How Comcast Corporation Will Meet The Unbundling Threat

  • Comcast is determined to meet head-on the threat of unbundling cable.
  • The company has launched its own subscription services and is buying into Internet content.
  • Comcast also plans to get a cable TV price for faster Internet broadband.

Comcast -A (NSDQ:CMCSA) has done little for investors over the last year. It is up just 7% since last May, reaching a high of $65/share last summer, a low of  under $55 last winter, and settling in right now at about $62.50/share.

The great fear holding back the stock has been "unbundling," consumers quitting their cable television packages for Internet broadband and a few "over the top" services like Netflix (NSDQ:NFLX). Since Comcast is America's leading cable operator, it is seen as under special threat, given its ownership of NBC and its cable channels, as well as Universal Studios.

But the company is rising to meet the threat. Its advantage over rivals has always been its vertical integration, the fact that it owns the networks its wires carry, just as old Hollywood movie studios were controlled by theater owners. That is becoming true for the Internet as well.

Also read: Comcast Corporation's Risk To Reward Should Be Questioned

Comcast also has broader reach, and faster speeds, for last-mile Internet broadband service than rivals like AT&T (NYSE:T) and Verizon (NYSE:VZ). It continues investing in that infrastructure, and is now selling speeds of 1 Gbps or more in some markets, at prices of $139/month without a contract.

When consumers decide to “unbundle” and eliminate their cable contract, meanwhile, that does not necessarily mean that they are going without video, even paid video. Comcast has entered this market with Seeso, a comedy channel. It’s also one of the partners in Hulu, which competes directly with Netflix (NSDQ:NFLX) and Amazon (NSDQ:AMZN) Prime and is selling a “skinny bundle” that competes directly with other cable offerings.

Comcast, through its Comcast Ventures venture capital arm, has also gotten into other forms of Internet content, buying big pieces of Vox and Buzzfeed.  That’s just the highly-publicized tip of the iceberg. Comcast Ventures has pieces of no less than 129 Internet properties, including Dollar Shave Club, Flipboard, Instacart, Nextdoor, and Slack. It’s hard to see any profitable Web niches getting past its net.

Comcast is not a growth stock. Revenues for the March quarter were up only about 5% from a year ago, and profit margins held steady at about 7%. The dividend, 28 cents per share, offers a yield of just 1.7% at its current stock price, but that dividend is covered nearly three times by earnings, so it’s safe.

But vertical integration has its advantages. While Walt Disney (NYSE:DIS), which owns just about everything but entertainment infrastructure, including the ABC Television network and numerous cable channels, but has a stronger film line-up, is down 5% so far this year, Comcast shares have that 11% gain year-to-date. You don’t get rich buying Comcast stock, but you won’t be killed by the unbundling trend, either.

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