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Updated: Comcast’s Roberts: The Set-Top Box Isn’t Going To Disappear

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Aside from the poor economy hanging over consumers’ heads, Comcast (NSDQ: CMCSA) is facing greater competition than AT&T (NYSE: T) and Verizon; of which had the effect of reducing numbers of video subscribers in Q3 (see the company’s metrics here for more details). A small number of customers appear to be cutting the cord as well and “going over the air,” said Brian Roberts, the company’s CEO, during the company’s earnings call.

The company lost 275,000 basic subs. Digital subs were up by 219,000 but that was 52 percent fewer year over year. In addition to the fact that the number of digital video service subs fell 52 percent in the quarter.

Video competition: As for the competitive pressures on Comcast, the recent earnings figures from AT&T and Verizon tell part of the story. AT&T U-verse TV subscribers increased by 236,000 in the quarter to reach 2.7 million, while Verizon added 204,000 net new FiOS TV customers. By the end of the third quarter, Verizon had 3.3 million FiOS TV customers.

Roberts said the quarter started off weak but the numbers of video subscribers gradually ticked up in September and October. On top of that, he pointed to the impact of last year’s transition on the part of broadcasters to digital signals, which spurred higher than normal growth. The losses were also mitigated, in Roberts’ view, by the fact that 40 percent of this year’s video losses were in the “lower end basic video package.” And that has a lower impact on the revenue generated by each sub. Total revenue per video customer increased 10 percent to almost $130 per month, Roberts noted.

Advertising: Even during the worst part of the recession, cable a category tended to do better than just about all the other ad-supported mediums. As ad spending has returned, Comcast’s cable advertising has benefited, as Q3 revenue was up 27.2 percent, thanks to higher expenditures from auto companies. With Election Day approaching next week, political ad spend also provided a significant boost, rising 19 percent. Given the intensity of the races over the past month, political ad spend will also contribute greatly to Comcast’s Q4 earnings.

NBCU (NYSE: GE) expenses: The costs related to the pending NBC Universal deal also pushed profits down, as they have previously. But as Roberts pointed out, with the NBCU financing done, and the number of subs inching up over the latter part of Q3, things were starting to look up. He also noted that, despite its own advancements in the “TV Everywhere” concept, the company expected to rely on the set-top box for a long time to come.

“Since we signed the NBCU deal, most of the news has been positive, though the network still has its challenges,” said COO Steve Burke, who will succeed Jeff Zucker as CEO of NBCU once the merger is completed. “Advertising has been up and the film studios have had success. But the cable channels offer real opportunities to cross-promote. We’ve done a lot of deals over the last few years.”

Canoe Ventures: Along with Time Warner Cable (NYSE: TWC), Comcast is one of the largest backers of the industry’s interactive TV effort called Canoe Ventures. The project has been plagued by coordination issues among its major MSO members, as well as the difficulty having to wrestle with different levels of technology across local markets. But Robers said that things have been moving in the right direction for Canoe. “Canoe now has 10 million homes where you can buy interactive ads” he said. “It’s doing what we wanted the interactive business to do.” The 10 million number is based on EBIF (Enhanced Binary Interchange Format, the cable industry’s interactive TV standard). Roberts appeared to concede that it will still take a while until interactive advertising yields real results.

On Netflix: In the area of VOD, Roberts was asked if he was concerned about the growth of Netflix’s streaming business. He noted that Netflix (NSDQ: NFLX) execs said that during their call, that its streaming service is viewed as more complementary to other ways of watching video. Our on-demand usage is growing and we’re adding content. The iPad gives us a chance to start from scratch and use new technology. New devices are driving more usage.

Set-top box: Yesterday, Comcast took a big step forward in the TV Everywhere concept, by moving its Xfinity TV out of beta and opening more than 150,000 hours of online content to all of its digital video subs-no matter which ISP they use. While he and other executives on the call trumpeted the advancements, he was adamant that the set-top box wasn’t about to disappear anytime soon. “The world’s changing and evolving, but the most exciting products we’re working on has the set-top box as a part of that, Roberts said. “Perhaps set-top boxes will be less needed over time, but we’re not near the moment when it will go away.”

One Response to “Updated: Comcast’s Roberts: The Set-Top Box Isn’t Going To Disappear”

  1. Hey David, are you sure that “the number of digital video service subs fell 52 percent in the quarter” is correct? Is this a -52% decline on a year-over-year basis or quarter to quarter?

    Also, by “digital video service” are you referring to digital basic packages? If so, that’s an enormous decline with significant implications – can you provide some more detail here?