Comcast Uses HBO To Increase Broadband Penetration And Lure Cord Considerers

by Trefis Team
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Comcast (NASDAQ:CMCSA) has launched Internet Plus, a 12-month special offer that includes broadband, streaming video service StreamPix, limited basic TV and the big fish HBO of Time Warner (NYSE:TWX), for a lucrative price of $40 or $50 depending on the market. [1] This is the average price for a broadband connection in the U.S. and Comcast is offering a premium subscription channel in that price. While this plan will increase the company’s broadband customer base, it will also impact its margins on new customers acquired through this plan as HBO charges an estimated fee of $8 per subscriber.

The consumer trend is shifting towards on-demand video services and pay-TV operators are slowly adapting to this reality. Expensive sports programming can take a good TV package to as high as $100 a month. Owing to these high costs, it isn’t surprising that customers are considering dropping their pay-TV connections. A recent JPMorgan poll found that 40% of the people were considering canceling their connections. This is not something pay-TV operators would like. [2]

With the introduction of the new package, Comcast is attempting to capture more broadband subscribers and HBO is a good way to lure customers. This may also mark a step forward towards a la carte programming for cable channels rather than offering standard bundles.


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Pay-TV Subs Are Declining

According to a report by Moffett, video subscriptions in the U.S. declined by about 316,000, compared with 330,000 growth the year before. In the same report, an estimated 911,000 homes in the U.S. cut the cord on cable TV, compared with 258,000 in the previous year. [3] SNL Kagan, in a separate report, stated that the U.S. cable TV industry lost 1.8 million subscribers over the last 12 months. [4] Comcast itself saw a decline of 159,000 pay-TV subscribers in the second quarter alone. [5]

The reasons for cord-cutting are rising cable bills and the shift in television viewing patterns. Many customers now prefer to watch content online using multiple devices on the go. In addition to pay-TV subscription, Comcast offers the Xfnity Streampix service, which enables subscribers to stream channels and other content on a variety of devices. We believe that Comcast in particular will be able to reduce its subscriber losses with the help of additional features such as Xfinity Streampix, which enables it to compete with Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN). However, if cord-cutting continues, pay-TV operators may have to offer plans that match customer requirements, possibly through the a la carte model.

It will be interesting to see how many new customers can Comcast draw with the Internet Plus plan.

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Notes:
  1. Comcast’s Website []
  2. Don’t let the cheap Comcast HBO deal fool you, cord-cutters, CNET, Oct 25, 2013 []
  3. Cord-Cutting No Longer an ‘Urban Myth’: Pay TV Operators Drop 316,000 Subs in Past Year, Variety, Aug 6, 2013 []
  4. Cable TV Providers Hit by Continued Subscriber Erosion, The Hollywood Reporter, Sep 3, 2013 []
  5. Comcast’s SEC Filings []
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