Comcast’s (NASDAQ:CMCSA) on-demand business competes with in-store video distributors like Blockbuster (NYSE:BBI) and online distributors like Netflix (NASDAQ:NFLX). On-demand includes both video-on-demand (VOD) for Comcast’s digital cable subscribers as well as pay-per-view (PPV) for analog subscribers. We estimate that the on-demand business constitutes about 3% of Comcast’s stock.
Paid % of On-Demand Views refers to the proportion of viewed on-demand content that is paid for. The paid percentage is critical since it determines what fraction of content is actually generating cash flows for the company. We estimate that the paid content mix has declined from about 9% in 2005 to 6% in 2009.
Going forward, we expect the paid percentage of viewed content to decline further to about 4% due to following factors:
1) Advertising can encourage Comcast to increase availability of free content
As more people use on-demand (both paid and free), there will be more advertising opportunities for Comcast within its on-demand content. This will help the company to make money even on free content and could encourage Comcast to increase the amount of freely available content
2) Competitive pressure from Netflix will encourage more free content
Online movie rental company Netflix charges a monthly fee to its subscribers for access to its vast catalog of online video content along monthly DVD rentals delivered by mail. Many Netflix subscribers have access to unlimited views of Netflix’s online content which will increasingly become a competing alternative to on-demand channels like those provided by Comcast. This provides Comcast an incentive to provide more free content that attracts users to its on-demand platform and help to increase the likelihood that customers will purchase a rental film through Comcast.
You can modify the forecast above to see how Comcast’s stock may be impacted if paid % of on-demand views were to rise instead of fall as we expect.
For additional analysis and forecasts, here is our complete model for Comcast’s stock