Comcast Flexes Unexpected Muscle To Reduce Churn

Cable giant Comcast got a lot of flack when it launched its Flex service a couple of years, charging $5 a month for a box designed to stream video for broadband users.

Critics called it a product without an obvious market, and the company took even more flack for additional fees that weren't initially fully disclosed.

Fast forward to the near-end of a life-transforming pandemic, dramatic changes in video consumption, and the end of those fees, and Flex is starting to look like something kinda important: a key tool in reducing churn by Xfinity broadband subscribers, what Comcast CFO Mike Cavanaugh said Wednesday is the company’s “center-of-the-plate” offering driving the cable giant's future. 

“Not everyone wants to have the traditional bundle, or the modified bundles we’ve brought on to cater to different customer needs,” Cavanaugh said, speaking at a Deutsche Bank investor conference. “While we may have fought that a little bit years ago, we've clearly embraced where the world's going with the idea of, we have an opportunity to attach to our broadband the kind of brains that goes in X1,” the company’s flagship cable box. 

These days, Flex is free for households already subscribing to Xfinity or the ad-free top programming tier of Peacock, Comcast's eight-month-old hybrid video streaming service. Along the way, Flex has picked up 3 million users, about 9 percent of the company's entire U.S. streaming audience.

Flex is doing what it was originally designed to do, Cavanaugh said, which is make Xfinity “more than a pipe,” avoiding the potential to be stuck with a commoditized, easily cancelled connection with no consumer stickiness.

Comcast is adding smarts to the "pipe" in lots of other ways, too, including an aggressively priced MVNO wireless service, and add-on services for business customers such as network security, Cavanaugh said. It's even cut deals with other cable providers to provide cross-system cooperation agreements when providing those services to larger businesses.

It's all designed to keep customers around with new services for a new era far beyond Comcast's TV traditional pay-TV roots.

“Many people were worried we'd chase holding onto a video bundle, even if it went upside down on us economically,” Cavanaugh said. “We are very eager to continue to super-serve the segment of the market that values the full bundle. But if it's not what you're interested in, rather than chase (that declining market opportunity), Flex gives us the ability to get the same churn-reduction benefit (of) being at the end of the pipe and providing a service.”

So far, the Flex appeal is working: churn for broadband subscribers using Flex is 15- to 20-percent lower than for non-users, Cavanaugh said. And having the streaming box stationed in a household gives Comcast a forward position with consumers that "then becomes a platform to do more,” including selling subscriptions to “the big streamers out there.” 

“It can't be a bad thing when you think about the 30-million-plus customer relationships we have,” Cavanaugh said. “It’s not an abandonment of our other video strategies. I would say it's a complement to our broadband strategy.”

Flex integration also gave Peacock “a tremendous assist” when it launched last year. Eight months after becoming widely available last July, Peacock is “off to a good start” with 33 million subscribers. The pandemic hobbled key parts of Peacock's rollout strategy, delaying the Tokyo Olympics at least a year, and shutting down production on many planned original shows.

“To be where we are is a real testament to the power and content and understanding of the media space that our teams at NBCUniversal have,” Cavanaugh said. “We’re really pleased with the start we have.”

The company will “in short order be on all the major ways that people have to aggregate their streaming services,” Cavanaugh said. 

Comcast lost $914 million last year launching Peacock, largely through "eliminations," intra-company revenue moved between divisions that represents lost outside licensing opportunities, according to SEC filings uncovered by Variety.

The losses were net beyond $118 million in revenue that Peacock generated in 2020. The company previously said it planned to invest about $2 billion over two years in getting Peacock launched, and expects to break even by 2025.

The numbers were part of an 8K filing detailing company plans to revamp the way it reports results around its film and TV operations. Cavanaugh said the new reporting is designed to reflect the wide-ranging reorganization of film, TV and home entertainment operations under new NBCU Chairman Jeff Shell last year.

The company plans to resume share buybacks “in the second half of this year while funding all the right kind of investments for growth,” Cavanaugh said. “I think the company’s in a great spot. It was a hell of a year last year, but I think we enter this year the better for it.”