Comcast's OTT Beta: What's the End Game?

Comcast (NASDAQ:CMCSA) released financials last week, which indicated another quarter overall customer growth. Revenue in the video segment improved 3.3%, and customer losses improved by 41% compared to the third quarter of last year.

When asked about the customer segmentation strategy and how it is contributing to these numbers, Neil Smit, EVP, president and CEO, Comcast Cable, noted that X1 was up and responsible for 60% of connects during the quarter. Comcast has been able to upsell 30% of the customers it brings in with Internet Plus, which is heavy on the Internet and light on video, and targets millennials.

"We are able to get new people into the system and then upsell or upgrade them," Smit said.

These products and others, like On Campus, which Smit called a "great success," offer different packages that are attractive to different types of customers. But he also mentioned Watchable, launched as a beta version in September. A cross-platform video service, Watchable is designed to bring content from online video networks and shows to the TV set. Available initially to iOS,, and X1 users, the service currently includes approximately 32 providers of semi-professional content, including BuzzFeed, CelebTV, Collective Digital Studio, Red Bull, Tastemade, Garage Monkey and GoPro.

"It's getting content that's not normally what we've been carrying in the past, and we will attract another customer segment," Smit said. "We are very careful on how we segment the audiences, and we're getting a better quality customer and holding on to them for longer."

Citing a Nielsen's Q1 2015 Total Audience Report, which attempts to compare platforms by using common metrics, Comcast's Sam Schwartz, chief business development officer, TV, explained in a blog post that the company is giving a nod to the fact that online creators and producers are putting out content that is attracting "big audiences." The Nielsen study indicated an overall slight decline in monthly time spent watching traditional TV and an increase in watching video on the Internet, watching video on a smartphone, and using an app/Web on a smartphone.

"Many of our Watchable partners have not traditionally had distribution on the TV, and we can give them a path to reach new audiences and further monetize their content on the biggest screen in the home," Schwartz said.

Watchable is completely ad-based, which means no licensing fees for content, and non-Comcast subscribers can use it. According to the Wall Street Journal, the online creators will be able to keep 70% of the revenue generated from ad sales. This is significantly more than the 45% that YouTube and Facebook reportedly give content suppliers.

Comcast says Watchable is part of its experimentation, citing NBCUniversal's $200 million investment in BuzzFeed; Xfinity on Campus, which allows students to watch live TV across screens; and a new streaming service called Stream.

"We'll continue to make investments in new media, create different ways for people to watch the movies and shows they love, and test offerings that have the potential to attract new audiences," Schwartz said.

Some are calling Watchable more of a defensive move, however, rather than a total plunge into Internet video. A commentary on suggested the platform is designed to keep subscribers wrapped up in the TV bundle by giving more to encourage them not to abandon their cable TV packages. And a sceptic at Re/Code questioned whether people will utilize a service that simply assembles videos that can be viewed elsewhere.

But Advertising Age pointed out that perhaps the goal is not to give those used to watching digital videos another outlet, but rather to give those who watch traditional TV more options. "That could explain why Watchable refers to channels and shows, with the implication being that individual videos are episodes, even if they're unrelated. It could also be why social sharing was an afterthought in the beta version since TV viewers might be less inclined to pick up their remotes to Tweet," the article said.

And Zacks rating service saw the launch of Watchable as making inroads into the digital advertising market, pointing to acquisitions of video ad-serving company FreeWheel and video delivery and ad-technology company This Technology, and the potential acquisition of Visible World, which includes a subsidiary that sells TV ads using an online interface.

"To derive the maximum synergy from the combined video content and video distribution platform, Comcast is extensively penetrating into the advertising technology market. Inclusions of dynamic ad insertion, targeted audience advertising and data-driven TV advertisements are steps forward in the same direction," Zacks said.

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