Comcast Just Got Bigger, But Not Near Big Enough to Win the Real Future
Comcast and Time Warner Cable announced early this morning that they have board approval to seek a merger, using $45 billion in stock to finance the deal. The deal is likely to close by end of year, despite the protestations of consumer advocate groups. The opponents of the merger will claim that it makes Comcast too powerful an entity, one that we can't possibly tolerate.
The truth is, Comcast's acquisition of TWC doesn't get the company anywhere near where it needs to be in the future, which is serving hundreds of millions of customers around the globe. Think of it this way: Adding 10 million users brings Comcast to over 30 million customers. Sounds like a lot, but at that number, it still trails Netflix by 14 million users around the world. And while Netflix can continue to add millions of users each quarter, Comcast is basically stuck provisioning services to a fixed base of customers in a limited footprint that does not give the company power to remake the entertainment landscape.
That may sound reassuring to those who fear the rise of a big Comcast, but consider the fact that there are plenty of companies with even more power who are doing even more to remake the entertainment landscape. Google's Android, for example has been activated on more than a billion phones. Apple has more than 500 iTunes users, most with credit cards on file. It's Google and Apple that are remaking the entertainment landscape -- and the productivity landscape, the home automation and monitoring landscape, and soon the health and wellness landscape.
In fact, to keep up with these companies we at Forrester call digital platforms -- a list that also includes Microsoft, Facebook, and Amazon -- Comcast has to quickly acquire Time Warner Cable and then figure out how to expand from tens of millions of customers to hundreds of millions of customers. Otherwise, it will have no shot at influencing any consumer landscape at all and will instead end up as a dumb connectivity provider to users of iOS and Android.
That means acquiring a national footprint as quickly as possible while also keeping an eye on a path to a global footprint. The national footprint is easier than you think -- Comcast's Streampix video service already contains the seeds of a national streaming video offering aimed directly at Netflix. The next thing the company can do is best Netflix by offering what the TV business knows is coming but hesitates to offer -- an over-the-top, real-time live TV service like the one Intel tried to build before selling those assets to Verizon. This type of service, sometimes called cloud TV, would require paying the cable programmers a hefty premium to acquire the rights, but Comcast should bite the bullet and do it. It's a lot cheaper -- and a lot less subject to regulatory oversight -- than trying to buy another handful of cable companies.
The next obvious goal would be to pick up a wireless provider, allowing Comcast to go toe-to-toe with Verizon, a company with the same national-then-global aspirations. T-Mobile comes to mind as a target, though the reason it does is that it will be easy pickings at some point, and that's probably not the kind of asset that Comcast would want to integrate. Though troubled operations didn't stop it from picking up Time Warner Cable, obviously.
It will take significant effort to achieve this national footprint and monetize it, but Comcast won't be able to rest just yet. To compete with Google and Apple and the rest of the digital platforms, you have to go global. Amazon knows this and has been expanding the countries it serves as well as the services it provides those countries for several years to get there. As these previously disparate competitors all aim for the same outcome, they will increasingly find themselves invading each other's competencies and becoming more and more similar. That means they all will get into home entertainment, the digital home, and mobile experiences. Watch their announcements throughout 2014 and you'll see that this is the case, starting with Google's Nest acquisition and leading to Apple's likely refresh of the Apple TV. By joining this fray, Comcast is signing up for a serious and necessary upgrade of itself, even if the company thought it was just buying another cable provider.