Does Comcast See The Writing on Cable's Slippery Wall?

Want to know the real reason that Comcast (CMCSA) is looking to strike a deal to gain control of NBC Universal from General Electric? (GE) No, it’s not just that the assets are a steal, although NBC’s beaten down ratings and Universal’s inability to make a hit movie show that GE’s entertainment assets have seen better days. Instead, if you judge by a recent report from cable research mavens at SNL Kagan, cable TV may well have seen its best days.

Kagan, which for years has been the last word in cable TV research, projects that cable TV operators like Comcast will see their total subscribers drop from 63.2 million this year to 60.7 million in 2013, losing most of those subscribers to satellite TV operators like DirecTV (DTV)and Dish(DISH) and telephone operators like AT&T(T)and Verizon (VZE) that offer video along with their phone and online services.

That can’t be great news to folks like Comcast CEO Brian Roberts, who has been telling analysts for years that their companies will continue to grow by up-selling existing customers and getting them to take higher priced digital TV offerings along with internet and phone services. The rate of growth in internet and phone hookups, Comcast says in its most recent financials, has also started to slow, due in part “to increased competition.” And if Kagan is right, there will be fewer of those initial subscribers going forward for Comcast to pitch.

And things may well get worse down the road for Comcast, Kagan analyst Mari Rondeli found in her assessment. A coming competitor for cable TV operators is video watching on the internet, or “over-the-top video substitution.” Kagan predicts that 7.1 million folks will get their TV from online sources rather than cable in 2012 and that those numbers will double by 2019. “Though (cable) operators are downplaying the impact of online video… the early adoption trends suggest a growing stature for over-the-top substitution,” Kagan says.

You can imagine that Comcast wants to get its hands on a major video content creator like NBC before that happens. In addition to providing content for new technologies like telcos and the internet, NBC is also a founder of the Hulu online TV site. According to numbers supplied by Comscore, Hulu delivered more than 488 million videos in August to 38 million online viewers. That’s more than a three-fold increase from a year earlier.

Growth of that sort would be welcome news to Comcast, which is likely looking for a way to offset the slowing growth in its cable business. It only has to look at its income statement to realize the grwoth potential of owning content. In its most recent quarterly numbers, the cable giant says the revenue it collects for providing TV signals to its nearly 24 million subscribers grew by 1.7%, while its much smaller entertainment assets (the E! Entertainment, Style and other cable channels) grew by 5.1%. Growth like that no doubt stands out like a TV set in a dark room for a smart guy like Brian Roberts.

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