Comcast's On-Demand Services Deliver Growth Amid A Saturated Pay-TV Market

Comcast ( CMCSA ) served 2.4 billion hours of on-demand-video to its customers in 2012, registering growth of 15% over 2011. The company has been in the on-demand video business for a while now and has witnessed significant success in terms of video consumption. However, the market exists for both, individual pickings as well as all-you-can-eat models, and Comcast seems to be positioned to capitalize on both with its traditional on-demand and Xfinity Streampix.

Usually, a company resorts to either subscription or an a la carte model, but Comcast is keeping both to balance its risk. Its on-demand views have grown strongly and there is an opportunity to increase shareholder value with the success in subscription streaming. Given that Comcast has close to 22 million pay-TV subscribers, 2.4 billion hours imply that each Comcast customer is on an average watching over 9 hours of on-demand video every month.

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How Have On-Demand Views Grown In The Past?

Comcast started its on-demand video service in 2003, and since, the the total number of views have grown by a staggering amount. The company stated that its cumulative on-demand views reached 11 billion in 2009. This figure further increased to 20 billion within a span of two years. This implies that between 2009 and 2011, Comcast's customers were generating roughly 375 million on-demand views per month. The figures imply big numbers!

However, the flip side is that the number of views are not necessarily the indicator of exactly how much of the content Comcast's customers are really watching. The number of viewing hours is a better metric - this stood at a monthly rate of 1 billion for Netflix ( NFLX ) in June 2012, clearly indicating a high demand for alternative video services. Compared to this, Comcast's customers are watching 200 million hours every month of on-demand video. There is a clear opportunity to fill this gap and in the process, generate incremental profits.

How Can Xfinity Streampix Add Value?

There is no doubt that the subscription model is picking up, and this prompted Comcast to launch its own streaming subscription service in early 2012. Xfinity Streampix's success can lift Comcast's value by as much as 10%.

For a little over 2 million subscribers, the Xfinity Streampix is available for free . For the rest, Comcast is charging a monthly fee of $4.99. If we assume that Comcast's streaming service can gradually penetrate 50% of its total subscribers by the end of our forecast period (including the ones who get it for free), the additional profits will lead to a around 5% upside to our price estimate for Comcast. However, there is additional value to be unlocked from improved subscriber trends.

Comcast has been struggling with its pay-TV subscriber losses for the past few years as a result of tough competition from the satellite companies and telecom operators. To compensate for this loss, Comcast has pushed its broadband and VoIP service, which has certainly helped. However, augmenting the existing services with enhancements such as online streaming can help Comcast's pay-TV business to a great extent. We see potential upside of 5% to our price estimate, if Comcast can regain about 2 percentage points of the market share by the end of our forecast period.

Therefore, we conclude that while neither of the above two values are significant in themselves, combined can lift Comcast's value by around 10%, which is a notable on top of our $46 price estimate for Comcast stands, implying currently implies a premium of about 15% to the market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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