In Q2 2023, PARQOR will be focusing on three trends. This essay focuses on "Media companies have millions of consumer credit cards on file. What are they building for their customers?"
To remind you, PARQOR identifies a few key trends each fiscal quarter that reveal the most important tensions and seismic shifts in the media marketplace. Must-read stories or market developments are not always obvious from press reports or research analysis, and often require a deeper dive. PARQOR’s analysis questions established ideas and common wisdom, reassesses the moving pieces, and reveals the potential in the media marketplace in 2023.
Now-former NBCUniversal CEO Jeff Shell was never the optimal spokesperson for Peacock or Comcast’s streaming ambitions more broadly. Take this answer to a question to offer some “color” on Peacock in Comcast’s Q3 2021 earnings call:
“everything on Peacock is heading in the right direction, and there's really nothing from a trajectory perspective that's any different than it was last quarter or the quarter before. All metrics are pointed up. Our usage continues to be great. Our mix of users continues to be great. We added a few million more subs, more MAAs, everything.”
Contrast it with former WarnerMedia CEO Jason Kilar’s response to a question about the then-newly launched HBO Max ad-supported tier in AT&T’s Q3 2021 earnings call:
“…we're happy not just in terms of the absolute response, in terms of subscribers, but also because advertising helps lower the price and increase the value for an HBO Max subscription. So we see it as rather strategic, and we're very excited about where that goes.
One thing that is interesting to note… is that until the end of the year, there is a slight difference in the product of ad-supported HBO Max in that the movie, specifically Matrix, King Richard and Dune, are not part of the ad-supported offering. So there will be full content parity starting in late January of 2022.”
Neither answer is “better” than the other: Shell offered all the right legacy media buzzwords investors like to hear, while Kilar offered guidance on how to think about the AVOD business model, which investors also appreciate.
But Kilar’s answer reads more product and consumer savvy than Shell’s, and that always struck me as more in-line with how heavily Comcast relies on the products and infrastructure of its Connectivity & Platforms business ($20.1 billion in revenues and $8 billion in EBITDA in Q1 2023). After Shell’s firing and today’s earnings call, it seems harder to identify what problem Peacock as a product solves for consumers, and why Comcast is losing billions annually to build out Peacock.
Key Takeaway
Jeff Shell was not a product-focused CEO for NBCU. That may be one reason why it has struggled. But Comcast's salesmanship of its Xumo joint venture suggests that Peacock's value proposition is not evolving fast enough for its target customers.
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Jeff Shell, Generational Hire
Peacock losses were up in Q1 2023 to $704 million from $456 million in Q1 2022. Comcast projects $3 billion in losses for the year. A big part of the problem is something highlighted in a recent Ankler piece, “Everyone Who Ran Hollywood Used to be Young. What Happened?”. The essay was built upon an important question: “Has the quality and pool of younger executives deteriorated and shrunk or is this a singular moment when a generation — mostly baby boomers — simply refuse to hand over the keys?”
Its answer implicitly highlighted why both Shell’s and Kilar’s answers offer valuable insights. Shell was not mentioned in the piece — at 57 years old he is 15 years younger than Disney CEO Robert Iger and was among the youngest of legacy media executives. But Kilar was mentioned as an example of an executive who was “ridiculed” for his digital-first approach to the media business, and especially for his “Project Popcorn” initiative in which he released films day-and-date in theaters and on HBO Max during the pandemic.
Former MTV Chief Digital Officer and current CEO of REDEF Jason Hirschhorn defended the decision in that essay : “it was the right move from day one. It’s the choreography that was up for debate.” Hirschhorn is mirroring an argument I made last month in “Why Don't We See More Crunchyrolls? Part Two”:
"CEOs like Kilar now “face a political challenge within their own companies — and the broader Hollywood ecosystem, as both learned in their tête-à-têtes with top agents top agents, Bryan Lourd at Creative Artists Agency and Ari Emanuel at WME — in pursuing streaming flywheels more than they do a technological challenge.”
Meaning, the technology has progressed much easier than the media business models that rely upon that technology for distribution. Comcast owns much of this technology: in addition to Peacock, it leases plug-in devices for consumers (like its Xfinity platform devices) and builds out and maintains a hybrid fiber-optic and coaxial (“HFC”) cable network.
So, as IAC Chairman Barry Diller told CNBC’s Andrew Ross Sorkin in a May 2021 interview, Comcast are “the only ones with both feet on both sides” of the streaming marketplace. He told Sorkin, “They've gone about the streaming thing smarter than anybody. They have the best hand." But we have since learned that set-up also ensures that Peacock will progress slower as a business than Comcast's technology businesses.
Peacock’s existential challenge
Both Shell’s buzzword salad, above, and Peacock’s continued losses reflect how having “both feet on both sides” in theory does not necessarily mean both sides are coordinated in practice. One side is Comcast’s Residential Connectivity & Platforms business, which consists of broadband, wireless, and video through Xfinity, Comcast Business, and Sky. On the other side is Comcast’s Content & Experiences business, which generated half the revenue ($10.2 billion) and 20% of the EBITDA ($1.6 billion), with the majority of revenue and EBITDA coming from its media and studios businesses.
Shell’s background was more in legacy media television and movie studios. So it would be reasonable to point the finger at him for Peacock being treated as another distribution channel, and not a consumer-facing software service. But Shell’s biggest challenge was that he never owned the vision for Peacock. Its design and launch were overseen by his predecessor, former NBCU CEO Steve Burke. That original vision for Peacock was News, Sports, and Entertainment. Two years ago, The Information reported that Shell had “held conversations about the potential for a Universal-branded subscription video service” to replace a then-underperforming Peacock. But those discussions never went anywhere.
Fast-forward to today, NBCUniversal has invested in expensive sports rights deals — NFL and English Premier League — and brought back valuable Bravo content that previously resided on Hulu. It has hired former Hulu President Kelly Campbell as President of Peacock and Direct-to-Consumer.
The moves have helped to put Peacock back on a growth trajectory, with over 22 million subscribers and press releases highlighting “record” numbers of streaming subscribers signing up for the World Cup and Wrestlemania. And, as I highlighted recently, WWE Nick Khan believes WWE content is responsible for driving the engagement of “a significant number of Peacock’s paid subscribers.”
But, $3 billion in projected losses and $700 million in quarterly losses suggest that Peacock still faces structural issues. Its total paying subscribers are towards the lower end of the marketplace, and it has the second highest churn rate in the U.S. at 7.1%. As a direct-to-consumer business, it seems stuck. As Deloitte’s 2023 Digital Media Trends report showed recently, consumers across demographics are weaving together digital media experiences based on their own interests. For example, 44% of gamers have decided to play a specific video game after watching a specific TV show or movie, and 45% of gamers wish more of their favorite movies and TV shows also had video game experiences.
Peacock answers neither need and its value proposition seems to be too simple for its target customers.
Comcast’s disconnect
Both today’s Comcast earnings call and a recent FierceVideo interview with Colin Petrie-Norris, Xumo's chief revenue and platform officer, sounded like Connectivity & Platforms business is more important than Peacock to Comcast’s future. CEO Brian Roberts told investors on the Q1 2023 earnings call this morning, “If you think about less linear and more streaming, is that trend going to continue? Absolutely. It seems very, very likely."
He described Comcast being "best positioned to provide more and more capacity” and connectivity is “a special place to be.” He added, "as more and more needs come about, we're going to be the network there to deliver." In part, Roberts seemed to be nodding to the Xumo Stream Box, which will be rolling out to Comcast, Cox and Spectrum customers this year. He was also nodding to its Sky Glass product — available to 23 million customers in six European countries — will be two years old in October.
The Xumo venture has the potential to reach 68 million homes across all three businesses. It is a play for aggregating third-party services, and especially aims to solve a pain point for streaming consumers by make “search and discovery across live, on-demand and streaming video seamless and incredibly simple for consumers.” Petrie-Norris also mentioned this in his interview with FierceVideo, noting how Google Trends searches beginning with the phrase “Where can I watch” have gone up “12x” over the past four years. The better Comcast is at solving that problem for consumers, the better Comcast will “stand out from the crowd.”
Peacock seems integral to this solution, primarily because it delivers popular content like the English Premier League, Bravo and WWE. But its competitively lower scale in the U.S. (1/3rd of Netflix and 50% of Disney+ in the U.S.) and its high churn rate both suggest that, as a product, Peacock is becoming an internal obstacle to Comcast’s ambitions for Xumo and beyond.
A final question
Would a different, more product and consumer oriented CEO be better at solving for Peacock within Comcast? They have Matt Strauss as Chairman for Direct-to-Consumer, and he is a product guy who led the development of the Xfinity platform. But he reported to Shell and now reports to Comcsat President Mike Cavanagh, who has assumed the role of running NBCU and told investors, “Think of me as being there for a while." Cavanagh came to Comcast from JP Morgan, and is not a product guy, either.
So, there still seems to be a disconnect between what Peacock needs to be for consumers and how Comcast corporate is managing Peacock as a product relative to its other products. Jeff Shell’s departure does not seem to have brought Comcast closer to a solution for Peacock, even if it arguably should have.