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The new Comcast/NBC Streaming Service (Peacock) is the newest entrant into the streaming wars. But is this a smart strategic move by Comcast/NBC as opposed to continuing to syndicate its own content? Comcast/NBC has a track record of skimping on UX in its previous technology platforms – if that trend continues, this will hurt Peacock as people make decisions on which 3-4 services to subscribe to.
Yet, the deeper question is around current advertising revenue. Right now, Comcast/NBC has a stable base of users consuming content and viewing ads, resulting in stable income. Will employing a “freemium” model and starting to push paid plan tiers cannibalize ad revenues? In short, Comcast/NBC is making a bet that subscription profits will outweigh current profits – and we’re not so sure we agree.
Comcast NBC Streaming Service YouTube Transcription:
Comcast Peacock NBC streaming service‚ is it a yes or a no? I’m Jenny Rae, the Managing Director of Management Consulted, a Bain consultant, and I’m going to break down the business cases, the business scenarios of, NBC Universal, and their focus on the new streaming service. And I’m going to highlight whether or not I think, in strategy, it makes sense for them to go forward with this kind of streaming service. So, let’s first of all walk through what the two options are for Comcast, and how they would think about evaluating this.
Comcast/NBC’s Option For Syndication
Number one they’ve got an option for syndication. So they’re looking at all of the content under their umbrella. The Office, and all other resources that are out there in the market. Their big name content, and also a bunch of small main properties that they own. They’re looking at both their historical and current offerings. And what they’ve decided to do is pull back some of those. If they alternately didn’t do that, or if they weren’t calling it back or they weren’t getting dropped, then the valuation of those would be whatever somebody was willing to pay. And as long as there’s a couple of competitors that are willing to pay for it, that would be great.
One of the challenges is that the competitors, who are paying for those services, are actually waning a little bit. So you have Amazon Prime Video, and you’ve got Netflix. But who else in the market might be paying for those services? So, in different micro markets you have a few others.
Syndication Profit vs Potential Streaming Profit
However, there’s a valuation number‚ and it’s the value of syndicating everything out to somebody else. That number is the benchmark. What they are saying, by going forward with their own platform, NBC Peacock streaming service, is that they believe that they can outweigh the revenue. Actually, all of that revenue is pure profit compared to what they’re talking about internally. They’re saying that they can outweigh that by building their own platform.
And here’s how they do it. They have some nominal cost, they have a cost to build the tech‚ and god knows they should spend some money doing it, and not flub it like they have historically with user experience. So, it needs to be actually a decent tech build, but it’s still not going to be in the grand scheme of things a huge expense. Their biggest marketing expense is going to be acquiring customers.
When they’re doing syndication, the customer acquisition happens out there in the market, or the customer acquisition happened historically. You still have residual people that are coming back. But making sure that you’ve got great content on your platform is one part of their business that they already have to focus on. Now they also have to focus on getting customers to a specific platform, and that is going to be the biggest challenge. Especially with the increased competition from Prime Video, Netflix, Hulu, SlingTV and now also Disney Plus. That marketing expense I think is going to eclipse what they’re talking about.
Lifetime Value Of Their Customers vs Actual Expenses
They’re talking about, at their top tier having somebody be worth $120.00 dollars a year. And so they’re going to have to market extremely efficiently. And they’ll have to hold that customer for such a long time, their lifetime value, their LTV of each of those customers is going to have to be very high. And with streaming wars intensifying, they’re going to have to have such little churn to actually make that number worth it. So in many estimates, they’re giving out numbers and “this many million people” will subscribe, and “this is what we’re expecting”, and my expectation is that they’re actually pushing those numbers to be really unrealistic. And they are going to have to focus on so many different things managing the different stakeholders.
Working The Numbers
So, one of the things that they have done on the revenue side of the internal process, is they focused on both ads and customer subscriptions. And essentially what they’re saying in an ad free full catalog is that you’re worth 120 bucks at the max. So, an ad rate per subscriber is going to be somewhere south of 120 bucks per person.
So ultimately, their number for thinking about the way that they’re going to break even on what they were doing with syndication, is that they’re going to have cost per customer, the cost of managing the tech, and the cost of processing your credit card every month, and then the cost of acquiring you, and they’re going to have to subtract that from that hundred and twenty dollars. And that net number, that value, times the number of subscribers has to outweigh what the issues are inside the syndication market.
Will Comcast/NBC Peacock Streaming Service Succeed?
Now, I’m not saying that it’s a terrible idea across the board, I’m saying I think that it is unlikely that they’re going to match their syndication numbers. I think that is likely that people will churn too often, they’re going to spend a lot of money to acquire them and they’re going to churn off. I think that they’re going to under invest and use their experience, as they have done historically, and I think that’s going to result in a lower adoption rate in the first place. And I think they’re going to disrupt the basic users with ads, driving down the free subscriber attention, and also driving down their ad price.
So I think they’re going to have revenue compression, and I also think they’re going to have cost escalation that’s going to result in a really big issue from a strategy perspective. if syndication really is dead, then it’s the only option that they have. I’m not convinced that it is. So, if I were sitting in the boardroom at NBC, I’d really want to make sure that I felt like those numbers were solid rock and that there would be no risk in some of those key areas.
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