Comcast is on an epic roll. Despite years(!) of cord-cutting warnings by the blogosphere and analysts, Comcast once again proved the naysayers wrong, adding 53K video subscribers in Q1 ’16. It was the best first quarter in 9 years for the company and easily eclipsed the loss of 8K subscribers in Q1 ’15.
The Q1 gain builds on the strong year Comcast recorded in 2015, losing just 36K subscribers vs. a loss of 194K in 2014. Remarkably, Comcast now has 25K more video subscribers that it did one year ago (22,400K vs. 22,375K).
As I’ve previously explained, Comcast’s video success is tied to a perfect storm of weakening satellite/telco competition combined with the company’s significant investments in product/content/user experience and triple play bundling.
After years of satellite operators and telcos taking market share from cable, the 4 main competitors - AT&T/DirecTV, Verizon and Dish Network are all either weakened, changing focus or both. AT&T acquired DirecTV last July and has all but given up on its own U-Verse service. In its own Q1 ’16 earnings, AT&T reported a total loss of 54K video subscribers, despite gaining 328K satellite subscribers, reflecting the big U-Verse drag.
Meanwhile Dish reported a loss of 23K subscribers in Q1 vs. a gain of 35K a year earlier. But a steep loss in satellite subscribers was obscured by gains for Sling TV, which the company doesn’t break out, and which were estimated to be approximately 135K in Q1 by analysts MoffettNathanson. If Dish hadn’t launched Sling TV when it did, the satellite losses would not be masked so their magnitude would be far better understood.
Last but not least is Verizon, which as I wrote last December, sounds a lot like it’s backing away from traditional pay-TV, instead shifting focus to wireless (5G upgrades), mobile video (Go90 and content investments) and advertising (AOL acquisition, leading contender to acquire Yahoo). FiOS expansion has stopped and existing build-outs are basically finished, so there’s no future growth to be had.
All of this leaves Comcast - and other cable operators - in the best competitive situation they’ve been in for years. But in Comcast’s case, competition is just one part of the video growth story. As I’ve also detailed in the past, the company’s investments in the X1 set-top box, VOD content, TV Everywhere, improved customer care, etc. are all paying dividends.
X1 in particular, has become the real workhorse for Comcast, leading to all kinds of downstream benefits - higher DVR and VOD usage, increased value perception, higher ARPU, lower churn, etc. Comcast said it added 1.1 million X1s in Q1, so that 35% of its video subscribers now have an X1, up from a quarter 6 months ago. 86% of X1 subscribers use VOD monthly, watching an average of 25 hours per month. As a long-time X1 subscriber, VOD choices are noticeably greater, reflecting the content investments Comcast has made. X1 remains a super-slick web-like experience. If only Comcast would integrate key OTT apps, as TiVo has long since done, X1 would be a true grand slam.
It’s also critical to remember the important role that broadband plays for Comcast in offering double and triple play bundles to acquire and retain video subscribers. Despite record penetration, Comcast turned in the best broadband performance in 4 years, with 438K subscribers added in Q1 ’16 vs. 407K in Q1 ’15. As a Comcast customer, I’ve called in a couple of times to gauge how my bill would change if I dropped video. I’ve found that given the steep price to retain the same high-quality broadband that comes with my triple play bundle, it makes no sense to drop video. It’s a very savvy approach by Comcast that will likely keep many video subscribers on board.
Given all of these trends, Comcast likely has a lot of runway still ahead in 2016. It’s hard to see the competitive dynamics changing dramatically in the near term. And as word of mouth from X1 subscribers spreads, amplified by Comcast’s ubiquitous X1 marketing, installs will continue to surge. All in all, Comcast should keep the cord-cutting bear at bay for a while to come.
(Note: Comcast Wholesale is a sponsor of VideoNuze)