile), 29 Jul 2016 @ 9:44am

    Comcast also thinks they provide good customer service... have we checked to see if they've been sniffing glue?

    reply to this | link to this | view in chronology ]

  • icon
    PRMan (profile), 29 Jul 2016 @ 10:12am

    David Packard (of HP)

    Back in the day of the first LaserJet printers (when HP was still a great company), I got to hear HP employees rave about David Packard. One thing they said about him never left me. David Packard said,

    "If you don't put yourself out of business every year, someone else will."

    Guess what Comcast? Your days are numbered anyway. If you don't put yourself out of business, someone else (with far better customer service) will.

    Everyone called Netflix idiots when they switched from their lucrative DVD model to a streaming one, because they were cannibalizing a healthy business. But nobody is saying that anymore. Now Netflix is the largest player in the new world, because they weren't afraid of what was next.

    Anyway, good riddance to the worst company in America.

    reply to this | link to this | view in chronology ]

  • identicon
    Chris Brand, 29 Jul 2016 @ 10:13am

    typo ?

    "By pricing TV and broadband significantly higher than broadband alone" - if that's what they were doing, it wouldn't "drive users to TV services they may not even actually want".

    reply to this | link to this | view in chronology ]

  • icon
    Uriel-238 (profile), 29 Jul 2016 @ 10:26am

    In other words...

    The economics of having a monopoly for a necessary utility proven.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 29 Jul 2016 @ 10:30am

    Maybe Comcast has figured out that there is a much higher payoff investing in lobbying, political donations, and revolving doors than there is by investing in infrastructure and customer service. The benefits don't stop there, as Wall Street banks like Goldman Sachs proved. Considering how the corporate monopolist/government relationship works, how can anyone blame companies like Comcast for sucking the teats of government while shitting on everyone else and charging them out the nose for the privilige of being shat on?

    reply to this | link to this | view in chronology ]

  • icon
    Vidiot (profile), 29 Jul 2016 @ 11:51am

    Minimum requirement: Wholesale robbery

    "We haven’t seen an OTT model that really is very profitable for us."

    Emphasis on the very profitable... because they know all about very profitable, starting with set top boxes...

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 29 Jul 2016 @ 1:12pm

      Re: Minimum requirement: Wholesale robbery

      On the same note:

      “We haven’t seen an OTT model that really is very profitable for us."

      Means that if someone who isn't streaming their "Stream" service on Comca$t's network THEY are going to have to pay just like they are making Netflix pay not to get de-prioritized on their network and they don't want anyone telling THEM how things are going to be.

      reply to this | link to this | view in chronology ]

    • identicon
      Skeeter, 29 Jul 2016 @ 2:18pm

      Re: Minimum requirement: Wholesale robbery

      Yeah, I really took a double-take on reading this 'OTT-statement', being as Netflix is considered a model of the first Over-the-Top (packet delivered) method. If he can't envision Netflix being a model of OTT (as is Hulu), then I can't understand how he's a CEO making financial decisions to begin with?!

      reply to this | link to this | view in chronology ]

  • icon
    Padpaw (profile), 29 Jul 2016 @ 11:54am

    meaning they cannot price gouge as much if they offer cheaper services

    reply to this | link to this | view in chronology ]

    • identicon
      Skeeter, 29 Jul 2016 @ 2:21pm

      Re:

      Actually, if they became a competing OTT company (to, say, Netflix and/or Hulu), and provided product competition directly towards them, then it looks advantageous to Comcast to claim 'conflicting competition' and actually have the inroad they've always wanted in kicking Netflix off their systems. Business Tactics says this is the 'golden bullet' they want and need, obviously, Comcast's CEO is against making more profit and simultaneously evicting the competition.

      reply to this | link to this | view in chronology ]

  • identicon
    Thad, 29 Jul 2016 @ 12:04pm

    Of course the bundle is the best value.

    He didn't say for whom.

    reply to this | link to this | view in chronology ]

  • identicon
    Kodi, 29 Jul 2016 @ 2:52pm

    Creative Destruction ==> KODI.tv

    All the bases will be ours soon: Creative Destruction = KODI.tv/downloads/

    reply to this | link to this | view in chronology ]


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