Here’s How Comcast Could Benefit From An Online Video Streaming Service

A recent Bloomberg report suggests that Comcast (NASDAQ:CMCSA) is planning to launch an online video service in the next two years. This service, which is likely to be a direct competitor of Netflix, will broadcast hit shows from the company’s NBC Universal TV networks and may also include shows from other networks in order to pass regulatory muster. As the television industry undergoes a transformation and viewers increasingly prefer to consume content online, streaming services are witnessing high growth. While Netflix dominates this segment and Amazon Prime Video is expanding aggressively, this segment is getting crowded with several new players looking to enter this market. Comcast has the advantage of a strong content library which can be exploited through the streaming service.

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Might Not Be A Key Revenue Driver In The Short Term

For the streaming service to generate significant revenues, Comcast needs to develop a large loyal user base which may not be possible in the near term. A similar service offered by CBS – CBS All Access – which gives users access to all the network’s shows recently reached a milestone of 1.5 million subscribers. While this subscriber growth is impressive, it does not hold a candle to Netflix’s 60 million strong user base in the U.S. CBS charges $6 per month for this service, which has limited advertisements. Assuming that Comcast may be able to charge a similar subscription rate and build a user base of 2 million users, annual subscription revenues from this service will be around $144 million, which is not significant compared to the current nearly $30 billion revenues generated by Comcast’s NBC content segment alone.

Advertising revenues could generate additional income from this segment, but it is not likely to become a key revenue driver for Comcast in the short term.  However, this service can hedge the company from subscriber losses due to cord-cutting. Comcast has been ahead of other Pay-TV players in adapting to the changing TV landscape, and we believe a streaming service is a smart strategy which allows the company to evolve with changing customer preferences. Whether it will generate significant revenues, however, remains to be seen.

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