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

Say That Again

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