Comcast Corp. (CMCSA, Financial) is an American multimedia company based in Philadelphia. The largest broadcasting, cable, and home Internet company in the world also stands as the third largest home television service provider. Through its two main businesses, Comcast Cable and NBCUniversal (which it has owned since 2011), the business maintains vertically integrated operations from production to distribution and communications to broadcasting. In early 2014, the company agreed to acquire Time Warner Cable (TWC, Financial) for roughly $45 billion, though recent regulatory developments are now expected to nix the deal altogether.
So, with the Time Warner deal seemingly dead in the water, what’s the next step for Comcast? As it vies for bigger market share in the broadcast and telecommunications space, how will it spur revenues higher in the long run? With the emergence of digital alternatives and a more egalitarian media distribution paradigm, is the mass media behemoth capable of adapting for the future? In this article, we will attempt to address these questions by taking a brief look at Comcast’s business and performing an easy-to-follow SWOT analysis of the company, evaluating its Strengths, Weaknesses, Opportunities and Threats.
Business
Comcast derives its business through five operating segments. Cable Communications contributes the lion’s share of business (64% of consolidated revenues in 2014), largely through its XFINITY brand. The other four, through the NBCUniversal imprint, make up the rest. Cable Networks (14%) includes USA Network, MSNBC, and NBC Sports, among others; Broadcast Television (12%) is the proprietor of Comcast’s NBC and Telemundo broadcast networks; Filmed Entertainment (7%) largely consists of the film and entertainment properties produced and distributed by Universal; and its Theme Parks group (3%) operates Universal Studios locations across the country.
Strengths
Entertainment properties
Since 2011, when its acquisition of NBCUniversal finally closed, Comcast has controlled a substantial array of integrated media properties in addition to its existing communications holdings. Content is king in the entertainment industry, underscoring the importance of the company’s ownership of NBCUniversal. Film, cable networks, and theme parks are among the diversified products under this umbrella. Though the company’s cable communications operations will likely continue to drive company results forward for years to come, the ability to produce and distribute original and licensed entertainment offers the company flexibility as the media ecosystem evolves to a more digital environment. Comcast also owns the NBA’s Philadelphia 76ers and the NHL’s Philadelphia Flyers, as well as their home arena, the Wells Fargo Center.
Regional control
The barriers for entry in the telecommunications space are prohibitively high due to government policies. Therefore, Comcast operates as a virtual monopoly in many of its regions. This explains why Google (GOOG, Financial) has had such a difficult time expanding its burgeoning fiber-optic network into new regions. The result of these inflated costs that new entrants face amounts to regional monopolies. And despite public clamoring for improved high-speed internet infrastructure across the nation, these pre-deployment barriers will likely support the stranglehold companies like Comcast boast over regional competition for years to come, until local and national governments decide otherwise.
Weaknesses
Cost of doing business
Comcast faces constant competition in substantially all of its dealings. In 2014, capital expenditures in the communications segment grew by 13.9% (on 6.4% revenue growth) over the prior year’s level. This is largely due to a number of initiatives that seek to update and innovate the business’ network infrastructure, as well as to support the deployment of new technologies into customers’ homes. Its NBCUniversal businesses are faced with higher operating costs too. The filmed entertainment unit, particularly its Universal studio, is struggling to grow as it deals with the ongoing erosion of the American moviegoing populace. Actually, filmed entertainment was the only segment in all of Comcast’s operations that are coming off a yearly revenue decrease, posting its lowest yearly total since 2010. In homes, where customers continue to prefer consuming their media, NBC faces considerable competition on both broadcast and cable television.
Customer satisfaction
Internet and television providers are generally unpopular with consumers. Given that Comcast is the largest company of its kind, a proportionate amount of public vitriol is directed at its operations. And while unflattering viral news stories might not have material impact on its stock price, the emergence of a competing product or satellite-based alternative would subsequently make customer retention more difficult. Elsewhere, its broadcast television operations, specifically its NBC affiliate networks, are dealing with waning ratings as both its news and primetime programming has seemingly fallen out of favor with the general public. This does directly impact operations, as advertisers are less likely to market their products on networks with fewer viewers.
Opportunities
Mergers and acquisitions
Though the completion of the aforementioned Time Warner Cable deal appears more and more unlikely, Comcast will likely pursue other strategic acquisitions in the future. True, the company achieved its current stature as one of the world’s media giants through acquiring other companies. Following a decade of expansion in the 1990s, Comcast made a huge splash when it purchased the broadband operations of AT&TÂ (T, Financial) for $45.5 billion in 2001. The stock price has roughly quadrupled since announcing its intention to vertically integrate through its purchase of NBCUniversal in late 2009.
Quadruple-play bundles
More consumers are opting out of the conventional bundles that supply Internet, phone and television services on one bill. Landlines and cable packages can be now be swapped with cell phones and a la carte subscriptions to Netflix and, as of April, HBO (owned by Time Warner (TWX, Financial)). One way to support these groups is by adding another service to the three-way bundle: wireless connectivity. Thus, for several years, Comcast has allied with Verizon (VZ, Financial) to provide customers with mobile phone contracts as part of a bundle. Relying on convenience and consolidating consumers’ bills is an alluring prospect. Though the migration away from these bundles is slow moving, the inclusion of wireless services in these contracts could greatly benefit Comcast as it vies to grow its customer base into an evolving era of American media.
Threats
Regulatory developments
Comcast has faced criticism for its deliberate slowing down of peer-to-peer connectivity, while offering expedited service for those clients, like Netflix (NFLX, Financial), willing to pay extra. Public advocacy for net neutrality, being the argument that the Internet is a public utility and not subject to surcharges and corporate manipulation, made this practice temporarily illegal. Though we expect Comcast and its telecommunications compatriots to lobby and fight for less regulation, those efforts will be long and costly. Further, the breakdown of its Time Warner deal was largely due to the regulatory concerns of the FCC and other government agencies. However, if a competitor swoops in and picks up the company and its New York and Los Angeles operations, then Comcast will likely be unable to penetrate the sought after metropolitan markets.
Audience fragmentation
The emergence of new technologies has begat numerous digital platforms that have challenged the existing media distribution ecosystem. Cord cutters, those forward-looking consumers that prefer a la carte entertainment services to the high-priced bundles offered by Comcast and its counterparts, are growing in number. From network television to movie theaters, virtually all of the entertainment industry is striving to adjust their operations to better cater to more mobile, more digital-leaning consumer preferences. As advertisers move more of their marketing budgets online, traditional industry powerhouses like Comcast are being compelled to face the changes head on, a transition that will require higher costs and could impact operating margins.
Conclusion
All told, the scope and diversity of its business, and its subsequent ability to generate cash in various arenas, make Comcast shares a sensible addition to many types of accounts. Its ability to adapt to the proliferation of digital alternatives is central to the company’s ability to thrive in the future, and maintain its stronghold on the broadcasting, cable, and home Internet market. Still, due to ongoing regulatory, technological, and competitive developments, we suggest interested accounts refer to our individual company coverage on Comcast Corp. before making any investment decisions.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
