What’s Happening with the Technology Business?
Comcast is putting itself in the spotlight again with some dramatic moves in three areas: broadband subscriptions, wireless networks, and creative content. It’s worthwhile to look at these things because of what they signal about the future of technology, networking and entertainment.
Comcast has been steadily improving its wireline broadband product for the last decade, and increasing subscribers for both Internet access and TV programming:
Reporting its 26th consecutive month of reduced churn, Comcast (NASDAQ: CMCSA) added 53,000 Xfinity TV customers in the first quarter, along with 438,000 high-speed Internet users.
The video numbers exceeded even the bullish expectations from analysts and represented the best performance in that area for the MSO in nine years. Comcast lost 8,000 subscribers in the first quarter of 2015, but it’s actually in the black as far as video subs are concerned over the last four quarters.
This is happening despite a growing trend for Internet users to cut the cord on wired Internet service in favor of going all-in for LTE. The Pew Internet reports, for example, suggest that wired access to the Internet peaked in 2013 and is now in decline across the US:
Broadband adoption in the United States has experienced a modest decline in recent years, falling from 70% in 2013 to 67% in 2015.
[Note that Pew measures Internet use from the home by wire only.]
While Comcast’s increase in Internet users bucks the national trend, the company appears to realize that the future of broadband is wireless. The company has made a number of moves that suggest the beginning of a pivot from its current wire-centric business model to a mobile mode. For one, it has deployed a large, public Wi-Fi network across its territory that interconnects with similar networks offered by other cable companies. I haven’t found this Wi-Fi network to be very useful, but one data point is just an anecdote, not a survey.
In addition, the company has activated a nascent agreement with Verizon to operate an MVNO, a mobile network that runs over the Verizon infrastructure. And Comcast is making noises about bidding for 600 MHz spectrum in the incentive auction, apparently just to have another asset to trade. And to top it off, company spokespersons are declaring a strong interest in using the company’s existing assets, such as rights of way and wired infrastructure, to deploy 5G basestations in time for the 5G rollout in 2020:
“5G is an exciting new platform,” [CFO Mike] Cavanagh said on a quarterly earnings call with analysts this morning. “We’re still in early days. Antennas are going to need to go up, and we need space and power and backhaul. The spectrum doesn’t pass through trees and buildings.”
Cavanagh suggested Comcast has some assets that will be crucial for the deployment of 5G: It can handle backhaul with its massive fixed-line footprint, and it has the municipal infrastructure and rights-of-way deals to create a wireless network in some key markets. Finally, it has the necessary personnel to build and maintain a wireless network.
5G will bring new players to the wireless market, so this is most likely not a bluff, at least at this stage. But a lot can happen in four years.
Most surprising, Comcast is in the process of purchasing DreamWorks Animation, a spinoff of the Hollywood studio founded by a dream team of moguls in the 1990s:
DreamWorks began in 1994 as an attempt by media moguls Steven Spielberg, Jeffrey Katzenberg and David Geffen (together, SKG) to create a new Hollywood studio of which they owned 72%. Currently, DreamWorks operates out of offices at Universal Studios…
DreamWorks’ animation arm was spun off in 2004 into DreamWorks Animation SKG (DWA), which currently owns the DreamWorks trademarks. Spielberg’s company continues to use the DreamWorks trademarks under license from DWA.
It makes a certain amount of sense for a technology company to invest in animation given that it’s the high tech part of filmmaking. It’s also reasonable for DWA to be folded in with Universal Studios, another part of the vast Comcast empire. And it’s worth noting that Comcast got a deal with DWA as its box office hasn’t been strong lately:
In recent years, DreamWorks has struggled to consistently deliver hits in the animated family genre it once dominated, suffering from duds such as “Turbo” and “Mr. Peabody & Sherman.”
One of DWA’s main rivals is the animation division Comcast’s Universal:
Universal already has a successful animation business in Illumination Entertainment, whose chief executive, Chris Meledandri, has developed a reputation for making hit movies at lower costs than the typical computerized films.
Illumination had a big hit last year with “Minions,” which cost $74 million to make. DreamWorks films regularly cost more than $100 million to produce.
So the talk about 5G and the acquisition of DWA aren’t necessarily related. But if your main business is part of a declining industry sector, it’s probably wise to hedge bets on expansion into more robust sectors.
Speaking of industry trends, Apple’s revenues declined in the most recent quarter for the first time in 13 years, which is part of a general softening of smartphone sales overall. So it’s good for that company to be invested in watches, tablets, and general purpose computers. Maybe cars too.
I think we’re seeing what happens when technology becomes deeply embedded in the mainstream of life. Once fire-walled from normal business by its Moore’s Law mystique, technology is now so ubiquitous that technology business is more and more like every other business, just a little bit better.