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Comcast: Going from Cable Business to Watchable

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Launch of Watchable

Citing unnamed sources, Business Insider reported on August 14, 2015, that Comcast (CMCSA) is planning to launch Watchable, an ad-supported online video service later this year. It will be similar to the likes of Google’s (GOOG) YouTube and Facebook’s (FB) video service. This news comes on the back of Comcast’s recent $200 million investment each in Vox Media and BuzzFeed.

Online digital publishers like Vox Media and BuzzFeed publish edgy content widely consumed over social media like Facebook and Twitter (TWTR). This content is meant to appeal to Millennials—people in the 18–34 age group.

According to another report from the Wall Street Journal, Comcast is expected to keep only 30% of the ad revenue generated through the videos on its soon-to-be-launched video service, Watchable, while the rest will go to content providers.

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As the above chart indicates, advertising revenues are a part of Comcast’s Cable Communications segment and were 5% of this segment’s total revenues of $11.7 billion in 2Q15. The company had advertising revenues of $582 million in 2Q15, a marginal decline of 0.9% over 2Q14. Comcast’s pay-TV subscriber losses were 69,000 subscribers in 2Q15, an improvement of 52% over 2Q14.

In this scenario, it needs to be understood why Comcast is moving to online video platforms like Watchable and where advertising revenues come into the picture.

Why Watchable?

Currently, the pay-TV industry is facing a loss of subscribers as more Millennials are moving to viewing content online. They have either cut the cord on cable or have stopped subscribing to pay-TV altogether. In addition to the interesting online content, it is also cheaper to watch it online. While a cable subscription can cost over $100 per month on bundled services, Netflix (NFLX) offers the most affordable subscription, at ~$8–$11 per month.

Comcast’s move to launch Watchable could be an attempt to lure Millennials. Comcast could leverage content from its partnerships with online digital publishers like Vox Media and BuzzFeed and provide it on Watchable.

Considering that Watchable will be an ad-supported video service, it seems evident that Comcast intends to monetize it in the long term and create an alternate, if not significant, revenue stream in the process.

You can gain a diversified exposure to Comcast by investing in the SPDR S&P 500 ETF (SPY), which holds 0.76% of the stock.

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