Two perspectives on the cable industry came ohsoclose to colliding during last week's Comcast (Nasdaq: CMCSA) second quarter earnings call--then, like reverse magnets, the thoughts skipped away into the ether.
First, Comcast Chairman-CEO Brian Roberts described his vision of Comcast (as promoted over the years by COO Steve Burke) as "new products company."
"For the longest time I never quite understood what that would mean, but if you really think about it that's what we've become," Roberts said. "We have a number of products and the competitive nature."
Cable, like most service providing industries, is terrified that it will be left out of the big money that can be raked in if you control the end product. There's money to be made in being the pipe, no doubt, but having the pipe and the product is doubly, perhaps triply, rewarding.
To understand this lesson, cable need look no farther than the computer industry where hardware makers like IBM suddenly became secondary to the software. In the end, computer prices kept dipping and software prices allowed Bill Gates to retire with greater worth than some countries.
Brian Roberts would rather that Comcast be Microsoft, not IBM so he's pursuing a vision of a new cable era that makes his company, and the industry necessary as both the broadband network provider and the broadband content provider. Financially, it's a really smart long term strategy.
The other part of the earnings call was more problematic and far less financially exciting in the long term. Comcast, like every other carrier, is leaking subscribers. In Comcast's case, basic cable TV subscribers are drifting off like soccer coverage after the World Cup. When asked about this outflow situation, Comcast Cable President Neil Smit admitted--in a way--that these subscribers are unimportant pieces of the greater whole of a new products company.
"These are relatively low-priced, single-play video customers who are very price sensitive and generally churn at a higher rate," Smit said. "As a whole, how we approach the business, we're not going to chase volume."
The thing is, products companies must chase volume because volume drives down prices and keeps them down. If enough of these "low-priced, single-play video customers" leave for DirecTV (Nasdaq: DTV) or DISH (Nasdaq: DISH) or even FiOS (although that's less likely all the time), Comcast will have to pay more per-subscriber for its "products"--especially those of the video programming variety--and in the end that will drive away even more subscribers because, after all, they're "price sensitive."
These two issues--being a products company and not chasing volume--were part of the same hour-long conversation. They came close enough to collide into a single theme, then speed away like an asteroid that just misses Earth. At some point, one would think, the two must be brought into the same room and discussed as one, not just by Comcast, but by a whole industry that's seeking to reform itself as a products industry that, coincidentally, also has the pipes to deliver those products.
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