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Why Comcast Expects Its Programming Costs to Continue to Rise

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Comcast’s programming costs

Cable companies such as Comcast (CMCSA) have high content costs. These costs are similar to the fixed costs incurred by media networks such as The Walt Disney Company (DIS) and Viacom (VIAB).

However, as distributors, cable companies have additional infrastructure investments compared to content providers and aggregators. Content costs account for much of a cable company’s operating costs.

Comcast expects its programming costs to be slightly higher than 10% in 2016 due to higher retransmission consent fees and increased sports programming costs. Comcast’s programming costs rose 11.4% in 3Q16 due to programming contract renewals.

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Comcast stated at the 2016 Wells Fargo Technology, Media & Telecom conference that it expects its programming costs to stabilize beyond 2017–2018. The company also pointed out that as it integrates more services such as Netflix (NFLX) on its X1 set-top box, it’s reducing its dependency on any one content provider.

Comcast also stated that it was getting a better understanding of the price it pays for its content compared to the value its customers get by subscribing to its pay-TV service. The company can likely use this insight effectively when negotiating programming contracts with content providers.

Reasoning behind Comcast’s rising programming expenses

Comcast explained the reasons behind its high programming costs at the 2016 UBS Global Media and Communications Conference. It stated that on the Comcast Cable side, the company has been focused on strengthening its margins, but at the same time, it’s continued to introduce new products such as Xfinity Home. The company’s rollout of the X1 set-top box and better customer service have also meant higher operating costs.

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