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Investment Overview for Comcast (NASDAQ:CMCSA)
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Comcast is a U.S. cable operator, providing consumers and businesses with pay-TV, broadband and digital voice (VoIP) services. The company makes money through monthly subscription fees for its services, advertising carried on some its channels and on-demand and pay-per-view programming.
Additionally, the company also owns a huge content business due to its 51% stake in NBCUniversal. The acquisition combined Comcast’s cable networks (such as E!, Golf Channel and Versus) and its regional sports networks with GE’s NBCUniversal which owns cable channels such USA, CNBC, MSNBC and Bravo. The deal was closed in early 2011.
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We believe cable TV (pay-TV) is the most valuable segment, followed by broadband. This is primarily due to following reasons:
High number of subscribers
Comcast had close to 22.3 million pay-TV subscribers and over 18 million broadband subscribers at the end of 2011. Going forward we expect that broadband subscribers will continue to grow while pay-TV subscribers will remain more or less stagnant in long-term.
High fee per subscriber for
There is quite a difference between fee per subscriber for Comcast's pay-TV and broadband subscribers. Comcast is making on average $77 per month from its pay-TV subscribers compared with $48 per month for broadband subscribers.
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Migration to digital platform
Comcast's strategy of migrating to an all digital platform is leading to attractive introductory offers as an incentive for analog subscribers to upgrade to digital cable. Comcast benefits by migrating customers to digital services quickly, since it frees up significant delivery bandwidth by eliminating the analog service. Moreover digital services offer higher profits for Comcast, compared with analog TV services.
Increasing Competition with Telecoms, such as AT&T and Verizon
AT&T's U-Verse and Verizon's FiOS are fiber optic TV services that have gained traction in some geographic areas. We expect competition in this space to result in declining subscription prices for both telecom and cable operators.
Online video services such as Netflix emerging as a potential threat
Comcast's VoD services are increasingly facing competition from online streaming companies such as Netflix. Netflix has been able to create a huge fan base with subscribers growing at a rapid pace. The company has been consistently adding to its movie and TV show catalog. Although there is no evidence currently that services such as Netflix are encouraging people to cut their cable cords, over time this may emerge as a more serious threat.
Trefis Forecast Rationale for Comcast Cable TV Subscriber Fees
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${forecast} refers to average monthly fee paid by its pay-TV subscribers. This is a blend of regular programming package fee, HD/DVR fee and fee from video-on-demand as well as Xfinity Streampix.
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${forecast} has risen over the years owing to price increases and increasing penetration of advanced services such as HD/DVR and video-on-demand. Going forward we expect the trend to continue.
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Trefis considered the following factors for its forecast
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- Rising programming costs
- Programming costs rise each year due to periodic increase in the carriage fee for various channels, which is a critical part of the multi-year agreements between media companies and pay-TV service providers.
- To protect margins, the pay-TV companies typically increase prices periodically and thus, subscribers bear the burden of increased programming costs.
- We expect this trend to continue and drive average subscriber fees up.
- Increasing adoption of advanced services
- The trend of increasing adoption of advanced services continues as more subscriber opt for HD and DVR services. Furthermore, the digital penetration is increasing and Comcast also launched its Xfinity Streampix online streaming offering.
- Increased adoption of these additional services implies increased revenue per subscriber, which will drive average subscriber fee up.
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- Intense competition between cable companies and telecoms has lead to a pressure on subscriber fees.
- Digital video industry is crowded with big companies such as Time Warner Cable, DirecTV, Dish Network, AT&T and Verizon. As a result, operators have to compete hard to retain their subscriber base and poach from rival bases.
- Comcast has especially lost subscribers in recent years due to competition. This limits its pricing power and the company might not be able to enjoy significant price rise in future unless it can revert subscriber trends..
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
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