Comcast (NASDAQ:CMCSA) has signed an agreement with Sony Pictures Home Entertainment to sell the studio’s titles through the Xfinity on-demand digital store. Xfinity TV customers will now be able to purchase Sony Pictures’ movies and TV shows, to own and access anytime, anywhere, on any device, and often before the DVD release. 
The titles that will be made available include the critically acclaimed TV series Breaking Bad, as well as popular movies such as American Hustle, Captain Phillips, Cloudy With a Chance of Meatballs 2, The Amazing Spiderman and 21 Jump Street.  It must be noted that Sony Pictures Home Entertainment also has the distribution rights for the popular Netflix (NASDAQ:NFLX) original series – House of Cards, which may also be added to Comcast’s digital library. Comcast already has carriage deals with 21st Century Fox (NYSE FOX), Lionsgate, Time Warner’s Warner Bros. and the company’s self-owned NBCUniversal.
The deal showcases the cable giant’s efforts in pushing the online streaming and on-demand video service, and rightly so as the advanced offerings such as Xfinity Streampix have helped the company trim its pay-TV subscriber losses. Moreover, it is increasingly clear that, the way the overall pay-TV industry is trending, the traditional pay-TV market will witness a decline in the coming years as alternative video platforms continue to rise. Given these trends, Comcast wants to ensure it has the right mix of products.
What Is Xfinity Streampix Service?
Xfinity Streampix is an online on-demand media streaming service by Comcast that offers TV shows and movies from various networks and studios. The service is designed to compete with other online streaming services such as Netflix, Amazon (NASDAQ:AMZN) Instant Video and Hulu. The Xfinity Streampix service costs $4.99 per month.  However, Comcast customers who subscribe to premium packages receive access to this service at no additional charge. Comcast has an infrastructure that makes it possible for buyers to access the content they buy, even if they move or stop subscribing to the cable video service.
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, as well as from the rise of alternative video platforms such as Netflix. To compensate for this loss, Comcast has pushed its broadband and VoIP service, which 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. Comcast has been successful in trimming the subscriber losses in the past few quarters and we believe this was partly due to its advanced offerings that include X1/X2 platform and Xfinity Streampix services.
The Xfinity Streampix Service Is The Right Product
It makes a lot of sense in having a streaming service packaged with traditional pay-TV, especially in these times when traditional pay-TV market is saturated and the cable companies are losing subscribers. Dish Network’s (NASDAQ:DISH) founder, Charles Ergen, recently stated that the pay-TV industry will decline as the newer generation prefers to watch content of their choice, at their preferred time and place.  For such a generation, alternative video platforms such as Netflix or Xfinity Streampix are the right choice.
Within the arena of alternative video platforms, 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 with its traditional on-demand and Xfinity Streampix. Usually, a company resorts to either subscription or an 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 the success in subscription streaming.
Comcast doesn’t typically release its Xfinity Streampix subscriber numbers, so it’s difficult to tell how the subscription is fairing. The company has more than 21 million video subscribers and assuming 10% of them are subscribed to premium packages and receive Xfinity Streampix for no cost, leaves us with close to 19.5 million subscribers. If we assume that Comcast’s streaming service can gradually penetrate 50% of these subscribers in the coming years, it will result in additional annual revenues of more than $500 million. While this value for Comcast is not significant in itself and will have a minimal impact on our price estimate, there is additional value that can be unlocked if Xfinity Streampix can help improve the company’s subscriber trends.Notes:
- COMCAST EXPANDS DIGITAL STORE OFFERING WITH SONY PICTURES, Comcast Press Release, Mar 10, 2014 [↩] [↩]
- Comcast’s SEC Filings [↩]
- Dish Network Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 21, 2014 [↩]