Comcast Chief Executive Officer Brian Roberts is well aware that a radical transformation is about to sweep over the television industry. “I believe television will change more in the next five years than in the last 50,” Roberts told Bloomberg Businessweek not long ago.
In the wake of Comcast’s (CMCSA) newly announced deal to purchase Time Warner Cable (TWC), it’s tempting to think that legacy players such as Comcast, wedded as they are to the current system, will be the most vulnerable to the coming changes. They won’t be fast enough or savvy enough, goes the thinking, to keep up with new entrants like Netflix (NFLX), Amazon (AMZN), and Apple (AAPL) which have already proven adept at seizing opportunities amid the fog of disruption and creating sleek, new products that cater to consumers’ changing media habits.
In this view, by gobbling up the country’s second-largest cable provider, Comcast (if the deal passes regulatory scrutiny) will emerge bigger, slower, and even less likely to navigate its way into the living room of the future.
But there’s also reason to believe that Comcast’s post-merger corpulence could prove to be an advantage, not a liability, in the competition for the future of TV. Here are three reasons why, if the deal goes through, Comcast may be better-positioned than its leaner, more nimble competitors, to determine the shape of things to come.
1) Comcast’s growing broadband advantage:
Comcast is not only the country’s largest player in the gradually eroding world of cable TV distribution but also the country’s largest broadband provider. As the New York Times points out today, “A merged Comcast and Time Warner Cable would have nearly twice as many high-speed Internet subscribers as the next largest company and would control roughly 38 percent of the high-speed Internet market.”
That’s a highly lucrative position to occupy, and it’s one that is much better insulated from new competitors than the pay-TV business. “You can see broadband is not only a much faster growing business, it also has higher gross margins and comes with much fewer headaches—such as paying through the nose for programming,” writes Om Malik. “Broadband also comes with one more thing—a virtual monopoly.”
In the years to come, Comcast’s expanded post-merger broadband business will throw off large amounts of cash. If they choose, Comcast executives can turn around and invest that hoard in developing superior, next-generation TV-distribution services. “The cash flow gives them time to transition, as the core legacy business goes down,” says Ken Doctor, an industry analyst with Outsell. “The money gives them the potential of buying the companies that could be competitive with them or buying businesses that could give them key technology.”
2) Increased Leverage Could Give Comcast an Advantage in Next-Generation TV Platforms.
In 2012, Comcast’s R&D division teamed up with Verizon Communications (VZ) to work on a project that, according to GigaOm, “was supposed to give consumers an alternative to online video offerings by tying broadband, pay TV, and mobile together.” The service never made it to market. Last year, Verizon backed out of the partnership; in January it announced it was buying Intel’s experimental streaming TV service, OnCue TV. The move appears to have set the stage for Verizon to launch a national Internet-TV platform that would compete with today’s cable-TV providers, including Comcast.
Some industry observers believe, however, that Comcast is already well positioned to counter the move from its former partner by launching a national Internet TV platform of its own. Comcast currently has a mobile app called “Xfinity TV Go,” which allows its paying subscribers to watch a growing library of on-demand programming and to stream dozens of channels inside and outside the home.
Richard Greenfield, an analyst at BTIG, argues (registration required) that, following completion of the Time Warner Cable deal, Comcast could launch an Internet-TV service based on its existing Xfinity brand “in markets outside Comcast’s newly enlarged footprint.”
As others have noted, the deal with Time Warner Cable will give Comcast increased leverage in negotiations with programming providers over the cost of content. The same leverage would presumably carry over to an Internet-TV platform, which means Comcast could enter the new market with a significant price advantage over its competitors.
Doctor says the challenge for Comcast would be to upgrade Xfinity’s current user interface and to overcome Comcast’s humdrum reputation with consumers, which lags well behind potential competitors like Amazon, Netflix, and Apple. “They’ve got it right, directionally, which is all-access, on-demand,” says Doctor. “They’re ahead of Verizon and AT&T. But I use Xfinity. It’s still very clunky.”
3) Comcast’s growing advantage in data collection:
Whatever shape the future of TV takes, it will probably be far richer in data. As we’ve seen in such novel, rapidly growing media markets as search (with Google (GOOG)) and social networking (with Facebook (FB)), the venture best-positioned to gobble up data on consumers tends to reap huge benefits, thanks to the endless quest by advertisers to improve their targeting of messages to consumers. With more than 30 million residential subscribers in dozens of states around the country, Comcast will be positioned to collect enormous amounts of data on the consumption behavior of traditional and next-generation TV viewers.
Currently, cable TV distributors tend to take in relatively negligible amounts of money from advertisers. But, as Ad Age pointed out today, this could change in the near future, and Comcast could be a major beneficiary. “With about 30 million set-top boxes, it will have an even bigger trove of ratings information, viewing habits, and personal data,” says Ad Age. “Combined with marketers’ own data, that will help planners and buyers laser focus their media selection.”