Comcast’s New Streaming Service Will Compensate For Loss Of Growth In Company’s Pay-TV Segment

Comcast (NASDAQ:CMCSA) is reportedly planning a 2016 launch of its new streaming service, which will be offered as an add-on to the company’s high-speed Internet customers. The streaming service will enable Comcast to have a stake in the burgeoning online streaming market, but will face intense competition from Dish’s Sling TV and the likes. We believe that Comcast’s streaming service will be able to hold its own on strength of the content offered and inclusion of desirable features such as the DVR service. According to our estimates, the streaming service could generate close to $1.2 billion in revenue by the end of 2020. While this incremental revenue may not have a material impact on Comcast’s top-line in the short run, it will go a long way in compensating for the loss of growth in its stagnant pay-TV segment.

Our price estimate for Comcast stands at $64.8, implying a slight premium to the market.

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Comcast is reportedly planning to launch “Stream,” a new streaming service which will cater to cord-cutters and millennials. The service will reportedly be priced at $15 per month and will give the cable provider another targeted revenue stream. ^[1] Stream will offer access to about a dozen networks, including the big four (NBC, CBS, ABC, Fox), HBO, PBS, The CW and Telemundo. It will not require a Comcast pay-TV connection, but will be offered as an add-on to the company’s high-speed Internet customers. Stream will be rolled out in Boston, and subsequently in Chicago and Seattle later this year. Comcast will eventually make the service available to all its high-speed internet subscribers nationwide by “early 2016.” The company is also pondering whether to add optional sports, movies, kids and lifestyle packages to Stream for an additional $5 to $10 per month.

Competition From Sling TV And Other Streaming Options

Comcast is not the only company foraying into the online streaming arena. Content providers such as Dish Network (NASDAQ:DISH), Sony (NYSE:SNE), Apple (NASDAQ:AAPL) HBO, CBS (NYSE:CBS), etc., are some other players who have either launched their own streaming service recently or are planning to launch soon. The market also has established players such as Netflix (NASDAQ:NFLX) and Hulu. Comcast’s most direct competition will be with Dish Network’s Sling TV. Sling TV’s base package is priced at $20 per month and offers a good mix of sports channels such as ESPN and ESPN2 as well as entertainment channels such as HBO Now, AMC, TNT, Disney Channel, Cartoon Network/Adult Swim, etc. ^{[2] [3]} Comcast’s Stream will provide a DVR service, while Sling currently does not support a recording feature. Stream will also carry the in-demand big four networks, which will give it an edge content-wise over Sling.

Sling’s biggest advantage over Comcast’s Stream will be the fact that it carries the beloved sports network ESPN. Comcast has not included any sports content in its streaming service as of now. However, watching sports on the net is still a largely untested idea, and it remains to be seen how much traction it gets over time. In April, Dish could not handle the influx of users who logged on to watch the semi-finals of the NCAA March Madness college basketball tournament. ^[4] Resultantly, Sling put out choppy or nonexistent streams which frustrated users. An important sporting event will inevitably result in a jump in viewership and streaming providers might not find it feasible to create the capacity required for catering to such drastic surges. Sports lovers by and large do not like disturbances during intense passages of play and one blackout can ruin the complete game for them. Hence, they might stick to the comparatively stable pay-TV option for their sporting needs.

How Much Revenue Can Stream Generate

The streaming market is ripe with potential. As mentioned earlier, content providers are increasingly opting to broadcast their programming through the Internet. These streaming services are priced according to the amount and demand of content they carry. On the low end of the spectrum, Netflix offers its services at $9 a month while Hulu does so at $8 a month. ^[5] On the other end, Sony’s Playstation Vue service is priced at $50-70 and broadcasts around 85 different channels. Other streaming options such as Dish’s Sling TV ($20 monthly for 20 channels) and Apple’s streaming service ($25-$35 monthly for 25 channels) are priced somewhere in between.

Comcast is planning to launch its basic package at $15 a month and will carry a dozen or so channels, including the highly desirable big four networks and HBO. Dish Network’s streaming service Sling TV offers 20 channels and has attracted around 250,000 paying subscribers from the start of February to the start of June. ^[6] Keeping this in mind, we believe that Stream could potentially have a customer base of around 500,000 by the end of its first year of offering. We estimate that Comcast will have over 27.5 million high-speed internet subscribers by the end of 2020. If the streaming service reaches a penetration rate of around 20% by that time, it will have more than 5.5 million paying subscribers. Comcast is likely to follow the lead of other content providers and offer Stream to non-Comcast Internet users as well, which could conservatively bring in an additional 1 million paying subscribers. If Comcast keeps the price of the service stable, the streaming service could generate close to $1.2 billion in revenue by the end of 2020. The streaming service will cannibalize some of TWC’s pay-TV subscribers but we expect this loss to be minimal.

Comcast is a large company and generated revenue worth $68.8 billion in 2014. ^[7] The additional revenue generated by the streaming service might not make a material difference to the company’s top-line in the short run. However, pay-TV is a stagnant industry and customers are increasingly shifting to online mediums in order to consume content. Keeping that in mind, the streaming service will enable Comcast to have a stake in the burgeoning online streaming space. The incremental revenues generated by the streaming service will also go a long way in compensating for the loss of growth in the company’s pay-TV segment.

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1. Comcast to Launch $15/Month IP Video Service, July 13, 2015, Multichannel News [↩]
2. Sling TV: Everything you need to know, January 20, 2015, cnet.com [↩]
3. UPDATE 1-Dish, Time Warner come to new agreement; Sling TV gets HBO, April 1, 2015, Reuters [↩]
4. Sling TV Says It Dropped the Ball During March Madness. When Will Web TV Be Ready for Primetime?, April 5, 2015, re/code [↩]
5. Sony Unveils Pricing, Availability of Vue Online TV Service, March 18, 2015, Wall Street Journal [↩]
6. Sling TV’s Web TV Subscriber Numbers Keep Growing, Now Around 250,000, June 5, 2015, re/code [↩]
7. Comcast’s SEC Filings [↩]