Rationale behind the Comcast-Netflix deal
As Millennials watch more and more content online, a big challenge for media companies such as Comcast (CMCSA) has been to find ways to benefit from the trend. According to an Ooyala report from 1Q16, the majority of SVoD (subscription video on demand) subscribers prefer to watch long-form content. Long-form content is content that has a duration of 20 minutes or more. Comcast intends to take advantage of this trend.
In July this year, Comcast entered into an agreement with Netflix (NFLX) to provide Netflix on Comcast’s X1 set-top boxes. Netflix is expected to become available on Comcast’s X1 set-top boxes later this year.
Comcast explained its rationale behind the deal at the Nomura Media, Telecom & Internet Conference last month, stating that it viewed the deal as beneficial for Comcast’s X1 customers. The deal Netflix, the company said, would allow Comcast to offer popular content not only from the Comcast stable but also from third-party sources like Netflix.
Comcast also believes that its deal with Netflix would make content easier to consume for its viewers. Comcast did not rule out the possibility that it could add more services similar to Netflix on its X1 set-top box.
Comcast’s video business
Comcast narrowed its video subscriber losses to 4,000 in fiscal 2Q16—its best second quarter in the past ten years. This improvement came in spite of a second quarter that was seasonally weak due to college students disconnecting their pay-TV services to go home for the summer.
Comcast has added around 90,000 video subscribers in the trailing 12 months. That’s significant in the face of rising competition from video streaming operators like Netflix (NFLX).
Now let’s discuss Comcast’s stance on market segmentation.