While Comcast continued to report strong cable TV metrics in the first quarter, adding 42,000 video subscribers and increasing video revenue 4.3%, the good times could be short-lived, according to nScreenMedia analyst Colin Dixon.
A steep rise in programming costs, he said in a report published over the weekend, will undermine Comcast’s newfound momentum.
Comcast reported average revenue per user for pay-TV of $48.61. Of that ARPU, 57% went directly to cover programming costs, an increase of 13% over Q1 2016. Programming costs increased just 9% year-over-year in the first quarter of 2016.
“To put this in perspective, video ARPU was $66.40 per month in Q1 2010,” Dixon said. “Just $25.5, or 38%, was required to cover programming costs. In the last seven years, programming costs as a percentage of ARPU has increased 18.6%.”
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Over the last six years, Dixon added, Comcast’s programming costs have increased 8.9% annually, outpacing both ARPU (3.4%) and inflation (1.6%).
The analyst concedes that Comcast has done a remarkable job with its X1 video platform, growing subscribers at a time when virtually every other pay-TV operator is seeing declines in linear platforms.
But ultimately, the subscription premium demanded of X1 subscribers will provide an “insurmountable advantage” to over-the-top distributors, Dixon said.
“Comcast and other pay-TV operators are locked into a vicious cycle from which there appears to be no escape. Programmers are getting bigger increases in licensing fees, driving up the cost of pay-TV for consumers and throwing gasoline on the flames of consumer price discontent,” he added.