With the billions of dollars cable companies have spent on digital pipelines to provide video, data and phone service finally paying off in a big way, Comcast is looking to invest in new businesses.
The nation’s No. 1 cable operator last week reported record earnings and huge increases in customers. “Simply put, it may have been our best year ever,” said Brian Roberts, chairman and CEO. He added that the company has plenty of room for growth in its current businesses. Its penetration with its new digital phone service is just 5.7 percent and for high-speed data, it’s 25 percent. Digital cable this year passed the 50 percent mark in terms of penetration, and eventually will hit 100 percent, he said.
In fact, in 2007, the company expects its current businesses to add 30 percent more customers than it did in 2006. And the company is willing to spend to make that happen.
“We think we can capture market share now and this is the time to extend our lead in the market,” Mr. Roberts said. “We’re going to invest capital to drive that growth.”
Comcast plans to invest $250 million in a bid to service small- and mid-sized business customers. Comcast has talked about this being an opportunity in the past, but for the first time on last week’s investor conference call, Mr. Roberts spelled out the dimensions of the business it hopes to build.
He said the company thinks that within five years it can achieve a 20 percent market share in its foot print. That would generate $2.5 billion in revenues with a 50 percent profit margin. “The capital to drive that opportunity we believe can have a 25 percent or better internal rate of return and continue to position the company to grow, not just in 2007 but for years to come.”
While most of its other capital expenses will be the cost of providing new subscribers with in-home equipment, Comcast will also be laying out capital to expand capacity so that its plant can support those extra customers as well as let the company provide new products, such as video-on-demand programming in high definition and interactive advertising.
Mr. Roberts said the company is already involved in interactive advertising, selling spots in its on-demand programming. It also sells spots on its program guide and Internet ads on its Comcast.net portal. “It’s a fairly small percentage of a business that is approaching $2 billion a year in revenues, but it’s real,” he said.
The holy grail in terms of interactive advertising is addressable advertising, which sends a unique video ad to individual viewers, he said. Comcast will be doing testing and small rollouts of the switched-digital video technology needed to enable addressable advertising in 2007.
“We all believe that as advertising moves from one-way advertising to two-way advertising, the winners are the Googles of the world and others that can provide truly two-way addressable advertising, and cable is really the only way to do that to a television set,” Mr. Roberts said. “You can really assign some pretty amazing CPMs to a business that can do that. And I think we’ll be in a position to do that, not in 2007 in a large way, but certainly once you get out into 2009, 2010.”
Comcast is also looking for its foothold in the world of streaming video. Mr. Roberts noted that about 4 percent of all the bits traveling through the cable operator’s high-speed lines were coming to or from YouTube.
Mr. Roberts said he didn’t see online video replacing the more traditional television experience, but said Comcast was in a good position no matter where video is coming from or where it’s going.
Comcast’s Interactive Media unit is working on cross-platform video experiences, he said.
“Nobody connects to as many televisions as we do. We think that’s a great asset in bringing that back to your PC, back to wireless devices, back throughout your home network, and that’s part of what we’re working on. And you layer in communications services and you have that experience bundle,” he said. “We think we have as good a chance to succeed at those as anyone out there.”