Comcast Is A Offering Low-Cost "Internet Plus" Bundle
Comcast has recently offered a new bundle called Internet Plus, which for the first time includes HBO, from Time Warner , in a low-cost package. The bundle also contains basic TV, broadband Internet, and StreamPix.
This particular bundle is an attempt to address a couple of competitive market challenges. First is the rising cost of its video service, which has partly come from rising retransmission fees. The other is to tackle the growing competition from streaming companies like Netflix, which provide an array of video-on-demand content for consumers who prefer to consume media when and where they want to. It also is a response to competition from telecoms like Verizon.
In the third quarter, Comcast lost approximately 129,000 video customers. It knows that it must target potential broadband customers if it wants to offset that trend. As of June 2013, its US pay-TV segment lost 316,000 subscribers. Unfortunately, it's a trend that will disproportionately affect Comcast because of its size.
This is an Internet play
While HBO has garnered a lot of attention for this particular offering, it's really an attempt to attract more customers looking for a quality Internet product. That's the target audience of Internet Plus.
Even so, there is enough TV content offered to add to the value of the initiative, with the major attraction on the TV side of things being HBO. Comcast has offered other bundled products in the past, but what's new is that it's being offered at this price level.
It's not a one-size-fits-all as far as price goes, as it is offered in a price range of $40 to $50 a month over a 12-month period depending on where the service is being offered.
According to a poll by J.P. Morgan, about 40% of consumers with cable TV are thinking about canceling the service. If only a small proportion of them follow through, it will have a significant impact on Comcast's performance. This bundle is being offered in an attempt to see if it'll slow down cord cutting before it gains too much traction. It's not happening in large numbers yet, but a growing number of consumers are seriously considering taking that step as retransmission fees push up cable TV subscription prices.
There is also the possibility that this may be a move toward a la carte programming, something that consumers have said they've wanted for years. The reason for the strong resistance against a la carte from cable and satellite providers is the knowledge of what happened to the music industry when it was forced to unbundle albums, which resulted in it having to sell individual songs at a low cost, disrupting its business model and major revenue stream.
It appears that Comcast and its peers will eventually have to offer more alternatives, though, as many consumers are tired of paying high prices for content they rarely, if ever, watch.
What to watch for
Comcast has become a complex company after the acquisition of NBCUniversal, but it still is strongly affected by what happens on the cable TV and Internet side of the business.
Deals like these are important to watch, not only because of the impact on the company in the short term, but also as an indicator of the direction that the company is likely headed. For Comcast, it may suggest that the ongoing erosion in its cable TV unit makes it worthwhile to offer more options in an effort to add more subscribers, as there is increasingly nothing left to lose.
For Time Warner it's good news because HBO is still considered one of the major weapons to combat the weakening cable video market. This isn't HBO Go, but it's still an attractive addition to the inexpensive content bundle. HBO Go is Time Warner's answer to the consumer wanting to consume more content than the average person. This allows them to watch HBO on a vast majority of devices, which results in a strong base that Time Warner can count on to deliver results year after year.
I think that this will help Comcast to slow down the trend, but there is no doubt that over time it's facing the reality that its cable TV business is becoming more of a commodity business. Worse, it's becoming an expensive one at that.
Challenge of retransmission fees
We'll probably see more cord cutters as broadcasters continue to look to cable and satellite providers as a source of income via transmission fees. This trend is one of the factors that is pushing up cable costs dramatically. CBS alone has boosted its fees by 50% in 2013, and that will continue on in the overall industry for the next few years until it finally reaches a ceiling.
In the meantime, Comcast will face a lot of pressure from that part of its business because of the limited options it has to respond to the fees raises. Time Warner Cable tried to fight it and was publicly humbled. It's doubtful that others will attempt to do the same in the near future.
With broadband revenue continue to grow, Internet Plus is an attempt to piggyback on that trend in order to retain some of its cable TV value. Beyond a temporary measure to slow down the trend, it's also an experiment to see how a different bundle offered at a new price point performs.
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The article Comcast Is A Offering Low-Cost "Internet Plus" Bundle originally appeared on Fool.com.Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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