After decades of consistent growth, cord-cutting looks to be the new normal in the cable industry, with companies whittling away subscribers to a quarterly drumbeat.
The rise of streaming offerings like Netflix (NASDAQ:NFLX), Amazon.com (NASDAQ:AMZN) Prime Video, and skinny bundles from Dish Network and others has formed a new cohort of high-quality alternatives to traditional cable, putting a bull's-eye squarely on the backs of longtime industry powerhouses likes Comcast (NASDAQ:CMCSA) (UNKNOWN:CMCSK.DL). The cable industry seemingly hasn't known how to respond -- until now, that is.
With the upcoming Summer Olympics, Comcast, the nation's largest cable company by subscribers, plans to leverage its emerging X1 content platform to show consumers that cable still has the chops to compete with internet alternatives.
The "Mercedes" of TV
Earlier this month, Comcast CEO Brian Roberts presented his vision of how his company will not only weather but thrive in the face of cheaper alternatives like Netflix, Amazon Prime Video, and Dish Network's Sling TV. The strategy can largely be boiled down to giving Comcast subscribers something they can't get anywhere else. To achieve that, the company has pinned its hopes on its next-generation X1 cable and technology product, which Roberts described as the "Mercedes" of television.
X1 is Comcast's cloud-based, voice-powered cable and DVR service. Like Apple's Siri and Amazon's Alexa personal assistants, Comcast's X1 cable box includes voice-powered search features the company believes will replace programming menus as the go-to way to find or discover content. Like the latest version of Apple TV, X1's virtual assistant is powered through the service's updated remote control.
The new remote understands over 180 million different queries, and Comcast plans to eventually integrate the voice assistant's functionality with third-party applications as well -- for those of us who want a pizza with our movies. Comcast also plans to eventually include third-party content options including Twitter's Periscope and Facebook Live. The ultimate vision appears to be to make X1 into an entertainment platform to rival Apple TV but with Comcast's cable service at its heart.
Beyond its new voice-powered functionality, X1 also includes a new cloud-based DVR that allows users to record up to six live shows. It comes with 500 GB of storage, which enables offline viewing on mobile devices by downloading content from the X1 app. All told, this X1 is intended to help Comcast's cable offerings stand out from the crowd in what figures to be an increasingly competitive market in the coming years.
Olympics a major opportunity
Comcast is reportedly averaging 40,000 daily upgrades to its X1 service among current subscribers. The company hopes to have roughly half its installed based of cable subscribers using the cable platform by the opening of the Olympics. It is also licensing the technology to rival cable providers like Cox Communications and Shaw Communications in Canada.
The Olympics serve as a particularly important milestone for Comcast and its shareholders for two reasons. First off, Comcast's NBC Universal subsidiary has paid over $12 billion to secure exclusive rights to the games through 2032.
Holding exclusive rights to the games gives Comcast a unique opportunity to bolster TV subscriber gains and advertising revenue windfalls. Thus far this year, Comcast's NBC Universal unit has secured advertising commitments surrounding the Olympics in excess of $1 billion.
Comcast will also make every Olympic event available either live or online for its subscribers. Thanks to X1's new functionality, Comcast users will be able to more effectively search for events by sport, athlete, and country. X1 will also provide alerts to users when Americans are competing for medals. In leveraging the technology, Comcast hopes to both boost the ratings for the Olympics, which could benefit future Olympics advertising efforts, and increase cable service subscriptions in the process.
A necessary bet
The preliminary data suggest that, though early in its deployment, Comcast's strategy may be paying off. Case in point, the Philadelphia-based cable giant has produced subscriber growth in each of its two most recent quarters. However, doubling down on its relatively expensive services also flies in the face of the broader trends affecting the industry where services like Netflix, Amazon Prime Video, and DISH Network's Sling TV offer less robust and more affordable services.
Well-regarded industry analyst Craig Moffett praised Comcast's new offering in an interview with Bloomberg: "For the first time since 1994, you can unequivocally say that cable has the best video offering in the marketplace. ... That's in large measure to X1." However, he also noted, "There is a risk that Comcast is positioning X1 as a Mercedes at a time when more of the market is looking at an economy car."
Comcast has been gaining subscribers in recent quarters thanks in large part to X1. Moreover, live sporting events like the Olympics remain one of the few content areas where cable services like Comcast hold a legitimate advantage over the likes of Amazon Prime Video and Netflix. But only time will tell whether X1 can be the long-term solution to an industry remaking itself before our very eyes.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Amazon.com, Apple, Facebook, Netflix, and Twitter. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.