Comcast NBCUniversal didn’t offer many surprises in the launch of its Peacock streaming service Thursday -- the pricing (free) and the format (ad supported) were already well known. And though Peacock will join a growing number of streaming services later this year -- it becomes available to Comcast and Cox Communications cable subscribers in April and to the rest of us in July -- the entertainment giant’s vision is clear: this is a real business.
Comcast has had a reputation in the past for being cautious (sometimes overly so), and this time is not really that much different. It is coming in the middle of the streaming game -- behind Disney+ and Apple TV Plus but a month ahead of AT&T’s HBO Max. Comcast plans to spend big dollars on content -- about $2 billion over two years -- but not too much, compared to $3.25 billion annually Disney will spend on Disney+ and the $17.5 billion some analysts predict Netflix will spend in 2020. As it trotted out NBC stars like Tina Fey, Jimmy Fallon and Seth Meyers at its presentation at the historic Studio 8H in Rockefeller Center, all who will have original shows on the service, Comcast was clear that it is all-in with the new streaming service, but it isn’t betting the farm on Peacock.
“This is going to be a very successful product and is going to be one of the key elements of growth for NBCUniversal going forward,” NBCU CEO Jeff Shell said at the presentation.
That said, the Peacock launch may have not had the Wow! factor that Disney+ enjoyed at its launch (partially because the Disney product was one of the first out of the gate and set the pricing bar low). But in typical Comcast fashion, the cable operator got straight to the point. Unlike some other services, there was little ambiguity. The ad-supported Peacock is free to Comcast and Cox customers, will cost $4.99 per month outside the footprint ($9.99 for an ad-free version) and as more distributors sign on, the ad-supported service will be free to their subscribers as well.
Even though the free aspect of the service was no surprise -- Comcast has been saying that almost from the start -- it was nonetheless important.
In a research note, Barclay’s media analyst Kannan Venkateshwar wrote that the free tier is a way to drive adoption and help motivate other MVPDs to gravitate toward the offering over time.
“Therefore, while the go-to-market strategy has risks and could result in a slower pace of growth than would have been possible otherwise, it could actually push higher penetration rates over the longer term than other competing services,” Venkateshwar wrote.
The analyst was also impressed with how Comcast’s vision for Peacock’s seems to align with its vision for the legacy cable business -- to be an aggregator.
“The reason an aggregated experience is increasingly important is because as of now, streaming/on demand content and live television live in two non-overlapping worlds,” Venkateshwar wrote. “The former needs user involvement to pick content to some extent while the latter relies to some extent on user inertia and doesn’t necessarily need deliberate user choice for entertainment. Peacock in essence tries to bring the two usage patterns together on one service which can be quite powerful in driving engagement in our view. The ability to watch personalized channels of content with no discrete content selection is effectively a better version of television.”
But this is a new business, not a means to slow down the decline of legacy offerings. And at the launch, NBCUniversal chairman Steve Burke, who has said he will retire in August, was pretty adamant about driving that point home.
“I don't think we created Peacock to bolster the existing ecosystem, we created it because people want to stream,” Burke said at the Peacock launch in historic Studio 8H in Rockefeller Center. “And they’re streaming in large numbers. As people stream, we’re not monetizing -- that was our motivation.”
Burke added that he believes other operators will join Cox in carrying the service, but added that is more of an “ancillary benefit.”
And though the Peacock offering may seem aggressive, Peacock chairman Matt Strauss said that there are benefits for existing pay TV subscribers who watch a lot of video -- he called them “content carnivores” -- and internet-only customers that watch less.
“It’s a strategy where we’re trying to be as segmented as we can and going after what we think is the right content proposition,” Strauss said. “There's the bigger bundle and there’s the Peacock offering. We think we can play in both places.”
Comcast chairman and CEO Brian Roberts was obviously excited about the new product, calling streaming “the next significant technological iteration of consuming entertainment and news for all generations.”
He said Comcast spent the past year trying to reimagine its NBCU platform, adding the Peacock plan is “a tremendous and positive business opportunity that will give us years of growth and new avenues of innovation that were literally not technologically possible just a few years ago.”
Roberts has long been a tech geek and Comcast has often been at the forefront of technology innovations. Peacock, he said, is just another step in that direction.
“For a long time I have believed this changing technological world, driven by the internet where anything is instantly available on any device would prove more friend than foe to Comcast NBCUniversal and that we could become an even more special and unique company for our employees, customers and investors if we repositioned ourselves to be at the heart of this dynamic change within the existing ecosystem,” he said.
But make no mistake, Comcast’s streaming entry is a necessity because the evidence of the decline of traditional TV is overwhelming. More and more consumers are cutting the pay TV cord, a phenomenon that is not letting up. It’s just that Comcast seems to have found a way to address that reality that seems, at least on the surface, to be more elegant than others.
In a research note, Sanford Bernstein media analyst Peter Supino wrote that “Comcast’s latest ‘hard choice’ regarding NBCU’s shrinking video audience is being executed with characteristic scale and skill. That most of Peacock’s future viewers recently consumed NBCU content in more profitable channels is regrettable, but water under the bridge.”
Strauss reiterated what Comcast CFO Mike Cavanagh said last month, that the streaming service will break even in five years. By that time, 2024, Peacock is expected to reach between 30 and 35 million homes, not much of a stretch when you consider that it will be free to Comcast and Cox Communications cable customers, which number about 24 million households currently.
Evercore ISI media analyst Vijay Jayant also praised the streaming product and Comcast’s go to market strategy, adding that Comcast’s future estimates may be a little conservative.
Jayant was impressed with Peacock’s free nature -- which should encourage other operators to adopt the service quickly -- and its emphasis on digital advertising. Peacock will also have one of the lowest ad loads in the industry -- about 5 minutes per hour vs, the industry average of 8 minutes per hour -- which should help CPMs as well as appease viewers.
“The platform looks like an interesting way to grow the company’s digital advertising business, and distribution partnerships with MVPDs (including Xfinity and Cox at launch) could serve a dual purpose of growing the viewer base while offering distributors a new feature without incremental cost,” Jayant wrote. “...Importantly, partners will not have to pay to license the service and financial obligations will only include marketing – we think this could be a nice add-on for NBC to offer distributors which could help in future carriage negotiations.”
And so it goes. While the ultimate success of Peacock will be determined by consumers, who have proven to be volatile when it comes to pay TV options, Comcast at least appears to have a strong hand in the game. Only time will tell whether the service lives up to its name, or is just another pigeon.
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