Yahoo Finance Can NBC Take On Netflix and Disney With a Free Streaming Service?
NBCUniversal is the latest media company to throw its hat into the ring with plans for a direct-to-consumer streaming service. Well, almost direct-to-consumer.
The company will lean heavily on its relationship with its parent company, Comcast (NASDAQ: CMCSA), which is one of the largest television distributors in the United States. Comcast also owns a majority stake in Sky, Europe's largest pay-TV provider.
NBCUniversal will offer ad-supported streaming video on demand to pay-TV subscribers. Consumers without a subscription or who don't want ads will reportedly be able to pay $12 per month for a subscription.
NBCU CEO Steve Burke believes partnering with distributors and offering an ad-supported version of the service is the best way to build a critical mass of viewers. Comparatively, Disney (NYSE: DIS) will be starting from ground zero when it launches Disney+ later this year, and AT&T's (NYSE: T) WarnerMedia is building on a relatively small base on HBO Now subscribers. All three will be competing with Netflix (NASDAQ: NFLX) and its 137 million global subscribers.
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Direct access to 52 million customers
There are about 52 million customers paying for television between Comcast and Sky. A growing majority of Comcast customers have an X1 set-top box, which enables Comcast to display over-the-top content side by side with on-demand content delivered through the cable user's subscription. Sky's Sky Q box is now in 3.6 million homes and growing quickly, offering similar capabilities to Sky customers.
Comcast can put NBCU's streaming service front and center for X1 and Sky Q subscribers and can use its advertising slots in regular broadcasts to promote the service to its subscribers.
NBCU will reach out to other distributors as well, pitching it as a way to increase the value of a cable subscription by enabling access to a free on-demand service.
It's worth noting that WarnerMedia has a similar relationship with AT&T. However, WarnerMedia doesn't plan to integrate its service closely with AT&T's cable and satellite TV business.
Bringing the goods
NBCU has the rights to several valuable series and films. The Office and Parks and Recreation are two of the most watched shows on Netflix, and NBCUniversal is in charge of their distribution. The two combined for nearly 10% of Netflix views in 2018, according to data from analytics firm Jumpshot.
The company will also have first right of refusal to other series and films its studios produce. The film studio has pumped out some major blockbusters recently, including Dr. Seuss's The Grinch and Jurassic World: Fallen Kingdom.
Burke left the door open to the possibility that not all of NBCU's content may end up on its streaming service. That's in stark contrast to Disney, which is pulling its content from Netflix to bring it exclusively to its own streaming platforms. WarnerMedia's latest deal with Netflix for Friends only guarantees Netflix one more year of streaming the popular show.
If NBCU doesn't bring its best content to the streaming service, very few people will sign up to watch, even if it's free. There are just too many other options with great content to stream video.
An incentive to stick with cable
The early description of NBCU's streaming service sounds more like an incentive not to ditch cable than a standalone streaming service. The standalone price of $12 per month will be more than Disney+, which CEO Bob Iger said it will price below Netflix. It's also just as much as Hulu's commercial-free plan, which offers compelling value to around 25 million Americans with next-day episodes and award-winning originals. And it's only a dollar less per month than Netflix's new pricing for its most popular plan.
In fact, Burke said he only expects to generate about $5 per month from advertising on free viewers. Other ad-supported streaming services with premium options try to keep the revenue from free and premium subscribers about even. If a free subscriber is worth only $5 per month, a paid subscriber shouldn't be worth much more than that. As such, NBCU's streaming service probably won't appeal much to consumers who don't subscribe to one of its pay-TV partners.
That may be exactly what Comcast wants from NBCU. It doesn't want to give consumers another reason to cut the cord; it wants to foster relationships where they take as many products as possible from the media conglomerate. That could, however, hold back NBCU's streaming service from being very popular.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
