What Does Comcast Gain In Teaming With Apple?

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Comcast (NASDAQ:CMCSA) and Apple (NASDAQ:AAPL) are in talks about teaming up for a streaming-television service that would use an Apple set-top box. [1] Many of the Apple fans have been waiting for its television service and it is clear that the company’s aspirations are not limited to Apple TV. As far as Comcast is concerned, this appears to be an opportunity to team up with the most valuable company known for its product design and rollout a nationwide over-the-internet television service.

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Comcast has been investing in set-top boxes and has come up with latest technology to meet the current user requirements. The company’s X2 platform is a cloud-based system providing more personalized recommendations on multiple screens, for a customized television product that customers can access on a TV, smartphone, tablet or PC.  Apple’s set-top box could offer much more primarily due to the integration of Apple purchases as well as the Game Center. The app developers can make the apps as well as games compatible with the set-top box thereby changing the television experience.

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For cable companies, set-top boxes require investments not only in the product itself but also in the form of active maintenance and upgrades. Comcast could see reduced capital expenditures over time, if the new Apple device is sold at retail to the subscribers.

However, the important point for Comcast in this deal could be an opportunity to attract more customers, assuming the two companies can agree to acceptable terms.  The pay-TV industry is saturated and cable companies have been losing thousands of subscribers annually for quite some time now. Comcast’s pay-TV subscriber base currently stands at 21.69 million as compared to 24.18 million in 2008. [2] The decline can be attributed to the increased competition from satellite, telcos and rise of alternative video platforms. Inking a deal with Apple will allow Comcast to tap to the younger generation of people who have never subscribed to pay-TV. These people would like to watch content as per their preference of time, place and device. This could be offered by an over-the-Internet television service. The advantage of Apple is that it has a wide customer base for its different products including, iPhone, iPad and Apple TV. Apple’s own customers tend to be loyal and a new product could encourage a lot of them to try it out for a better television experience. Moreover, cable operators are currently limited to their designated markets and with this deal Comcast may be eyeing to offer television over-the-Internet nationally. However, this would largely depend on distribution rights of content, which are limited to certain geographies. It must be noted that both the companies have strong cash balance and enough muscle to pull out some juicy content deals.

It is an interesting development in the pay-TV industry and we would be closely watching how the events unfold from here. Meanwhile, it appears to be in the interest of Comcast to partner with Apple and offer a nationwide over-the-Internet television service.

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Notes:
  1. Apple in Talks With Comcast About Streaming-TV Service, The Wall Street Journal, Mar 23 2014 []
  2. Comcast’s SEC Filings []