Thursday, October 28, 2010

Comcast Profits Grow, Subscribers Fall

Comcast reported its earnings and the news seems to make one wonder. Profits grew, less than the previous period, but higher than analysts expected. And in this economy, any profit is a good sign. Still, when you dig deeper into the numbers, how they got there indicates a growing problem. "That was the underlying question about Comcast’s third-quarter earnings, in which an overall strong performance was clouded by the loss of 275,000 basic cable television subscribers." So less customers are paying more for cable service.

More cable customers are buying additional services including phone and internet access. And profits reflect that growth as well as higher cable charges. At the same time, a quarter of a million customers chose to disconnect. It is now assumed that those customers are cord cutters, leaving cable but accessing content through other online means. But Comcast executives don't think this loss reflects either cord cutting or competition. "Instead, they blamed the weak economy for the losses and said that many who cut service did not flee to a competitor — like Verizon or DirecTV — but instead opted for free, over-the-air television." Wow! So cable service is now the great indicator of the loss of the middle class. It is the dividing line between the haves and the havenots. As the cost of service goes higher and higher, customers must revert back to over the air access and use their disposable dollars on the necessities of life. Has television gotten that expensive?

The sad fact is that price is driving customers away from traditional cable companies and to alternatives. Current FIOS and U-verse deals are cheaper and in a weak economy, customers are going to pay less to save money. Others, mainly the younger generation, are more comfortable getting content online. They are saving money by cord cutting. They embrace new technology and alternative content platforms. And they are being driven at a faster rate because the price of cable has gotten out of control.

Comcast will continue to draw more revenue from a diminishing base. And at some point, the growth of dollars per customer will not offset the total loss of customers. You can't squeeze blood from a rock and more and more customers have reached the limit on how much they are willing to pay to their cable provider. Pay attention to this quarterly trend of lost basic subscribers. It is a bigger problem and trying to minimize the issue will not make it go away.