Monday AM Briefing: Why The Comcast & Charter Joint Venture Is About Search & Discovery & Not Bundling
Last May, IAC Chairman Barry Diller told CNBC’s Andrew Ross Sorkin that he was bullish on Comcast’s strategy in streaming because they are “the only ones with both feet on both sides” of the streaming marketplace with X1 software and Peacock. He told Sorkin, “They've gone about the streaming thing smarter than anybody. They have the best hand."
I wrote about the interview last May (NOTE: the essay is on the Substack archive). It’s worth revisiting the interview after last week’s announcement of a new Comcast-Charter streaming joint venture, as reported by CNBC’s Alex Sherman:
Comcast and Charter said they had developed a 50/50 venture to push Comcast’s Flex streaming platform into more homes across America. Comcast will license Flex to Charter, giving Charter’s Spectrum subscribers access to the interface. Comcast also will contribute its smart TV business (XClass) and free ad-supported streaming service Xumo to the venture.
Charter, in turn, will make an initial contribution of $900 million to fund expenses and expansion. In addition, Charter will offer Flex-operated devices and associated voice-controlled remotes, beginning in 2023. While Flex isn’t a new product, the partnership nearly doubles the device’s potential install footprint.
The move emerged the day after I argued to Members in After Netflix's Self-Inflicted Wounds, Five Recommendations for Streaming CEOs: “Free Ad-Supported TV Services (FASTs) - especially YouTube - and smart TV and Connected TV (CTV) operating systems (OSes) are better positioned for the future of streaming than subscription services (including Netflix).”
It’s worth asking after a week where Wall Street’s questions about the future of streaming seemed to increase: is Comcast better positioned than everyone else? And if so, why?
More scale than Roku or Amazon Fire TVs
Sherman writes that together, “Comcast and Charter service more than 200 million people in U.S. households combined”, or nearly two-thirds of the total U.S. population. However, as a metric that number is much smaller: Comcast has 32MM residential customer relationships (excluding 2.5MM business services customers), and another 6MM customer relationships via its Xfinity software with Coz. Charter has 30MM residential customer relationships (excluding 2.2MM business services customers), totalling 68MM residential customer relationships.
That would put it way ahead of both Roku and Amazon in the U.S. Roku has 63.1MM active accounts, with the majority in the U.S. Assuming around 90% are in the U.S. and Canada (56.8MM), and 90% of that subset of users are in the U.S. that totals just over 50MM active Roku accounts in the U.S.
Assuming Amazon Fire TVs have 85% of the reach of Roku in the U.S., there are ~42.5MM active Amazon Fire TV accounts in the U.S. [1]
That suggests Comcast plus Cox and Charter will reach 1.6x the estimated monthly active accounts of Amazon Fire TV, and 1.4X the estimated monthly active accounts of Roku in the U.S.
In terms of scale and competition, it’s an enormous win for Comcast.
Comcast's “Route to All Ports”
I wrote in A Short Essay on IAC Chairman Barry Diller’s Newest Opinions on AT&T, Comcast and Disney:
[Diller] makes an interesting point about Comcast having “a route to the sea… a route to all ports”. He doesn’t explain the analogy in detail, leaving the audience to guess the reference. The implication is Comcast is better off than a ViacomCBS because its X1 software enables it to take a share of other streaming services’ success (a model similar to Amazon Fire’s and Roku’s share of advertising and/or subscription revenues), while also offering an ad-supported streaming service, allowing it to avoid the limits of subscription-only models.
The press release confirmed my read: “The joint venture will offer app developers, streamers, retailers, operators, and hardware manufacturers the opportunity to reach customers in major markets across the country with the platform”. Meaning, Comcast and Charter will compete with Roku and Amazon Fire both in terms of scale and also in terms of business models with key partners across the streaming ecosystem.
Peacock & Sports
The interesting question will be whether Comcast Xfinity software sets up Comcast to extract rents from streaming services with sports deals, as I wrote last Wednesday:
So how will friction be solved for sports in streaming?
There is the expensive answer and then there is the less expensive answer.
The expensive answer is that Smart TVs and CTVs own the real estate and the software that can put individual games one-click away for users on home screens. But that means streaming services paying to play, and both Smart TV and CTV OSes and the streaming apps themselves evolving their respective software into one-click access (also an example of Product Channel Fit).
My guess is these negotiations have already begun as more ad dollars shift into CTV. Sports deals have left streamers with sports rights vulnerable to rent extraction.
On this point, it’s worth noting how Comcast CEO Brian Roberts sold investors on Peacock benefitting from the partnership with Charter because” it will be deeply integrated into the platform the way it is on X1 and Flex today, which will help expand Peacock's customer base more quickly and drive higher engagement resulting in greater monetization for NBCUniversal”. He also highlighted fourth quarter tentpole sports events Sunday Night Football, Premier League and the World Cup.
The obvious implication is that deeper integration of Peacock into X1 and Flex will lead to more tentpole sports consumption. So, if anyone leads the charge on extracting rents for reducing friction in sports streaming, it Comcast seems best positioned to do so.
Xumo & “Don’t discount FASTs”
Last, there is an interesting turn of phrase regarding Xumo - a Free Ad-Supported TV Service (FAST) that Comcast acquired in 2019 - in the press release for the joint venture: "Comcast will license Flex, its aggregated streaming platform and hardware to the joint venture, contribute the retail business for XClass TVs and also will contribute Xumo, a streaming service it acquired in 2020."
It adds, “Xumo will continue to operate as a free global streaming service available through the joint venture’s products and third-party devices”.
This means, Xumo has been spun out of Comcast and is now the co-owned, default FAST for 68MM homes in the U.S.
Conclusion - It’s About Search & Discovery
CNBC’s Alex Sherman speculated that this move reflects Comcast and Charter leveraging their collective marketplace strengths to begin delivering bundles of streaming apps to consumers.
Perhaps.
But, it’s also remembering IAB Executive Chairman Randall Rothenberg’s thread on why a fundamental, if not inherent, limitation to the ability of individual streaming services to scale is because they do not communicate with each other. As I wrote on Friday, a bundle doesn't solve for this.
But, a simpler user experience will improve the experience for over 68MM consumer relationships. On this note, this quote from Dave Watson, CEO of Comcast Cable in the press release is notable: “These products are all designed to make search and discovery across live, on-demand and streaming video seamless and incredibly simple for consumers.”
Perhaps he is implying that the successor to the EPG isn’t a new bundle, and is more about solving search and discovery for 68MM homes in the US. Because that is what both consumers and key partners need, especially as the new expensive sports streaming rights deals launch in 2023.
Footnotes
[1] Some quick math on the estimates:
~90% of Netflix and Disney+ subscribers in the U.S. and Canada are based in the U.S.
I assumed Amazon has 85% reach of Roku based on figures provided by eMarketer: it reported Roku reached 111.7MM monthly active users in 2021 and Amazon Fire TV reached 97MM monthly active users. So according to eMarketer, Amazon Fire TV reached 87% of the Roku active users.
Conservatively rounding that down to 85%, we get ~42.5MM.
Must-Read Monday AM Articles
* On its Q1 2022 earnings call, Charter Chairman & Chief Executive Officer Tom Rutledge said that over time he expects “most of our customer base will be all IP,” a shift which will let Charter reclaim spectrum on its cable plant that is currently used to deliver video services.
* The platform has greenlit three new unscripted projects — To Paris for Love: A Reality ‘Rom Com’; The Marriage Pact and Match Me in Miami — as the service continues to ramp up its original offerings. Hello Sunshine produces To Paris for Love.
* nScreenMedia summarized some recent consumer data on U.S. living room consumer behaviors.
* AT&T could find itself a winner in the streaming wars, argued Variety’s Cynthia Littleton
The Vibe Shift
* A24, the indie TV / film studio behind Euphoria and Uncut Gems, launched AAA24, a new membership program offering “your all access pass to everything A24.
Emerging "Metaverse"-type convergence strategies
* How do consumers really feel about the metaverse?
* By establishing a presence within an “obby,” or an obstacle course in Roblox, brands like Rebecca Minkoff have been able to tap into games that receive millions of visits on the platform.
* Mike White, the Disney executive charged with leading the company’s foray in the Metaverse, and Disney executives are thinking about ways to better connect physical spaces like the parks to digital ventures such as streaming service Disney+, as well as virtual environments as they emerge.
Aggregator 2.0
* YouTube hired Amazon executive Toni Reed to oversee YouTube Shorts and YouTube Gaming, livestreaming and community products.
Sports & Streaming
* Viacom18 Media Pvt., Indian tycoon Mukesh Ambani’s local joint venture with Paramount Global, is set to receive 135 billion rupees ($1.8 billion) in a funding round led by James Murdoch-backed Bodhi Tree Systems. Adani Enterprises Ltd., the tycoon’s flagship company, said separately that it has established a new media subsidiary, signaling his ambitions to tap the growing market.
Creator Economy, Platforms & Transparency
* Yuga Labs, the web3 company behind the Bored Ape Yacht Club, disrupted the entire Ethereum blockchain as a flood of users rushed to purchase NFTs representing virtual plots of land in its upcoming metaverse project, Otherside. Also, in a separate development, hackers made away with about $3 million worth of Bored Ape NFTs after gaining access to the Instagram account belonging to BAYC..
Original Content & “Genre Wars”
* Wall Street does not expect major streaming services to cut back on content spending
* Netflix announced a multi-film deal with Japan's Studio Colorido, as the streaming giant ramps up its anime offering and looks to Asia for growth. Netflix’s head of Global TV, Bela Bajaria spoke to India’s Business Today exclusively about the line-up of content for Netflix India.
* Netflix faces formidable challenges to keep expanding in countries across Asia where “the streaming battleground is crowded—and altogether cheaper”.
* The Hollywood Reporter’s Kim Masters had a must-read, very-pro-former-Netflix-executive-Cindy-Holland take on Netflix’s internal problems.
* nScreen’s Colin Dixon broke down four ways Netflix still dominates SVOD. Simulmedia’s Dave Morgan laid out 4 Big Reasons Why Reed Hastings Was Right To Resist Netflix Ads For So Long
* “Ten Percent” - the UK adaptation of France’s “Call My Agent!” on Netflix - will premiere on Sundance Now and AMC+ in the United States, and Amazon U.K. in Britain, Canada and six other English-speaking territories.
* Following the success of Judge Judy Sheindlin’s first streaming series, Judy Justice, Amazon Freevee—formerly IMDb TV—has ordered another court program from Sheindlin called Tribunal. The Entertainment Strategy Guy broke down for The Ankler how Judy Justice has performed relative to its syndicated predecessor, Judge Judy. ($ - paywalled)
AVOD & Connected TV Marketplace
* A challenge for Netflix’s advertising ambitions: “sharing data — something that the streaming world as a whole and Netflix specifically hasn’t been keen on doing”.
* Roku has struck deals with four marketing tech providers — Analytic Partners, Ipsos MMA, IRI and Nielsen — to provide more insightful data on its ads to inform the marketing mix models that advertisers like CPG brands and retailers use to assess their ad spending.
* Discovery’s Magnolia Network is taking Chip and Jo’s advertising vision a step further, and—in an ad model shift—focusing more on short form, custom spots that spotlight good storytelling in the ethos of the network’s overall mission.
Other
* Puck’s Matt Belloni reported that the willingness of the general public to return to theaters is rising significantly. ($ - paywalled)
* Jason Blum, founder and chief executive of Blumhouse, a film and television production company, argued Netflix should be willing to drop the economics of the upfront flat fee. ($ - paywalled)
* NBCU, Disney and now Roku are now touting data clean rooms, inspired by incoming regulations and the dissolution of the third-party cookie. They enable effective and privacy-safe collaboration with data. (free - registration required)