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Netflix will be a part of your cable service. Will it hurt Comcast?

As I hold a position in Comcast (CMCSA) I typically tend to monitor what’s going on around those stocks and how that activity may affect my position. Comcast has a lot cooking under the hood which I deem to be a good reason for holding this stock.

There is a merger with Time Warner Cable (TWC) on the horizon which is on hold for now, but it will move one way or the other soon. Many people consider it a bad thing and try to stop the merger, but that may actually be a good thing for customers and Comcast. If you ask me why I think so, then my answer would be because they will be combining together all features from both companies – bad and good ones. Then they will be able to get rid of those bad features and keep the good ones. They will have enough strength to afford such clean up.

While people are still occupied by the merger with TWC Netflix (NFLX) came with a proposal to partner with its rivals. How can a strong competitor of companies like Comcast (CMCSA), Amazon (AMZN), Dish Network, Direct TV, Apple TV, AT&T, and others become a partner? How would Netflix benefit from it and will this hurt my position in Comcast?

Comcast Netflix

The biggest benefit from this partnership I see is that now even cable companies will be able to offer Netflix in their network. That would be a great benefit for Netflix as they would gain more channels to stream their content. But even bigger benefit I see with cable companies as they will gain access to the content of TV shows and movies they normally do not provide. This may attract more viewers to their service.

In the recent trend of people slowly shifting from cable to internet streaming of the TV content, this move would be a very smart one from your cable provider. That would help them to retain their service in families which were thinking abandoning the cable and provide even better on demand content.

And of course there will be a bunch of people who would consider this a bad thing monopolizing the world of TV content, yet they will benefit from it at the end.

So what does that do to Netflix and Comcast for example?

As far as Netflix goes, this partnership would be a great growth catalyst for the company. According to the Wall Street Journal Netflix added just 980,000 new subscribers in the 3rd quarter of 2014 compared to 1.33 million new subscribers in Q3 of 2014. That is a severe slowdown in growth for a company with an exceptionally high valuation because of its high rate of growth. A Partnership with at least one cable provider would significantly increase Netflix’s viewer base and bring on more revenue.

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Netflix has around 50 million subscribers. Let’s say that 50% of them are already Comcast subscribers. If Comcast jumps in, they may add another 25 million of new subscribers to their network. On the other hand Netflix would gain another 75 million of subscribers if all above mentioned networks jump in.

From my point of view as an investor it is a great deal for both companies. As a costumer I like the idea as I may get into another great content. The question of course is how that new content will be incorporated in the cable company’s fee structure.

And those who murmur about this deal? Get over it. It is a better deal for everybody.

My outlook for Comcast hasn’t changed amid the recent selling. I am still bullish and keep holding my position in Comcast. Note that I do not hold stocks, but bullish call spread. The only reason I would be selling my spread would be to release cash and take smaller gain than originally planned. But if that happens I will announce it and explain my reasons for it. If the market rebound from current selling, then there will be no reason to liquidate my position early.

What do you think about this deal?

 





5 responses to “Netflix will be a part of your cable service. Will it hurt Comcast?”

  1. Eric says:

    Hello Suckers…

    The Netflix Q3 subscriber number was certainly a disappointment, but understand this quarter came on the heels of their pricing increase and the World Cup–the slowdown was largely expected by Hastings and company. However, you make a good point about future slowing–obviously if Netflix doesn’t have the pricing power we think they do, then things could get tough to live up to valuations.

    One more thing. It’s often overlooked, but Netflix already has partnered with RCN, Atlantic Broadband and Grande Communications–these are obviously very small cable players (~1M total subs in total), but it shows that the writing is on the wall. I think partnerships between cable companies and Netflix will be commonplace in a few years.

    Thanks for the post.

    Eric

    • Martin says:

      Eric, thanks for stopping by. I think Comcast announced the partnership with Netflix in July last year, so they are going to offer them. Not sure. I may follow up on that.

  2. Dennis says:

    Hello Suckers….

    As you probably already know I’m a shareholder of Comcast stock. I’ve studied all the media companies and feel that Comcast is the real gem here and is the one that should be accumulated (FOXA would probably be my next choice). As far as NETFLIX goes, they’re trying to partner because I think they’re trying to survive as competition from other independents like HULU, HBOGO and others are starting to make inroads. Comcast has content, the internet pipes, and the theme parks to capture and control their own audience. NETFLIX is more like Turner Classic Movies – just a bunch of old movies and TV shows. I think NETFLIX’s real audience is young adults living in apartments where the internet is included in their monthly rent and they don’t want to pay for cable but they want to watch movies. For them it’s NETFLIX, HULU, or illegal downloads. Not the customer base you want to build a business on.

    You can find an article I wrote on Comcast at this location.
    http://dennismccain.weebly.com/investing/comcast-

    Respectfully,

    Dennis McCain

    • Martin says:

      I definitely agree with you. Comcast is a great company from the investing perspective. It is also a dividend paying stock. I agree on your assessment of Netflix and I think it is a smart move. I was surprised when Comcast agreed to partner with Netflix as they didn’t have to. Their on demand content is good and well developed. So it is definitely a win for Netflix. Comcast may gain some content for which they didn’t have license so they may benefit from this quite well too. And 50 million potential new subscribers isn’t a bad deal either.

  3. Dennis says:

    Hello Suckers….

    As you probably already know I’m a shareholder of Comcast stock. I’ve studied all the media companies and feel that Comcast is the real gem here and is the one that should be accumulated (FOXA would probably be my next choice). As far as NETFLIX goes, they’re trying to partner because I think they’re trying to survive as competition from other independents like HULU, HBOGO and others are starting to make inroads. Comcast has content, the internet pipes, and the theme parks to capture and control their own audience. NETFLIX is more like Turner Classic Movies – just a bunch of old movies and TV shows. I think NETFLIX’s real audience is young adults living in apartments where the internet is included in their monthly rent and they don’t want to pay for cable but they want to watch movies. For them it’s NETFLIX, HULU, or illegal downloads. Not the customer base you want to build a business on.

    You can find an article I wrote on Comcast at this location.
    http://dennismccain.weebly.com/investing/comcast-

    Respectfully,

    Dennis McCain

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