Last Thursday, when I received an email from Comcast PR with a release attached, announcing that Hulu + Live TV would now be available for Comcast’s broadband and Flex users, I did a double-take.
Of course, it is no secret that Comcast has long emphasized its broadband business over its traditional pay-TV business. Between a benign competitive environment and most recently the Covid catalyst, Comcast had soared to 28.8 million residential broadband subscribers at the end of Q1 ’21, up another 448K, while residential video subscribers fell by 404K to 18.6 million. The 10.2 million difference is the largest yet. It reflects macro-changes around cord-cutting and cord-nevering that have swept through the industry unabated and the rise of streaming and CTV.
But the difference also reflects the concerted effort Comcast has made over the past four years to reposition itself as a “connectivity” company, with broadband at its core. A whole galaxy of additional features, devices and content, some for incremental fees and some for free, are all enabled by broadband.
Specifically, in video, Comcast has rolled out its Flex devices to its broadband subscribers. There are now 3.5 million deployed, peanuts compared to Roku, Amazon Fire TV, Chromecast and others’ installed bases. But because Comcast gives Flex away for free, it is theoretically possible that there could be around 30 million Flex boxes deployed in the years to come (I have one, and though only use my Roku smart TVs, I do like having it around to periodically check the UI). That could make Comcast a big player in CTV.
Broadband, Flex and Peacock have emerged as the primary pillars of Comcast’s strategy to stay competitive in the streaming video era. While the latter two are still a work in progress, broadband has become the company’s financial engine, and with its rich profit margins, has essentially reconfigured the company’s entire P&L.
While under siege, Xfinity TV, the company’s flagship pay-TV service has soldiered on. Though steadily losing subscribers, it still a very big business in its own right, contributing $20-23 billion per year in top line revenue (broadband may exceed Xfinity TV for the first time in 2021). Xfinity TV is powered by the X1, an advanced IP-capable set-top box, which for quite a while was the most prominent piece of technology Comcast had and which it attempted to license to other pay-TV operators with mixed success.
With the advent of connected TVs, X1 has increasingly looked like an artifact from another age - bulky, expensive for subscribers to rent and with too much processing done on the device rather than in the cloud. CTVs with sophisticated native streaming services (e.g. Roku and Amazon) have emerged as the big winners (so far) in the video CPE race. Comcast has enabled a variety of streaming services in X1 and Flex, like Netflix, Amazon Prime, Disney+, YouTube, etc.
In addition to these apps, about a year ago, Comcast enabled Sling TV on Flex, providing the virtual pay-TV operator a foothold in Comcast homes, a semi-radical move by Comcast. I say semi-radical because Sling TV has one key disadvantage that would preclude practically all existing Xfinity TV subscribers from abandoning the service and switching to Sling: the absence of broadcast TV channels. This has been Sling’s Achilles heel from day one. Rather than absorb the expense of carrying these channels, Sling relies on its subscribers to have an antenna or acquire a separate box to receive these channels. The former is limited to the small slice of people with antennas and the latter is just too clunky an approach to ever be mainstream.
All of that brings us to last week when Comcast made a game-changing move by enabling its Flex subscribers the ability to add Hulu + Live TV, which is likely the largest virtual MVPD and offers a full channel lineup, including the critical broadcast TV channels. To state this more plainly: Comcast is allowing a fully competitive pay-TV service to exist on its broadband network and devices and be a head-to-head over-the-top option vs. its own Xfinity TV. And it should be noted that a few months ago Comcast announced its own Xfinity Stream streaming TV service would also be available on Flex, also competing in a sense with its X1-powered Xfinity TV (and of course with Hulu with Live TV).
The Hulu + Live TV move is the most aggressive step Comcast has taken to embrace streaming TV on its broadband platform. And since the YouTube app is already on Flex, it can only be a matter of time until the YouTube TV app will also be added to Flex, meaning the two largest vMVPDs will be available on Flex competing against Xfinity TV. It's also worth asking....if Comcast was ultimately going to offer Hulu with Live TV on its Flex boxes, why didn't it just acquire the remaining part of Hulu it didn't already own back in 2018 as I wrote back then? Ugh, the missed opportunities in life.
Over the past couple years, a prominent industry analyst who is also an old friend has insisted to me that “Comcast is walking away from the TV business.” I haven’t necessarily disagreed, but I’ve also never felt quite as strident about it as he has (though for context, he tends to be pretty strident about all of his opinions, whereas I’ve been known to be a little more equivocal; admittedly my feelings about AT&T and Quibi and increasingly Netflix are exceptions).
However, with the Hulu + Live deal, and no doubt the YouTube TV deal that will soon follow, I’ve moved squarely over to his camp. Comcast has now fully signaled Xfinity TV has no preferred status within the company. It is just as happy (or maybe even happier!) to have a broadband-only Hulu + Live TV via Flex subscriber as an Xfinity TV / X1 subscriber. (Yes, I know in PR world the positioning would be “we’re just offering our customers as much choice as possible”….which is fair…but in the real world, I think the analyst and my interpretation that Xfinity TV/X1 just received a major demotion is more accurate.)
If you play this narrative forward a few years, it starts to become clear that, for all practical purposes, last week Comcast may well have put the final nail in Xfinity TV’s coffin. Xfinity TV is truly just a melting iceberg now. Once a cable TV operator to its bones, Comcast is embracing broadband and starting to make the tough choices that follow. One last thought…for those of you who were diehard net neutrality proponents….does this prompt you to update your thinking?