Comcast's Xfinity Flex product, launched in 2019 to attract broadband-only customers to on-demand and SVOD video offerings, may have missed its biggest opportunity by being late to the streaming game, but could still more than double its subscriber base by 2025, according to Bernstein media analyst Peter Supino.

In a research note, Supino estimated that Flex, which is available to Comcast broadband-only customers at no extra cost and offers more than 10,000 free movies and shows, access to apps like Netflix, Disney Plus, Amazon Prime and Hulu, as well as on-demand pay-per view content, has about 1.9 million active monthly users. That base could have been four times that amount if it had launched earlier in the streaming cycle, Supino estimated, but the analyst still believes the service could grow to about 5.6 million monthly active users over the next four years.

“Had Comcast been early with Flex, we think it would presently serve 6-8 million homes rather than its current [less than] 2 million monthly active users,” Supino wrote, adding that while the service is competitive, it’s not superior to other services. “However, Flex should continue to gain market share, however quietly, by targeting cancelling Xfinity video subscribers who keep Xfinity Internet service, as well as the minority of new Internet subscribers who have neither an SMD nor a recent vintage smart TV.”  

Supino predicts that the shift toward streaming video will continue over the next few years, with streaming media devices (SMDs) from Roku, Amazon, Google and Apple, connected TVs and smart TVs dominating the distribution sector.  

In his note, Supino estimated that of an estimated 117 million internet households in 2025, 100 million will be connected via SMDs or connected TVs. The rest, he wrote, will access entertainment via tablets, laptops and smartphones.

Those 17 million households, coupled with an estimated 10% of existing broadband households (about 10 million homes) that may experiment with a new service  and 4 million non-broadband, non-TV households in the footprint gives Flex a potential pool of about 31 million customers to mine. Taking into consideration Comcast’s existing broadband market share of about 24.2% and assuming 50% usage/uptake rate, Flex could add about 3.7 million customers at the low-end, and 4.8 million additions on the high end.

“With the ~3.7M potential net adds, Comcast can expect to have ~5.6M users by 2025,” Supino wrote, adding that with an estimated ARPU of about $45, Flex could earn annual revenue of around $250 million by 2025.

Supino also believes that Flex can help Comcast’s Peacock streaming service as a promotional tool.

“The cost of promotion on Flex should be vastly lower than in third party environments in which Peacock competes with larger streaming players for sign-ups and engagement,” he wrote. “For example, we believe that Roku gained a 10% share of Peacock's advertising inventory in the companies' 2020 carriage negotiation.” 

WideOpenWest chief financial officer John Rego told an industry audience that the overbuilder is open to being a buyer or seller of systems, especially as deal multiples have risen in the past year, but added that the company will most likely remain focused on growing its broadband business and building out its network.

Speaking at the virtual Credit Suisse Conference Tuesday, Rego pointed to two recent deals -- Astound Broadband’s sale to Stonepeak Infrastructure Partners for $8.1 billion and Cable One’s purchase of Hargray Communications for $2.2 billion. He added the forward-looking cash flow multiples for those deals -- 12.5 times for both transactions -- highlight the success of the broadband business. 

“Valuations have stepped up rather nicely,” Rego said, adding that the Astound deal was made when WOW’s stock was trading at about 5.5 times cash flow, and the Cable One deal when WOW’s multiple was around 8.5 times. 

“If we wanted to think about deleveraging quicker [and] faster, we could think about selling a market or two of the 19 that we have,” Rego said. “We’ve done this before. We’ve bought them and we’ve sold them.”

WOW has about 859,200 voice, video and data customers in 19 markets in 10 states in the Midwest and Southeast. The company’s current leverage ratio is about 5 times cash flow -- down from 5.5 times about a year ago. Rego said the company is on the path to tick down its leverage below 5 times this year.

“We’re a public company. Essentially we’re for sale every day. You can buy one share of stock or you could buy all of the shares of stock,” he continued, adding that a merger with a larger company is “always on the table” as well.

But for now it appears that WOW will focus on growing its broadband rolls, as well as rolling out its IP network.  

“A real goal for the company is to get all of our services on the IP network,” Rego said. “That opens up a lot of possibilities for us going forward. Look for us to get that done in the next couple of years.”

Rego also reiterated his guesstimate that WideOpenWest could have fewer than 100,000 video customers in the next three years. Rego first made that prediction in February, during the company’s Q4 earnings call. As of Q1, WOW has 290,900 video customers and 823,800 high-speed data subscribers.  

At the Credit Suisse conference, Rego said only  36% of WOW subscribers have video, while 96% have the data service. He added that in 2019, WOW lost about 32,000 video customers, more than doubling to a loss of 65,000 video subscribers in 2020. 

“Just following that math along it’s very easy to see how we get to sub-100,000 [video customers] in the next couple of years,” Rego said.

On the flip side, broadband subscriber growth has been strong,  WOW added 23,700 high-speed data customers in 2019 and 32,300 in 2020, up 36% and a new record for the company. In the first quarter of this year, broadband subscribers rose by about 10,000. 

Also at the Credit Suisse conference, WOW CEO Teresa Elder said broadband growth has been strong during the pandemic as customers opted for higher speeds and bought products like its WiFi mesh offering for whole-home WiFi. She added that self-install kits for broadband also helped drive sales. At the beginning of 2020, only about 30% of broadband customers took advantage of self-install. By the end of the year that number rose to 80%, she said.  

Operators across the country have shifted their focus to broadband over the past few years, following Cable One which first adopted a broadband-first stance in 2013. The prevailing wisdom is that with costs rising for content, operators are better off focusing on broadband and its much higher margins.   

Rego estimated that WOW’s gross margins for broadband are about 97%, while gross margins for video are “sub-20%.”

While video margins have been an issue with cable operators for years, particularly around the high cost of content, Rego pointed out that TV service has some less obvious costs too. 

Also Read: MVPDs Find Margins of Victory in Broadband 

“TV disproportionately drives more cost into opex than does its counterpart HSD,” Rego said, adding that video service related calls to customer care centers are generally longer and 20% of the time require an additional truck roll. HSD service problems, he said, can mostly be solved by the customer. Video also disproportionately drives capital expenditures through truck rolls, higher-cost CPE and more expensive maintenance at the headend. 

WOW’s emphasis on broadband is showing up on the revenue line. In Q1, 53% of the company’s revenue was driven by HSD. If video subscribers fall below 100,000, broadband would account for 80% of revenue.

“We could get to a point where we could have topline revenue not dissimilar from where we are now, but 80% of it is driven by HSD,” Rego said. "That's broadband first at its finest. That's a game changer." 

Rainbow Communications, which supplies phone, broadband and cable to Northeast Kansas, said it is pulling the plug on traditional cable service to focus on streaming video.

"Based on what we see for the future and what’s best for our customers, Rainbow Communications will no longer provide TV service as part of our entertainment package," Rainbow told its customers, pointing out that more than 80% of its internet usage was streaming video.

Cable operators have increasingly been eyeing the move to online video, one reason the American Cable Association, which represents smaller operators, changed its name to ACA Connects.

In an open letter to its customers billed as a "TV End Announcement," Rainbow said that given that there was now "a high-quality and less-expensive technology exists for watching TV" in over-the-top video, it would no longer be their TV provider as of June 30, 2020, by which it meant no longer be providing traditional cable TV. It stopped taking new video subs Jan. 13.

Rainbow said it would try to maintain all its channels 'til the June end date, but could not guarantee it if there was a "loss of expensive equipment."

Rainbow also cited the cost of content and the difficulty of independent providers to offer quality lineups without boosting rates. "Instead," it said, "we will focus our efforts on delivering the best internet speeds possible so customers can watch high-quality and less-expensive TV channels over our high-speed internet connection."

For the full version of this story, and for more stories like this, visit our sister publication, Next TV.

As consumers continue to cut the pay TV cord, broadband-only households could nearly double to 40.8 million by 2023 from their current level of about 23.3 million homes, according to Kagan, a media research group within S&P Global Market Intelligence.

“The steep upward trend due to ‘cord-cutting’ is not surprising given the abundance of online video services on the market, although this could be a circular argument, with more companies jumping on the streaming video bandwagon in response to the growing broadband-only market,” said senior Kagan research analyst Tony Lenoir, in a statement.

Kagan expects the segment of broadband homes without a traditional multichannel subscription to account for nearly one-third of U.S. households in the next five years. Over-the-top services offered at competitive prices is a major factor in compelling consumers to cut the cord, Kagan found. Other reasons for the strong growth projections of broadband-only growth include the ease of joining and cancelling online streaming services -- they typically do not require contracts.

“The value proposition of streaming video services touches a chord with the average consumer,” Lenoir said in the statement. “The vast majority of streaming services offer free trial periods, effectively allowing consumers to shop around while bypassing hardware hassles associated with legacy video distribution. This coupled with the fact that streaming services are typically screen-agnostic and seamlessly portable, offer individual, customized consumption for customers.”

Broadband-only homes are expected to increase at an 11.9% compound annual growth rate between 2018 and 2023, according to Kagan. The researcher added that about 41.7% of wireline broadband households will be broadband-only by 2023. Kagan expects cable and telco broadband to serve nearly 75% of U.S. households by that time.