Comcast (NASDAQ:CMCSA) recently launched a subscription-based streaming service to augment its current pay-TV services.  The new streaming package will enhance the customer viewing experience which currently revolves around traditional TV programming package and Xfinity on-demand service for TV as well as broadband enabled devices. The value that this streaming holds, comes in two ways. Firstly, it will lead to an improvement in Comcast’s pay-TV subscriber trends and help it compete better against the likes of DirecTV (NASDAQ:DTV) and A&T (NYSE:T). Secondly, it will generate additional profits for the company. Let’s take a look at these two briefly.
Value From Improved Subscriber Trends
- How Has Comcast’s Revenue Composition Changed In The Last Five Years?
- What’s Comcast’s Revenue & EBITDA Breakdown In Terms Of Different Products?
- Comcast Q4 Earnings: Best Pay-TV Subscriber Performance In Last Nine Years, NBCUniversal And High-Speed Internet Continue To Grow
- Comcast’s High-Speed Internet Business: Subscriber Base, ARPU Growth Likely
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Let’s take a look at Comcast and its competitor Dish Network’s (NASDQ:DISH) Q4 2011 results. Both of the companies have been struggling with subscriber losses. Nevertheless, Comcast was able to reduce its subscriber losses to just 17,000 for the fourth quarter which was a big improvement and can be attributed to its efforts in improving the overall service.
Similarly, Dish Network was able to register a significant improvement and gained 22,000 subscribers in Q4 of 2011. Augmenting the existing services with enhancements such as Blockbuster’s streaming service helped to a great extent. Comcast is doing something very similar, and could it be that 2012 will be the year of positive growth for Comcast’s pay-TV subscribers? We see potential upside of 5% to our price estimate if Comcast can regain about 2 percentage points of the market share by end of our forecast period.
Value From Streaming Related Profits
For a little over 2 million subscribers, the new streaming service will be available for free.  For the rest, Comcast will charge monthly fee of $4.99. If we assume that Comcast’s streaming service can gradually penetrate 50% of its total subscribers by end of our forecast period (including the ones who get it for free), the additional profits will lead to just about 3% to 4% upside.
Therefore we conclude that while neither of the above two values are significant in themselves, combined together, they can lift Comcast’s value by around 10% which is notable.
We note that while many are counting this move as an attack on Netflix, it should not be considered so yet. The limited availability of the service (only current Comcast pay-TV subscribers) keeps it far off the battlefield that Netflix currently dominates. Moreover, this is rather a defensive move to protect the current subscriber base and possibly expand it in future.
If Comcast opens up its streaming service to everyone in the U.S., it can emerge as a serious competitor to Netflix.
Our price estimate for Comcast stands at $26.60, implying little over 10% discount to the market price.Notes:
- Comcast Introduces Streaming Service to Existing Video Customers, Bloomberg, Feb 22 2012 [↩]
- Comcast Takes Aim at Netflix, Feb 22 2012 [↩]