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1 August 2019

Now TV to form foundations of NBCU OTT, Xfinity still in freefall

Comcast can revel in knowing that its second quarter video subscriber losses were nominal compared to AT&T’s, but while revenue grew and the high-speed internet customer base saw solid uptake, still the exit of 224,000 Xfinity TV connections is nothing to celebrate. Like AT&T, distraction tactics were employed in the guise of emphasizing forthcoming streaming projects, with Comcast revealing that NBCUniversal will enter the fray in April 2020 – around the same time as HBO Max.

But while NBCUniversal waits its turn, Sky’s Now TV platform, which was way ahead of the curve launching almost 7 years ago, was praised by Comcast executives during the company’s earnings call, who even went as far as saying Now TV is being used as the foundation for the new NBCUniversal streaming service. “We believe we have innovative ways of coming into the market that are different from anything else, and we also believe this has very attractive financial aspects versus other ways to get streaming,” commented NBCUniversal CEO Steve Burke, pointing to how well Now TV has worked in Europe.

By foundation for the new NBCU offering, Burke means technical foundations. Yet we also see scope for content and marketing crossover as Comcast looks to leverage its new European assets to advantage NBCUniversal’s streaming launch in any way possible. Comcast may be an intimidating colossus of a company, but Sky has a reputation for investing in next generation technologies and launching ambitious initiatives in emerging fields, so we always expected Comcast to take a leaf out of the Sky book of streaming following the mega takeover. The US operator’s latest results just provided a little more evidence of this occurring.

Sky CEO Jeremy Darroch also weighed in, essentially saying that the more Comcast can do with Sky’s Now TV streaming technology assets, the better effect it can have across the whole business of having a much lower cost basis, despite streaming ARPU being lower than Sky’s traditional DTT service.

It means we can expect NBCUniversal’s OTT platform to be built on such technologies as the Velocix CDN, previously of Nokia, which was upgraded from taking OTT content to the set top to delivering Now TV traffic along with Sky Go. Sky has also been a long-term advocate for AWS Elemental and while Comcast attests to handling some transcoding in-house through its Comcast Technology Solutions division, the cable operator largely relies on AWS Elemental for encoding and has done since around 2011, processing live and on-demand video. NBCUniversal meanwhile has used Encoding.com for processing video in the cloud.

On the analytics side of the coin, Sky has been a fan of Conviva for QoE analytics while we understand video monitoring specialist SSIMWave has a deployment at Comcast. NBCUniversal has sourced sports monitoring capabilities from Tektronix, although the latter appears to be for broadcast TV not OTT.

Looking back at Comcast’s second quarter results now, the Xfinity TV base declined to 21.64 million, a year on year slip of 480,000 which again looks trivial when lined up against AT&T’s 2.5 million year-to-date pay TV cancellations. A silver lining of sorts is that Comcast saw record digital video sales in Q1, increasing 50% over the year prior, a good omen for the launch of its ad-supported service.

In addition, the plateau in X1 deployments and trend in decreasing CPE and network investments has caused cable capex to improve, to the tune of 100 basis points according to Comcast, compared to 13.8% in 2018.

High-speed internet customers increased by 209,000 to total 27.8 million, helping boost Q2 revenue by 23.6% to $26.85 billion. Net income slipped 2.8% to $3.1 billion. The significance of the high-speed internet business growing is that we expect a large portion of pay TV cord cutters are retaining their Xfinity internet connections and therefore remaining Comcast customers. So, while the pay TV businesses of major operators are in freefall, the pool of prime target customers for new streaming services continues to grow stronger – albeit with ever-increasing competition.

As for Sky, the European business added 304,000 net customers in the quarter to total 24 million, although unfortunately the new reporting method doesn’t break out KPIs by service or even by country.

NBCUniversal revenue was down slightly year on year by $67 million to $8.2 billion, while Sky revenue was up 2.4% to $4.8 billion – improving on both the direct to consumer and content fronts, but slipping slightly on advertising.

Phrases like “we’re not going after unprofitable video subs” and “we’re not going to chase low end customers” were scattered throughout Comcast’s earnings call as the company set out to reassure investors that X1 remains an investment priority. It promised that bundling the video platform with broadband will bring dividends and higher ARPU, in attempt to steer the intense spotlight away from the highly anticipated NBCUniversal streaming service.