CNBC: Cable still more profitable than streaming

Traditional pay television companies like cable and satellite TV are still more profitable than streaming services, even as consumers increasingly “cut the cord” in favor of Internet-based on-demand options, according to a report.

On Saturday, CNBC’s Alex Sherman reported NBCUniversal dropped a small hint about how it views the future profitability of its forthcoming streaming service Peacock.

Toward the end of a two-hour investor presentation last week, executives for NBCUniversal said it anticipates earning an average revenue per user (ARPU) of around $6 and $7 across Peacock’s three different tiers. Peacock will primarily be supported through advertisement revenue, though users can pay out of pocket to receive an extended library of content, remove ads or a mixture of both (Comcast and Cox Cable customers will get early access to a premium version of the service in April).

Sherman said that ARPU was less than what traditional pay TV companies receive today, which is around $10. Sherman relied on anecdotal evidence from Comcast, a pay TV company that owns NBCUniversal and Sherman’s employer, CNBC:

For the nine months ended September 30, 2019, NBCUniversal cable networks made about $3.4 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). The broadcast network added another $1.3 billion in adjusted EBITDA.

Peacock, on the other hand, won’t break even for NBCUniversal until 2024, executives estimate. Disney said the same during its investor day for Disney+, targeting 2024 as a break-even date. NBCUniversal is predicting it will have between 30 and 35 million Peacock subscribers by 2024. Disney predicted between 60 million and 90 million customers for Disney Plus.

Sherman relies on Comcast’s portfolio and forthcoming streaming service to suggest traditional media companies are wading slowly into the waters of streaming offerings, and that assumes all pay TV companies operate like Comcast — with the same distribution system and programming. Some, like Disney, do: Disney is a pay TV operator through its Hulu with Live TV service (which is online only and loses money) and programs pay TV channels like Disney Channel, Freeform and ESPN.

But other programmers, like Fox (Fox Sports, Fox News) and AMC Networks (AMC, IFC, Sundance), don’t have traditional distribution systems, and some distributors like Dish Network, Cox Cable and Spectrum don’t have the portfolio of pay TV channels that Comcast does (Comcast operates USA, E!, Bravo, MSNBC and NBC Sports, just to name a few).

Sherman does foreshadow something that could be good for consumers: With all the program siloing going on among distributors and studios — there are now more than two dozen top-name streaming services, with Netflix and Amazon grouped among standalone offerings from HBO, Starz and Showtime and forthcoming services like Peacock and Quibi — we could expect to see streaming “bundling” being offered. This could easily happen if Amazon were to offer its Prime Video service along with access to Showtime and Starz — two services it also sells through Amazon Prime Video — for a lower price than if those services were offered separate from each other. Apple and Roku could do the same with similar offerings.

The end result would be something Sherman calls “cable version 2.0, except with more customer choice.” He predicts that would be a win for consumers but put cable companies in a bind if they don’t figure out the unit economics of streaming services and supplemental advertising to offset the decline of traditional pay TV revenue in the long-term.