Why Comcast Is Winning Subscriber War (for Now)

For Comcast, and maybe the cable industry as a whole, the answer to video subscriber losses could be found in the cloud.

When Comcast declared that it added about 43,000 basic-video customers in the fourth quarter, it was historic in several ways. It reversed a trend that has plagued the nation’s largest cable operator for 26 consecutive quarters. It planted a flag in the sand for cable operators accustomed to losing TV subs for nearly a decade. And the gain was four times larger than some analysts’ estimates.

While one quarter does not a new trend make — and cable unit CEO Neil Smit said it may take “a while” before the cable giant turns in a full year of positive video-subscriber growth — all signs point to its new cloud-based operating system — the X1 — as one of the main components to solving the alchemy of video losses.

While Smit pointed to several factors other than the new platform that led to the gain — strong overall execution, customer service improvements and better products — he kept referring to the X1’s impact on a conference call with analysts last Wednesday. About 65% of X1 customers rate the guide as superior to their previous guide experiences, he said. X1 customers view 25% more video-on-demand content than non-X1 customers and VOD transactions for X1 customers are 20% higher.

The X1, incorporating a more user-friendly guide, better search functions and, more importantly, a platform for quickly and ubiquitously rolling out new services and its second-generation product, the X2, is quickly becoming a game changer.

Vice chairman and chief financial officer Michael Angelakis added that X1 customers are more likely to subscribe to the triple-play and DVR service and less likely to churn.

“Based on the early positive customer results and strong double-digit returns of X1, we plan to accelerate the pace of deployment to reach the majority of our video customers over the next three years,” Angelakis said on the call.

And other cable operators are beginning to take notice. Smit said Cox Communications is in talks with the MSO about possibly licensing the X1 for its own systems. That could lead to other cable operators signing on to the product.

“We’ll be working together to explore the opportunity to identify where X1 may be useful in their [Cox’s] business,” Smit said. While the focus was on video-customer growth, Comcast continued to fire on all cylinders with its other products during the quarter, adding 379,000 high-speed data subscribers and 227,000 telephone customers.

Overall, Comcast added 649,000 primary service units in the period (a combination of video, voice and data customers), 29% higher than the same period in 2012 and 27% better than consensus.

In a research report last week, Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak called the results “bulletproof.”

Those subscriber metrics all led to stronger financial performance. Cable revenue was up 5.2% for the quarter, to $10.7 billion, and operating cash flow rose 4.8%, to $4.4 billion.

The company said about 45% of its customers self-installed service and 36% are managing their accounts online, which has helped reduce truck rolls by 3.5 million in the quarter. “Comcast’s return to positive video subscriber growth, even if it’s only for a single quarter, is an unmistakable sign that their days of losing share to satellite are almost over,” wrote MoffettNathanson principal and senior analyst Craig Moffett.

Moffett noted that since 1994, when satellite giant DirecTV signed on its first customer, the cable industry has been playing catch up. That era may be slowly coming to a close.

“Today, Comcast’s X2 platform is the video industry’s best product,” Moffett wrote. “Their VOD service is the video industry’s best library. Their network, their customer service and even their marketing have improved by light years. Their positive video subscriber result, coming as it does when their video penetration of homes passed has fallen to just 40.3%, is testament not to a good quarter but instead to a good half-decade of hard work and heavy lifting.”


Comcast credits the popularity of its new cloud-based X1 user interface as a reason why it has begun to turn the tide on subscriber losses.