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Analyst Insights 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.

Courtesy Rethink Research.



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