Comcast: Future-Proofing the Set-Top Box
Comcast's integration of Netflix into its set-top box is the rare example of a dominant, incumbent player future-proofing its business
Comcast is one of the nation’s largest video, high-speed Internet and phone providers. In many markets the company operates as a monopoly as its customers do not have access to alternative video and high-speed Internet providers. This blogger, for instance, lives in a building where only Comcast service is available. However, even in markets where Comcast faces no competition, its video business faces headwinds due to the emergence of over-the-top streaming services.
The rise of streaming services such as Netflix, HBO GO, and CBS All Access has presented consumers with viable alternatives to the traditional cable bundle. Consumers have taken note, and are beginning to abandon traditional cable television bundles. eMarketer reports that in 2015 4.9M households “cut the cord,” and that this number will rise steadily through 2019(1). Consumers are increasingly indicating that they prefer to binge watch a season of Friends on Netflix than tune in to commercial laden reruns of the show on a traditional cable network (TBS is particularly guilty of being heavy on commercials and reruns). The changing competitive landscape in video, and evolving consumer preferences, have not gone unnoticed by Comcast. Comcast is, in fact, attempting to recreate its video business and maintain its leading position as an aggregator of video content. Starting in September, Comcast began beta testing set-top boxes which integrate Netflix into the video guide(2).
This integration is particularly noteworthy given how tense the relationship between Comcast and Netflix has been in the past. In 2014, the two companies struggled to reach a deal that would allow Netflix to connect its servers free of charge to Comcast’s network(3). After Netflix service levels to Comcast Internet subscribers deteriorated, the companies eventually reached an agreement in which Netflix would pay the Internet Service Provider for access to its network(3). Despite the fact that the companies ultimately did reach this paid-peering agreement, Netflix still harbored bad blood toward Comcast and feared the cable behemoth’s market power. In the months after this agreement was reached, Netflix voiced concern over Comcast’s proposed acquisition of Time Warner Cable(4). The deal was ultimately blocked by the FCC.
The integration of Netflix into Comcast’s X1 set-top box marks a new, more cooperative chapter in the relationship between the two companies. Comcast has clearly recognized consumers’ demand for streaming services and committed to incorporating, streaming, commercial-free offerings, like Netflix, into its video product. This partnership exemplifies the rare case of an incumbent player, Comcast, adopting its business to the rise of a new technology, streaming video services. Comcast sees that as technology has enabled the proliferation of streaming video, consumers are shifting their viewing patterns away from traditional media networks and towards streaming services. Comcast realizes that to maintain its dominant position as an aggregator and distributor of video content it needs to incorporate streaming services into its product offering. Comcast has astutely shifted its perception of Netflix. The company has attempted to see Netflix as a partner in sourcing content as opposed to a competing distribution network that leeches off of Comcast’s physical cable network.
Moreover, this integration is a tremendous boon to consumers. While before consumers had to toggle between the TV guide and an AppleTV or Roku product to alternate viewing Netflix content and content aired on traditional media networks, on the new Comcast box, no toggling is necessary. Going from watching House of Cards on Netflix to The Big Bang Theory on CBS can be done as easily as flipping the channel from CBS to NBC.
Moving forward, Comcast should pursue arrangements with other streaming services. Comcast’s partnership with Netflix does not change the fact that consumers increasingly prefer to watch commercial-free streaming content instead of advertising laden shows on traditional media networks. To truly please the next generation of consumers and maintain its dominant position as an aggregator, Comcast’s video service needs to aggregate far more streaming platforms, such as Hulu, HBO GO, and CBS All Access, and promote far fewer commercial-filled traditional channels. Today, Comcast is undoubtedly a leading aggregator and distributor of traditional video content. However, if Comcast can continue to add streaming offerings, like Netflix, to its video product, the company can establish itself as a leading aggregator and distributor of streaming content. In doing so, the company will position itself to meet the needs of the next generation of consumers.
- “Americans Cutting the Cable TV Cord at Increasing Pace – EMarketer.” EMarketer. EMarketer, 10 Dec. 2015. Web. 18 Nov. 2016.
- “Comcast Starts Beta Test of Netflix on X1.” Comcast Corporation. Comcast Corporation, 9 Sept. 2016. Web. 18 Nov. 2016.
- Ramachandran, Shalini. “Netflix Agrees to Pay Comcast to End Web Traffic Jam.” WSJ. Wsj.com, 23 Feb. 2014. Web. 18 Nov. 2016.
Student comments on Comcast: Future-Proofing the Set-Top Box
Interesting post Sam. While I agree that adding streaming services to their offering can act as a hedge for Comcast in the short to medium term, I wonder whether it will remain a source of differentiation in the long run. I would expect other cable providers to add this content to their offering sooner rather than later. When that happens any competitive advantage that Comcast may have built by integrating streaming services into their network, will be eroded. Netflix and other streaming platforms, also have a clear incentive to partner with as many cable providers as possible. So, in the long run I would expect streaming content to be included in every cable provider’s offering rather than act as a differentiating feature.
I am really curious on how the content distribution industry will end up. Customers want a one-stop product that has everything, which is Netflix aspiration. However, a scenario in which the big media companies will allow a single aggregator to have so much power is hard to imagine. The alternative, which is using multiple streaming platforms also sounds strange as an end-scenario in this era of winner-takes-all internet monopolies.
I tend to think that the first scenario – having one (or very few) dominant streaming platforms – is more probable. Users are lazy. They value the convenience of using only one platform. In this sense, a company such as Netflix could grow so big that media companies will have no option but to distribute their content through them.
Very interesting post Sam. I would be curious to hear your thoughts on how the future of net neutrality might play into future negotiations between Comcast / Netflix, and other cable providers / content providers. Some commentators (such as the LA Times below) have speculated that the Trump administration might try to undue some of the FCC’s regulations on net neutrality. While it is still unclear what the new FCC’s stance will be on net neutrality, the risk of cable providers like Comcast being able to price-gouge content providers like Netflix has certainly gone up. Netflix may view deals such as this one as an opportunity to hedge against net neutrality dismantling.