Comcast seems to be bucking the downturn trend in cable TV and continues to show growth. Every company and every industry rides the growth wave up and down. Cable television has been growing for decades, but in the last several years it’s growth has crested and has been falling thanks to new technology and new competition. So why is Comcast (CMCSA) bucking this trend to date, and will it continue?
Comcast is a public company, yet they are still run by the same family that started it all, the Roberts. The best way to say it is they are one of the largest small businesses in America. They started out as a tiny cable television company in a tiny market. Since then, they have grown through acquisitions as the cable television industry transformed itself from lots of tiny companies to a few, larger regional players.
Pay TV Keeps Changing
Today, Comcast is the largest cable television operator in the United States. However, since the AT&T (T) DirecTV merger last summer, Comcast is now number two in the pay TV space. Remember, back in 2002, Comcast was a small cable television provider until it acquired AT&T Broadband making it the largest overnight. M&A can do some wonderful things.
The industry changed back then, and now the industry is changing once again. There has been lots of change in the pay TV space over the last decade or so, with things like IPTV and wireless TV. However the two industry leaders today are AT&T DirecTV and Uverse as number one, and Comcast as number two. AT&T using IPTV, satellite TV and wireless TV letting customers watch anyplace over the wireless network. Comcast may start to head in that direction as well.
What Makes Comcast Different?
Comcast is different from Time Warner Cable (TWC), Charter (CHTR), Cox and other cable television companies because they have grown and changed during the last decade. Today, they are not just a cable TV company any longer. They also offer a high-speed Internet service, they own NBC Universal and many cable television channels.
They have also tried and failed at many things - like wireless, several years ago. When they gave up on wireless, they spun off their data spectrum to Verizon Wireless (VZ). Now, several years later, it sounds like something is brewing in that area again. We’ll have to wait and see.
Today, Comcast's growth continues, as they move into new areas like DOCSIS 3.1-powered gigabit Internet service. They are starting with five markets including Atlanta, Nashville, Chicago, Detroit and Miami later this year.
This will help Comcast stay relevant in an increasingly competitive marketplace where AT&T Gigapower and Google Fiber are current industry leaders with gigabit speed Internet services in a growing number of markets nationwide. Today AT&T is number one and Google (GOOG) is number two. Others are trying in certain markets as well.
The US marketplace is huge and Comcast has just started to scratch the surface. If this is successful for them, they can continue to grow with it over time. So we’ll keep our eyes on them.
Comcast Growth from Internet and Small TV Bundles
I have been following Comcast for more than a decade, and I think much of their growth comes from both their high speed Internet service and their smaller cable TV bundles. Customers have wanted smaller bundles so they could save money for many years, but the industry didn’t budge.
Now that competition and new technology is eating away at cable TV market share, there is new pressure. This competitive pressure will hopefully force further changes in the cable television marketplace.
Today, Comcast is winning with smaller bundles, but they would win even more if they give customers the ability to create their own bundle or a-la-carte. Will they move in this new direction since this is the new direction the industry is heading in? That’s the million-dollar question.
Pay TV not Cable TV: Threats are Increasing
Threats to Comcast and the entire cable television industry are increasing. They come from companies like AT&T DirecTV and Uverse, Verizon FiOS, CenturyLink (CTL) Prism, Netflix (NFLX), Amazon.com (AMZN), Google, Hulu and many more. This new competition and new technology is changing the entire cable television industry.
Going forward, we will call this industry Pay TV instead of Cable TV. The reason is new competitors and new technology are transforming and expanding the space. In this environment every company must transform or weaken.
On the growth wave that I always discuss, this threat to the traditional cable television industry is growing. If that’s the case, things will get tougher and tighter as time passes. Over the next several years, I expect cable TV to lose more market share.
Wireless TV Next Big Trend
New technology is changing the entire space. Wireless TV is one of the big new technologies that will transform the pay TV industry. Today, AT&T Mobility seems to be the leader in this space, powering the AT&T DirecTV and Uverse offering. This lets customers watch TV from their wireless devices like smartphones or tablets over AT&T’s wireless network.
This is a huge and transformational opportunity which has not yet received the kind of media attention I would expect. However, that will occur over the course of the next year or two as others enter this space along with AT&T.
Wireless TV is a big shift, and it’s an important shift. This is a big challenge for Comcast and other cable TV companies. They need to solve this challenge in order to remain relevant going forward. Comcast is currently working with Verizon Wireless on this area, however I know nothing beyond that so far. We’ll have to keep watching for coming attractions.
Comcast Has Little Competition in Most Markets, but That’s Changing
Another reason for Comcast growth is they have little competition in most of their market areas. However, this is changing...and rapidly. Competition and new technology are in the very early stages. It has begun to grow and change the old fashioned cable TV industry which is a wake up call and a threat to the industry leaders.
Tomorrow's marketplace will look completely different. Tomorrow, business and residential customers will have the choices of various companies, services and new technologies. And new technologies like IPTV and wireless TV will continue to transform the marketplace putting more pressure on existing cable TV companies.
Every Rose Has Thorns
This does not mean that everything is rosy at Comcast. Investors like the company, but customer complaints about service and quality continue. Comcast has among the lowest customer satisfaction ratings in the industry. This is one of the weak links.
Much of the pressure the cable television industry now faces is self-inflicted. Over the last several decades, they didn’t show their customers care or respect. Customers dealt with them like a splinter they couldn’t remove. That built walls of animosity with customers.
Comcast didn’t seem to care before, since they had no competition. However, now that competition is here, starting to change the industry and taking business, they seem to be paying attention. The cable television industry is under threat, and now cable TV companies do care.
Bottom Line on Comcast
So, bottom line, Comcast growth seems to continue even as the larger and more traditional cable television space is struggling and losing market share. Cable TV is under enormous pressure from new competitors and new technology and from bad behavior in the past. This means customers do not like cable TV. They want new competitors and innovation. Investors are seeing the industry problems and are becoming increasingly concerned.
Comcast seems to be dodging that bullet for now. That said, Comcast seems to be the only cable television company bucking the negative industry trend. So will this continue? That’s the million-dollar question. There will be plenty of change in this industry and a few short years from now traditional cable television will fade away and be replaced by Pay TV, Wireless TV, IPTV and more.
If Comcast can pull a rabbit out of the hat and create a meaningful wireless TV offering with Verizon Wireless and IPTV, then maybe they can continue this current growth wave. We’ll have to wait and see what happens next. This is a critical turning point in Comcast history for customers, workers and investors. So let’s keep our eyes on them, and hope for the best.
Equities.com columnist Jeff Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst and consultant. He shares thoughts on the changing industry, which he's been following for 25 years. He follows what's hot, what's not, why and what's coming next. Email him atjeff@jeffKAGAN.com.
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