Comcast & Intel’s Partnership – What’s At Stake For Comcast?

Comcast (NASDAQ:CMCSA) and Intel’s (NASDAQ:INTC) recent partnership will allow Comcast’s subscribers to stream on-demand or access live video without the need of additional hardware. While this partnership will help Intel to better market its products it will complement Comcast’s efforts of expanding streaming services. Streaming is going to be an essential part of enhancing overall customer experience and is something that Comcast needs in order to stem its subscriber losses.

To increase the convenience for its subscribers, Comcast offers on-demand video service and Xfinity Streampix streaming service. The market exists for both, individual pickings as well as all-you-can-eat models and Comcast seems to be positioned to capitalize on both. Usually, a company either resorts to subscription or a la carte model, but Comcast is keeping both to balance its risk. Its on-demand views have grown strongly and there is an opportunity to increase shareholder value with success in subscription streaming.

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There Is Clear Demand For On-Demand Videos

Comcast started its on-demand video service in 2003, and since then the total number of views have grown by a staggering amount. The company stated that its cumulative on-demand views reached 11 billion in 2009. ^[1] This figure further rose to 20 billion within a span of two years. ^[2] This implies that between 2009 and 2011, Comcast’s customers were generating roughly 375 million on-demand views per month. These seem like big numbers! However, the flip side is that the number of views are not necessarily a good indicator of exactly how much of Comcast’s customers are really watching. The number of viewing hours may be a better metric. This metric stood at a monthly rate of 1 billion for Netflix (NASDAQ:NFLX) in June, clearly indicating high demand for alternative video services.

Xfinity Streampix Will Add Value

There is no doubt that the subscription model is picking up all across and this prompted Comcast to launch its own streaming subscription service in early 2012. Xfinity Streampix’s success can lift Comcast’s value by as much as 10%.

For a little over 2 million subscribers, the Xfinity Streampix is available for free. For the rest, Comcast is charging a monthly fee of $4.99. If we assume that Comcast’s streaming service can gradually penetrate 50% of its total subscribers by the end of our forecast period (including the ones who get it for free), the additional profits will lead to a little less than 5% upside to our price estimate for Comcast. However, there is additional value to be unlocked from improved subscriber trends.

Comcast has been struggling with its pay-TV subscriber losses for the past few years as a result of tough competition from the satellite companies and telecom operators. To compensate for this loss, Comcast has pushed its broadband and VoIP service and that has certainly helped. However, augmenting the existing services with enhancements such as online streaming, can help Comcast’s pay-TV business to a great extent. We see potential upside of 5% to our price estimate, if Comcast can regain about 2 percentage points of the market share by the end of our forecast period.

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.

Our price estimate for Comcast stands $41, implying a premium of more than 10% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Comcast’s OnDemand Reaches 11 Billion Views, Nearly Twice The Number Of iTunes Music Downloads, TechCrunch, Apr 1 2009 [↩]
2. Comcast Hits 20 Billion On Demand Views, The Hollywood Reporter, May 25 2011 [↩]