With the cord-cutting movement still in full swing at the same time its broadband service's growth is slowing to a crawl, you'd think Comcast (CMCSA 1.85%) would recognize -- and then maximize -- its next-best growth opportunity. But, rather than doubling down on free ad-supported TV (FAST) or ad-supported video on-demand (AVOD), the company is pulling back a bit from the business, hedging its bet in a way that could limit its ultimate upside.
It's yet another thing any investor should consider before buying or sticking with Comcast stock.
Coming soon to (another) streaming platform!
Last week, Comcast's NBCUniversal announced that a great deal of its entertainment content would soon be made available to consumers ... for free. It wouldn't be made available through its streaming platform, Peacock, though, or any other NBCUniversal branded platform. Rather, more than a couple dozen thematically organized channels featuring Comcast's intellectual property will be added to free-to-watch, ad-supported streaming service Xumo's channel lineup. Amazon's (NASDAQ: AMZN) free-to-watch service Freevee will also be gaining access to the same entertainment content.
The decision makes enough sense on the surface. Peacock remains in the red, losing $704 million during the first quarter alone, further widening its habitual losses. Comcast needs to make some money however it can while it figures out how to make Peacock viable.
In many regards, the move takes the company further away from where it really needs to be -- operating its own AVOD/FAST service akin to Paramount's (NASDAQ: PARA) Pluto TV, which currently boasts 80 million regular viewers.
Xumo is co-owned by Comcast and cable television rival Charter Communications (NASDAQ: CHTR), for the record. So, in some ways this use of NBCUniversal's intellectual property is at least a little self-serving.
Arguably, the decision to offer an array of its content to a venture co-owned by a competitor sets the stage for an eventual standoff of sorts, while at the same time allowing Amazon to continue widening its own entertainment net. Meanwhile, Comcast isn't building a 100% in-house, ad-supported service beyond its disappointing Peacock, which as of the latest count only serves 22 million paying customers.
AVOD could do what cable no longer can
Keep it in perspective. Neither Peacock nor its stake in Xumo currently provides a meaningful piece of Comcast's current top line. In fact, Peacock accounts for less than 2% of the company's revenue. Although Comcast doesn't offer many fiscal details about its piece of Xumo (simply categorizing it as one of several noncontrolling interests on its books), the entirety of these interests are losing money as is Xumo itself, which serves around 40 million regular watchers at this time.
Nevertheless, there's a viable opportunity here that isn't being fully tapped. There's the rub. In fact, it's largely being overlooked. But the FAST/AVOD market is growing like crazy. In its 2022 fourth-quarter look at the market, Tivo reports that FAST/AVOD services like the aforementioned Pluto TV, Freevee, and Xumo now account for nearly one-fourth of all TV-viewing time in the United States, more than doubling the year-earlier proportion.
That's nearing cable and conventional (for pay) streaming's reach. As Gavin Bridge, senior analyst for Variety Intelligence Platform (VIP+), recently put it, "In 2020, when VIP+ published its first analysis of the market, FAST channels still often resembled a bizarro world of television. Now, they effectively are television."
Separately but simultaneously, free-to-watch streaming platforms Pluto TV and Roku's The Roku Channel are both big enough to be regularly monitored by ratings agency Nielsen.
This is still just the beginning, however. Digital TV Research predicts the global AVOD market will swell from 2022's $41 billion to $91 billion by 2028. That's a lot of opportunity for an enterprising organization willing and able to figure out how to capture its fair share of this market growth. So far, that doesn't seem to be Comcast.
It certainly could use the business. Its cable TV business is still clearly shrinking, while broadband's subscriber growth at least seems to be peaking.
Data source: Comcast Corp. Chart by author. Revenue data is millions of dollars. Customer data is in thousands.
Cable television and broadband together make up 37% of the company's top line and a whopping three-fourths of Comcast's bottom line. The scope of the latter, however, is now starting to be threatened in a big way.
Comcast still needs a new growth engine
Comcast isn't doomed. Cable TV and broadband are still productive cash cows. And to its credit, the company is venturing deeper into other, related businesses it can do well. For example, Comcast's Xfinity now serves nearly 5.7 million mobile phone customers, leveraging its existing cable and broadband infrastructure.
But there's no real growth engine to speak of. That's particularly frustrating when a viable opportunity like the growth looming for the AVOD/FAST market is in plain sight.
Sure, Xumo itself is a respectable platform (with tech that's being licensed out to third parties looking to develop their own FAST presence), but it's hardly the powerhouse draw that Paramount's Pluto TV or even Amazon's Freevee is. Xumo looks and feels more like an afterthought, simply built on the technology -- and now content -- Comcast already had at its disposal. It would be far more compelling to see the company take this same ball and run with it on its own. Maybe that could have been or should have been Peacock. Maybe it should have been something else. We just don't know.
What we do know is, Comcast is on the defensive, scrambling to penetrate a FAST market already entrenched by others.
Bottom line? Comcast continues to be a relatively tough name to buy or hold. That's going to be the case until management finds or builds a new business with meaningful, sustainable profit potential to offset the headwinds that cable and broadband are facing.
