Comcast’s newfound X1 momentum will be undermined by surging programming costs, analyst says

Comcast Xfinity X1 set top box
Ultimately, the subscription premium demanded of X1 subscribers will provide an “insurmountable advantage” to over-the-top distributors, nScreenMedia analyst Colin Dixon said. 

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. 

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“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%.”

RELATED: Comcast adds 42K pay-TV subscribers in first quarter, cable revenue up 5.8%

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. 

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