Comcast as a Competitor

Somebody recently asked me about Comcast as a competitor. They have been a formidable competitor for many years, but I think they are pulling ahead of other cable companies in many ways. I’m sure that over time some of the other cable companies will try to emulate them. Consider the following:

  • They’ve created Comcast Labs (similar to Bell Lab). This group of scientists and engineers are concentrated largely on developing products that improve the customer experience. Nobody else has a research arm of this size and focus.
  • One of the first things out of Comcast Labs has been the proprietary X1 settop box, which has rave reviews and is heads above any other box. It has easy-to-use menus and is voice activated. It integrates the Internet into every TV. And it includes a growing list of unique features that customers really like.
  • Comcast has also now integrated Netflix and Sling TV into their settop box to keep customers on their box and platform. I suspect that Comcast takes a little slice of revenue for this integration. And it looks like they have a goal of becoming what the industry is starting to call a superbundler. There are around 100 OTT offerings on the market today and my guess is that over time they are going to integrate more of them into their ecosystem.
  • Comcast is working on skinny bundle packages that will let people buy smaller and more focused TV packages to keep them from leaving. Comcast is highly motivated to keep customers on the system since they own a lot of programming.
  • Comcast has found great success with their smart home product. This is probably the most robust such product on the market and includes such things as security and burglar alarms, smart thermostat, watering systems, smart blinds for energy control, security cameras, smart lights, smart door locks, etc. And this can all be easily monitored from the settop box or from a smartphone app. They don’t report numbers, but I’ve seen estimates that they now have a 7% to 8% customer penetration. Those customers are totally sticky and won’t easily drop Comcast.
  • Comcast has been an industry leader in in the race to unilaterally increase customer data speeds. They moved my 50 Mbps product to 75 Mbps with plans to raise it again to 100 Mbps after the DOCSIS 3.1 upgrade. I think they have figured out that faster speeds means a lot fewer customer complaints.
  • They are going to soon be offering cellphone services and will integrate them into the bundle. They just announced tentative pricing that looks to be lower than Verizon and AT&T in two-thirds of the markets in the US. Analysts say that over five years they could capture as much as 30% of the cellphone business in their markets. We’ll have to wait and see if that happens – because the cellular companies have better customer service than Comcast. But there is no doubt that they will get a lot of customers, and that those customers will also be sticky. They just bought a pile of spectrum that will help them offer some service directly to improve their margins.
  • One big advantage Comcast has over wireless competitors is that they own a lot of programming content. The industry expects them to use zero-rating, meaning that they will give their cellular customer access to all of their programming without having it count against cellular data caps.
  • As the biggest ISP Comcast probably has the most to gain from the reversal of customer privacy rules and net neutrality. Comcast already does well selling advertising but could become one of the major players online using customer data to target marketing.
  • Comcast is putting a lot of money into making their customer service better. They are quickly moving away from making everybody call their customer service centers. They also now have a decent customer service by text process. And they now allow people to ask and resolve questions by chat from their web site. Each of these improvements satisfies a niche of their customers and relieves the long wait times for a customer service rep.

They are also moving a lot of customer service back to the US, finally understanding that the cost savings of using foreign reps is not worth the customer dissatisfaction. But what they (and all of the other big companies) are banking on is the general belief that within five years there will be a decent artificial intelligence system for handling customer service. This will not be like the dreadful systems used today by airlines and banks. The expectation is that an AI will be able to satisfactorily handle the majority of customer service calls satisfactorily without needing a human service rep. Comcast will have these systems long before smaller competitors, giving them a big cost advantage.

I probably have a dozen blogs over the last few years blasting Comcast for their various practices and policies. But it’s not hard to see that they are possibly the most formidable competitor in the country. When you consider all of these positives and also understand that on a local basis that Comcast will match competitor’s prices – they are hard to beat. Like with any large ISP there are probably 20% of their customers that will choose somebody else out of reflex. But after that it’s a real challenge prying and keeping customers away from them.

What if Skinny Bundles Don’t Work?

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Tony Goncalves, the senior VP of strategy and business development for AT&T said last week that he thinks that pay-TV’s experiment with skinny bundles can’t last. He said that the economics are not there for it today and that his expectation is that over time that there will be pressure on skinny bundles to grow back into fat bundles. What if Gonzales is right and skinny bundles don’t work?

It’s clear that the traditional cable TV model is broken. Programmers seem to have lost their collective minds and are raising the cost of programming more each year to the point where many of my clients have seen several years in a row with programming cost increases over 10%.

And those big cost increases for programming turn directly into big rate increases on their cable products. For most cable companies it takes a 6% to 7% overall annual rate increase on cable just to cover the increased cost of programming. One doesn’t have to do much math to see that cable rates will be over $100 per month in just a few more years of continual rate increases.

Meanwhile customers cite the cost of a cable subscription as the number biggest factor that makes them consider alternatives. A lot of households are attracted to the idea of downsizing to a skinny bundle and adding Netflix or Amazon to reduce overall spending while still providing decent viewing options.

You can look at the early skinny bundles like Sling TV to see what Gonzales is talking about. They started with a small line-up of some of the most popular channels, but since then have added more and more options. It’s now possible to spend almost as much with Sling TV as with a traditional cable subscription, but getting a lot less channels. But a lot of customers seem to be finding the skinniest Sling TV options to be good enough. It includes ESPN and some of the more popular channels like the Food Network.

I know a lot of small telcos and cable companies are really hoping that customers like skinny bundles. Their biggest fear is that they continue to lose voice customers and that as customers continue to drop traditional cable that they will be left with only broadband as a product. I advise companies to do a simple test – look to see what your existing data rates would be if your only product was data. Most of them don’t like the answer, which often shows that data rates might have to climb to over $100 per month to keep companies whole.

And so the hope in the industry is that there will be some decent margin on skinny bundles. Selling skinny bundles would basically recalibrate cable TV as a product. While the costs for providing skinny bundles might grow quickly, starting over with a base rate of $25 or $30 can mean many years of providing affordable options for customers.

I’ve heard that the NCTC is negotiating skinny bundles for the small cable providers. Everybody is hoping there will be several options and that cable operators can make some decent margin on the skinny bundles. If so, I have a number of clients who will be aggressive in moving people from today’s giant packages down to the skinny bundles.

But if Gonzales is right and the math doesn’t work then I think we can all just watch cable start fading away over the next five years. We are starting to see the same kind of changes in the marketplace with cable that we saw for many years with telephone service. Consumer advocates are not advising people to drop traditional cable. Even Walmart has come out with a package that is inviting people to drop cable. As more outside forces tell your customers that the big cable packages are a bad idea the cord cutting movement will gain momentum if there isn’t an alternative product to offer to customers.

The Future for Cord Cutters

RCA_CT100-hdI read an article by Nathan McAlone in Business Insider that opined that people are going to look back five years from now and wish for the good old days of the big cable packages. I suspect for many people he might be right.

Right now cord cutters are definitely happier with dropping out of the big packages and finding smaller solutions that fit them specifically. As a family that hasn’t had a cable package in years, the recent emergence of online content feels wonderful to my family. Even with my few paid choices of Netflix, Hulu, Amazon Prime, and Sling TV I have far more options than I know what to do with. I have found myself liking to binge watch obscure series like Death in Paradise on BBC that is about a detective on a fictional island in the Caribbean. Even with the big cable package I would not have been likely to have found or watched this kind of programming.

But there are going to be long term consequences of cord cutting and of the big cable companies migrating to skinny packages. Verizon FiOS recently reported that a majority of their new customers are choosing their small skinny package rather than the traditional big package.

The main consequence is going to be to programmers. Every customer who cuts the cord or downsizes to a skinny package stops paying fees to a big pile of networks in the traditional bundle. We now know that ESPN has lost 7 million customers over the past few years and they cannot be the only one. One has to think that the same is happening to all of the sports networks like the Big Ten Network or Tennis TV. And it’s likely that over time the same thing is going to happen to any network that doesn’t have worldwide appeal such as religious networks, weather networks, music networks, or even the smaller networks such as Discovery Health that are only carried in the big cable packages.

I see several long term consequences of the shift to skinny bundles. First, I see it returning some of the negotiating power to service providers for those networks that are only in the big packages. Cable companies are going to become more and more willing to say no to programmer demands that they must carry the full suite of everything offered by a programming company. The programmers will still be in the driver’s seat for the most popular networks – those channels that everybody wants to put into their skinny bundles like the Food Network or the Travel Channel. But the programmers are going to lose leverage with their less popular networks because cable systems will be more and more likely to push customers to smaller bundles rather than be held hostage to huge payments for content.

I also see some of the less popular networks folding. The only thing that keeps a lot of these networks going is that they get a few cents per month from 100 million households. When that audience retracts a lot of them are not going to be economically viable.

Interestingly I think skinny bundles will mean more profits to cable providers. The margins on the 300-channel line-ups are getting thinner all of the time. There is the possibility of being able to make more money selling 30 channels than there is for selling 300.

And finally, as the article that prompted this blog suggests, I think eventually it will get very expensive for the cord cutter who wants to buy a lot of different content. It might well cost more to put together the channels that you really want than buying today’s big packages. It’s not hard to imagine a world where ESPN costs $20, AMC costs $10, and a regional sports network might cost $15. Before you know it, if you have a wide interest in different programming, you could pay more than today for many fewer choices. But I think in the long run that the average person is going to do what I do today. They are going to buy a pile of programming and then learn to be happy with what they have bought. I find myself watching things now that I would never have considered years ago – and it works for me. I don’t miss the channels that I can’t see.

Cable Companies Try Skinny Bundles

Comcast truckWhile all of the cable companies and their trade organizations publicly deny that cord cutting is a real phenomenon, in this most recent quarter most of the large cable companies have announced a skinny bundle package delivered over the web. It’s hard to think that these packages are aimed at anybody but cord cutters and in fact, one has to wonder if they might lure more people away from the big packages.

CEO Rob Marcus of Time Warner Cable says that their skinny bundle is an attempt to get rid of settop boxes. TWC just announced in New York and New Jersey that all cable customers can now use Roku instead of settop boxes. He said that TWC has a long-term strategy to get out of the settop box business, which is a big expense for the company and something that customers really don’t like paying for. I know that for most of my clients the monthly settop box rentals are one of the most profitable parts about selling cable TV and so his statement puzzles me a bit. But my clients are not working in major metropolitan markets and perhaps the total cost of tracking and swapping boxes is different for a large company.

But since TWC offers Roku for everybody I’m not sure that settop boxes are a very good explanation for their skinny bundle. TWC is now trialing a skinny bundle in New York City, available only to its data customers. It starts at $10 per month for 20 channels with options to add movie channels and other networks running up to $50 per month. That sure looks to be aimed at cord cutters.

And most of the other cable companies are also limiting their offerings to their own data customers. For instance, Comcast has launched a trial in the Boston area of a skinny bundle they are branding as Stream for their own data customers at $15 per month, including all taxes and fees. The package includes local networks, HBO, and some streaming movies. They plan to take this nationwide in 2016. The unique feature of the Comcast product is that it is not truly an OTT product since it doesn’t use the shared data stream but is delivered with separate bandwidth on the cable network.

Charter has launched what they are calling Spectrum TV. It starts at $12.99 per month and comes with a free Roku 3 player. This bundle contains 19 channels including the four major off-air networks. For an additional $7 per month customers can add more channels including ESPN, and for even more money customers can add HBO or Showtime. .

CableVision launched packages back in April of this year that includes a digital antenna for receiving local channels. They are offering a 50 Mbps data product plus the antenna plus HBO for $44.90 per month.

This isn’t limited to just the cable companies. CenturyLink is supposedly getting ready to trial a skinny bundle for its data customers. There are no details yet of pricing or line-up.

This all got started with Dish networks and their Sling TV product. Unlike these other products that, for now, are only available to the data customers of each ISP, Sling is available to anybody with a fast enough connection. I previously reviewed Sling TV and it had a lot of problems. I tried it during the first football game of the season and it was so bad that I abandoned it. I just watched Maryland beat Georgetown in basketball last night and the video was still out of sync with the audio. It’s getting better, but is still not as good as cable TV.

It’s interesting that most of the companies like CenturyLink say their skinny bundles are aimed at cord cutters, but even more specifically are aimed at millennials. I look at the channels offered and my bet is that baby boomers like me are going to more interested in this than millennials. I guess we’ll have to wait and see who subscribes to the skinny bundles.