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How Will the Over-the-Top Trend Affect Comcast?

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Over-the-top services and Comcast

Millennials increasingly prefer to watch content online. This trend has allowed new players to enter the market and has made it difficult for pay-TV companies like Comcast (CMCSA) to retain their subscribers. Hulu is another player that plans to launch an online television service in 1Q17. AT&T (T) is also getting ready to launch its DIRECTV Now service.

Comcast was asked at its fiscal 3Q16 earnings call how the growing trend of over-the-top services is likely to affect the company’s Cable Networks business. Comcast stated that around 20 million homes in the United States don’t subscribe to any pay-TV providers. The company also indicated that considering that the new over-the-top services hold the promise of gaining new subscribers, the trend would benefit the content distribution arm of Comcast.

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Comcast further stated that as new over-the-top entrants enter the market, they are bound to chip away at the market share of existing pay-TV providers. However, Comcast said that these new entrants have to get their pricing and service right. A member of Comcast’s management stated, “So I think there could be a modest positive for NBCUniversal. I don’t expect it to be material in the next year or two, but I think over time if some of those 20 million non-subscribers become subscribers, it would be positive.”

Rising trend of online television services

As the popularity of streaming services such as Netflix (NFLX) grows, viewers are watching more and more content online, because it’s cheaper. A cable bill could be around $100 or more per month, while a basic Netflix plan costs only around $8 per month.

According to Digitalsmith’s 2Q16 video trends report, and as the chart above shows, Netflix leads the OTT (over-the-top) market with a share of around 54%, followed by Amazon (AMZN) with a 24% market share. Hulu, Time Warner’s (TWX) HBO Now, and Shomi are smaller players in this market. However, with Hulu’s proposed online television service, the streaming market could be poised for an upheaval.

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