Cable giants Comcast and Charter Communications are teaming up again, this time to develop and distribute a next-gen streaming platform on smart TVs and branded 4K streaming devices that will benefit from the partners’ national reach.
The two formed a 50/50 joint venture, announced Wednesday. The primary focus is an entertainment operating system, which will exist on TVs and streaming devices that can be purchased in retail stores and could be distributed by Charter and Comcast. On top of the operating system there will be multiple services, including streaming apps that exist today as well as applications from Charter and Comcast, such as Charter’s Spectrum TV app.
For the JV Comcast is licensing its Flex aggregated streaming platform and hardware, contributing the retail business for XClass smart TVs (which currently includes distribution at Walmart and is part of the new venture), and Xumo, the free ad-supported streaming service it acquired in 2020. Charter is initially contributing $900 million the venture over multiple years.
XClass TVs, a brand of smart TVs developed by Comcast and manufactured by Hisense, will be sold through national retailers like Walmart and potentially directly from Comcast and Charter.
There are still traditional regulatory approvals to go through, but Charter aims to launch as quickly as possible and is targeting 2023 to offer 4K streaming devices and voice remote. Comcast plans to continue selling its Flex streaming platform as a device and service to customers.
As video has been taking somewhat of a back seat to broadband for major cable companies, Charter and Comcast could be introducing a new option to take on the likes of streaming device platform leaders like Roku, as well as Amazon, Google, Apple. Comcast has already been doing so with its Flex platform, but the partners could have a broadly distributed, simplified option for finding and viewing content across services and platforms including multiple forms of navigation to find choices across streaming subscription services, internet like YouTube, traditional cable and broadcast, all in one interface.
"We’re thrilled to partner with Charter to bring this platform and its award-winning experience to millions of new customers. These products are all designed to make search and discovery across live, on-demand and streaming video seamless and incredibly simple for consumers,” said Dave Watson, CEO of Comcast Cable, in a statement. “This partnership uniquely brings together more than a decade of technical innovation, national scale and new opportunities to monetize our combined investment.”
Comcast’s Xfinity Flex is a streaming device and platform that’s only offered to broadband subscribers. It already has a number of vMVPDs on the service such as Sling TV, Hulu + Live TV, and in December added YouTube TV to the mix, with the service also available on Comcast’s XClass TVs. With nationwide distribution of Charter and Comcast, the companies expect that it will attract even more third-party app developers as they only need to build once to get in front of households across the country.
Xumo offers more than 200 free ad-supported channels and will continue to be a free streaming service, both through the JV and third-party devices. Comcast’s direct-to-consumer streaming service Peacock will also be featured on the JV’s streaming platform, alongside other popular apps.
Customers for the new platform don’t need to be Charter or Comcast broadband subscribers, and the companies believe the entertainment platform opportunity using national retailers is both big and has potential for success independent of their respective cable businesses. The announcement also said that the JV doesn’t involve the broadband or cable video business of either Comcast or Charter, which remain independent.
The JV will offer app developers, streamers, retailers, operators, and hardware manufactures the opportunity to reach customers in major markets across the country on the platform. The partners hope to grow partnerships with retailers and hardware OEMs to ensure the platform has as much distribution as possible, the companies shared.
An astute move
It’s big news for two cable giants to be coming together around streaming, and Raymond James analysts called it an astute move for both sides, while pointing out that together the companies will have significant reach with this proprietary platform.
“We believe this is a logical move for the two largest cable names to push a proprietary platform across their footprint (collectively about 77% homes passed and 58% of the broadband industry subscribers, respectively),” wrote Raymond James analyst Frank Louthan in a Wednesday note to investors.
They believe Comcast “has the better mousetrap” with its Flex-integrated X1 platform. And bringing hardware and TV into the fold “should help further push these products to customers, who will find the ease of use with the integration into their existing broadband provider attractive,” the firm continued.
When it comes to partnering together, the companies shared that the platform they’re investing in doesn’t come cheap and is sophisticated, and certainly benefits from scale. Comcast already started the journey with its platform that powers X1, Flex and Sky TV, and is currently at scale nationwide with 5 billion streams of video a week and 40 million voice commands a day.
By bringing Charter on board, it takes those efforts to the next level. According to the company, the two will work together and invest around the development of new features, partnerships, content and form factors so both can play in the big leagues of streaming entertainment distribution.
Raymond James also believes Comcast made a good call on a primarily ad-supported streaming strategy with Xumo and Peacock, saying Netflix’s recent disclosure of exploring an ad-supported option affirmed those moves.
“We believe Peacock was ahead of the curve on this front when the service initially launched in July 2020 with both ad-supported and premium ad-free tiers right out of the gate,” wrote Louthan. The firm pointed to its December media usage trends survey that indicates there’s still a notable market for those that desire ad-supported streaming options, as 63% of respondents indicated they’d prefer a lower cost for some level of ads versus a premium, ad-free option.
Still, Raymond James doesn’t expect the venture to generate much revenue for the cable giants.
However, “with increasing content ownership at Comcast and the ability to take advantage of customer inertia across a large percentage of the U.S. and European populations, this appears to be an astute move for both sides,” wrote the firm.
But Charter and Comcast see multiple monetization opportunities through the platform, such as customer engagement with advertising through the interface, relationships with app developers on the platform and through offering the devices itself, although the latter is still to be determined, according to the companies.
Charter back in 2020 said it planned to develop its own IP video platform to ensure it stayed competitive in the video space, after earlier saying it didn’t feel the need to necessarily have an equipment strategy in the IP place, but could use its own integrated set top boxes to put apps on if it somehow got locked out of hardware or operating systems. It introduced the Spectrum TV app, which is currently available on platforms like Apple TV, Roku, Samsung TVs, Xbox as well as mobile devices. That IP-based app will also be available through the new partnership, and the devices will be Charter’s new IP-based hardware to deploy.
Partnering isn’t entirely new for Charter and Comcast, who teamed up previously as they built respective MVNO wireless offerings. That matchup involved sharing technology and best practices regarding marketing, pricing, back-office infrastructure and others, as well as negotiating deals with handset manufacturers and other vendors. And the two have had significant success as new entrants, each having record-high net adds in Q4, with Charter adding 380,000 for a total base of nearly 3.6 million – Comcast added 312,000.
And like mobile, streaming entertainment provides a new adjacent market opportunity for Comcast and Charter.
“Our new venture will bring a full-featured operating platform, new devices, and smart TVs with a robust app store providing a more streamlined and aggregated experience for the customer,” said Tom Rutledge, Charter Chairman and CEO, in a statement. “As the video landscape continues to evolve, this venture will increase retail consumer options, compete at scale with established national platforms, and join our existing lineup of options for the Spectrum TV App available on most customer-owned streaming devices.”
The play for streaming comes as cable operators continue to emphasize their broadband businesses over traditional video services. In the fourth quarter of 2021 Comcast lost 349,000 residential video subscribers (and nearly 1.5 million for the full year) but still managed to bring in stable revenues of $5.4 billion in revenue (down 1.2%) even in the face of accelerated cord cutting. Charter, meanwhile stemmed its losses in Q4 when it shed 71,000 residential video customers but added 13,000 business video customers, ending 2021 with 15.8 million video subs.
Comcast reports Q1 earnings Thursday April 28, and Charter reports Friday, April 29.