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Summary:

More than most cable providers, Comcast could offer a streaming offering with its XfinityTV.com website and iPad app. But it has no plans to extend its products to customers outside its cable footprint, in part because there’s no money in it, according to CEO Brian Roberts.

Comcast Tower

More than most other cable providers, Comcast might be best positioned among the major cable distributors to deliver an over-the-top video offering. After all, it’s got a robust streaming video portal at XfinityTV.com, with access to content from premium networks like HBO and Showtime. It also has one of the industry’s leading iPad apps, and it soon will have TV apps available on Samsung TVs.

But Comcast has no plans to extend its products to potential customers outside its cable footprint, in part because there’s no money in it, according to CEO Brian Roberts.

“I don’t think there’s a business model outside of our footprint where we can make money,” Roberts told analysts and investors in the company’s second-quarter earnings call. He said that the company’s first attempt at a streaming offering, its ad-supported Fancast video portal, did not prove profitable, and he didn’t see a way the company could roll out a streaming service that would return value to shareholders.

Besides, you could argue that Comcast is doing just fine without trying to reach the other 50 million households that don’t currently have access to its services. While its headline video subscriber number shrank yet again, this time by 238,000 subscribers, its overall subscriber base, including broadband and voice subscribers, was up by 99,000, an increase of 18.2 percent compared to last year’s net additions. And all the metrics that Comcast actually cares about — including revenue, operating cash flow and free cash flow — were up across the board.

Comcast reported second-quarter revenues of $14.3 billion, which was up 50 percent over the previous year’s second quarter. Much of that growth was driven by its acquisition of NBC Universal. On a pro forma basis, revenue was up 9.4 percent. Meanwhile, operating cash flow was up 6.7 percent year-over-year to $4.8 billion. On the cable side alone, revenues were up 6 percent on a pro forma basis to $9.3 billion.

More importantly, Comcast’s average revenue per user (ARPU) grew yet again, to $138, which is an increase of 9 percent over the previous year. So why would it roll out a lower-priced streaming offering that would potentially compete with services like Netflix and Hulu Plus, which are priced at just $7.99? Doing that would not only lower Comcast’s ARPU but would also potentially decouple video services from broadband and voice, which are already the more profitable parts of its business.

That’s not to say that Comcast doesn’t have room to improve its core business, and Comcast Cable president Neil Smit gave some details about how the company is innovating by adding new products like its iPad app, improving customer service and working on customer retention. For now, its focus will be on improving services for its existing customer base, as well as trying to win over the 50 million households that are in its cable footprint, not going after those that aren’t.

Image of the Comcast tower courtesy (CC-BY-SA) of Flickr user Kevin Burkett

  1. So let’s do a little arithmetic. If the ARPU=$138 and there are what, about 40 million customers, that results in a revenue of $5.52 billion a month… Gulp!!!

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  2. Average prices in the USA for Comcast are nutso and they want to protect that. Here in France triple play with HD TV is 35€, triple play on Comcast is like avg. $180 according to people in our SF office….

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  3. What’s he talking about? Is he admitting they don’t make enough $ on video?

    They wouldn’t offer a service @ $7.99 they’d offer it at $40 bucks or whatever because it would include all their video services…..I.e. it’s the same business model except no STB and they may have CDN costs.

    The only thing they can’t do is provide HSI.

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  4. What Comcast lacks is a sufficiently flexible back-office billing and settlement solution that would allow them to experiment with different business models. There are likely many very profitable OTT business models, they just need a modern BSS/OSS that can accommodate them.

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  5. According to ScreenDigest research, U.S. consumers spent over $80 billion on pay-TV subscriptions alone in 2010 — more than the combined entertainment outlay of the whole of Western Europe.

    That said, it seems that the U.S. MSOs will continue to increase prices for their target customers — primarily affluent Americans. The fact that some price-sensitive subscribers choose to disconnect services doesn’t seem to be their concern — or the financial analysts who assess their market value on Wall Street.

    The continued market fragmentation — and associated segmentation of the addressable market — does raise questions about sustainability, but their churn-rate is still manageable.

    Moreover, if the MSOs attempt to be perceived as the Gucci of video entertainment (not intended for everyone), who is to say that they can’t raise their pay-TV ARPU past $150/month?

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