Faultline: Comcast erupts onto the OTT market – but you must read the fine print Feb 23, 2012 – Rethink Research
The announcement of Comcast Streampix earlier this week certainly sent a
tremor through the nascent Over The Top market and underlined what Netflix
executives have been saying for the past year, that TV Everywhere services
are its biggest threat.
But after the earth stopped shaking, and with some time to think about the
announcement, we can see that this eruption is more of a Mount Etna than a
Krakatoa. Still important to those near, but possibly not a global event of
magnitude. To understand why we think this we have to go into the
announcement in a little detail.
Comcast has mustered new licenses with Disney, mostly its ABC TV group; NCB
Universal, which of course it now owns; Sony pictures; Warner Brothers and
Cookie Jar Entertainment – and will wrap this into a $5 a month
subscription service, which the company emphasizes will complement its
existing Xfinity service (including Xfinity On Demand, XfinityTV.com and the
Xfinity TV app), which already have a total of 75,000 pieces of video
available. The bulk of these deals are for past TV series to be viewed in
catch up. The company has also committed to extend the iPad and PC device
compatibility by adding Android and Xbox 360 later this year. The full name
for the Comcast service is Xfinity Streampix.
Immediately the usual suspects in the investor community panicked and began
selling shares, on the stroke of the announcement, with Netflix and Dish
(with its Blockbuster franchise) immediately down, though not by huge
amounts.
The big difference between Xfinity and Streampix is that the shows can be
seen when outside of a Comcast home. But the fact that the Xbox is a target,
as are Smart TVs, means that this doesn’t only mean on the move, it
means customers can watch outside of the Comcast footprint, on a different
broadband line, one not supplied by Comcast. That’s a first and it has
huge implications.
What Comcast WANTS us to think is that this threatens Netflix, in that you
can watch it anywhere, that the price is lower than the Netflix price, and
that this also means that Comcast can sell outside its cable footprint. But
that last part can’t be true and as we read and re-read the statement,
we found that what Comcast very carefully does NOT say is that you can
subscribe to it instead of buying a Comcast cable sub or that non-Comcast
customers can buy it at all.
Instead our take on this is that Comcast wanted more and more content, but
paid for on a different basis. Why can Netflix have all this content and wrap
it into a subscription service, some of it more up to date than Comcast movie
channels (through not its pay per view channels). And the answer is that this
type of negotiation is complex and requires that some up-front payment, as
well as some percentage of subscriber revenues, all need to be put aside to
get a deal of this type. The terms, no doubt, are the same “most
favored nation” terms that Netflix will also have, for this type of
deal.
We think Comcast has found it can’t just add content willy-nilly to
protect itself against Netflix, but if it chooses to add a paid subscription
element purely for this content, then it can do so, and not harm its existing
ARPU – with all additional licensing costs paid for by the $5 fee.
Our expectation is that only Comcast households can have Streampix, although
the closest Comcast gets to saying so is that it adds tons of content for
Xfinity customers. The service starts this week.
There are also some technology issues here. When Xfiinity content has been
carried on a Comcast DOCSIS line, there is likely to be some check that this
customer is in fact a Comcast customer beyond just the use of a customer
code. There could be authentication for both the line as well as the customer
and the content is naturally be streamed by thePlatform and encoded using
Microsoft PlayReady. Even inside the home PlayReady devices can be fairly
easily attacked unless they have further software only specialist protection.
It would still be possible otherwise to break the protection, it’s just
that you would have to do it while authenticated and in the comfort of your
home.
But once it goes outside the home the potential to authenticate the
connection goes away, and we would expect that one of the major players in
software only protection, for instance ActiveCloak for Media from Irdeto,
needs to be used. We mention this particular system because we suspect that
this is the one used in Xfinity. It might just as well be Arxan’s
GuardIT or Authentec’s DRM Fusion Toolkit or a proprietary extension of
another conditional access system. These are the only three we know of which
are broken away from the CA and sold separately.
There has been a big concern from broadcasters and studios that untethered
general purpose devices such as iPads, would be very difficult to protect HD
content on, whether in the home or not and we assume Comcast has done this
before, but has now perhaps tweaked it for outside the home.
Content listed for the service includes 30 Rock, Analyze That, Grey’s
Anatomy,
Brokeback Mountain , Heroes, Crouching Tiger, Hidden Dragon and Lost. One of
the critical things is that Comcast has managed to tie up current
season’s catch up TV, something that Netflix cannot have, because it
only has past, completed seasons of most TV – except of course for the
ones it has funded itself as original content.
Comcast also says that it will package the new service with Xfinity
triple-play packages, and its Blast! high speed Internet packages, so what
it’s really doing here is using the content to attract people to its
broadband lines or its triple play packages. These people won’t
necessarily pay anything for the service, just an overall price for Blast or
Triple play
Fundamentally Comcast , like the UK’s Sky a few weeks ago, either
cannot allow this to be a stand-alone proposition, or can’t allow it to
have content that is too good, which means it can’t really compete with
Netflix. Although it could slow the speed at which customers desert Comcast.
Of course Comcast could be preparing this package for when Netflix is eating
into its customer base, and then come up cheaper than Netflix, but for our
money it is more likely we will see this used currently only for Comcast
customers, giving them the ability to watch anywhere; and later it may be
used in places where Comcast has no cable laid, and will probably never be
put right up against Netflix inside the Comcast territories as a separate
service, only one to augment existing services, otherwise Comcast will risk
losing people from its $136 a month ARPU level, and investors would be
howling.
Faultline: Comcast erupts onto the OTT market – but you must read the fine print
