In a previous note we discussed how Netflix was unlikely to be able to drive new broadband internet subscribers to cable companies like Comcast despite Netflix CEO Reed Hastings’s different views.
We believe Netflix can actually hurt Comcast in three ways:
1. Cannibalize Cable’s Pay-per-View and On-Demand
Comcast’s Pay-per-View and On-Demand services which constitute about 3% of the company’s value may suffer as a result of streaming services from Netflix (as well as Hulu and YouTube)
2. Raise broadband internet delivery costs and hurt margins
In the absence of tiered broadband internet pricing, higher broadband internet use could lead to greater declines in Broadband Internet Gross Profit Margins as bandwidth consumption rises
3. Provide telco competitors AT&T and Verizon a competitive advantage
Comcast and other cable companies may hesitate to introduce tiered broadband internet pricing (based on bandwidth consumption) due to the growing presence of telcos (AT&T, Verizon) in internet and TV markets (e.g. Verizon FiOS and AT&T u-Verse). The telcos are less beholden to the TV and broadband internet business since they have the lucrative mobile phone business.
Digital Cable, Broadband Internet and On-Demand constitute about 67% of Comcast’s value. What percentage of AT&T’s value do you think is driven by Internet & TV?
A. 15%
B. 25%
C. 35%
D. 45%
Make a selection above the see the answer.
