Comcast (NASDAQ:CMCSA) will join the subscription video on demand fray in the spring with the debut of Peacock. It's already snatched up the expensive rights for The Office and it's producing several exclusive originals to launch the service. It'll be entering an increasingly crowded market that includes Netflix, Disney (NYSE:DIS), AT&T's (NYSE:T) WarnerMedia, CBS, Apple, and Amazon, among others.

It's expected that Comcast's current customers will get free access to an ad-supported version of Peacock. Whether that includes broadband-only subscribers remains to be seen. Consumers will have the option of paying for an ad-free subscription, and non-Comcast customers will also be able to pay for the ad-supported service.

The price is reportedly going to be $10 per month without ads and $5 per month with ad breaks, according to The Information's Jessica Toonkel. Here's how that pricing compares to the competition, and what it means for investors.

Peacock logo.

Image source: NBCUniversal.

Where does Peacock fit into consumers' budgets?

The table below summarizes where Peacock's pricing fits compared to other streaming services.

Service Name

Ad-Supported Monthly Price

Ad-Free Monthly Price

Peacock

$4.99*

$9.99*

Hulu

$5.99

$11.99

Disney+

N/A

$6.99/$5.83**

CBS All Access

$5.99

$9.99

Netflix

N/A

$12.99

Amazon Prime Video

N/A

$8.99

Apple TV+

N/A

$4.99

HBO Max

N/A

$14.99

Data sources: The Information and company websites. *Unconfirmed. **Price when subscribing for a full year. 

The price for the ad-free version of Peacock is roughly in line with the competition. It's a bit pricier than Disney+ or a stand-alone Prime Video subscription, but less expensive than Hulu, Netflix, or HBO Max.

Where Peacock stands out is its bottom-of-the-barrel pricing for its ad-supported service. As previously mentioned, Comcast subscribers will get free access to the ad-supported version of Peacock. But at $4.99 per month, NBCUniversal is undercutting its competition's pricing by $1. 

Commentary from Comcast's management combined with its reported pricing suggests the company is more focused on the ad-supported business than the premium subscription. 

With an established ad sales team and technology, Comcast is well positioned to generate a lot of revenue per subscriber from advertising. At a conference in September, CEO Brian Roberts said, "With the premium content that will be on this network, this will be unlike any advertising inventory available."

Indeed, it's not unlikely Comcast can generate higher revenue per subscriber with ads than with the higher-priced ad-free version. Disney notably generates much higher revenue from the ad-supported Hulu than the ad-free version despite the $6 per month price differential. AT&T's planning an ad-supported version of HBO Max for that reason.

Can Peacock drive enough engagement to compete?

With a focus on ad-supported streaming, NBCUniversal is betting big on driving engagement in order to generate revenue. But management's outlook for the service suggests engagement will be relatively low.

Comcast CFO Mike Cavanagh said at an investor conference earlier this month that the company will invest about $2 billion, ramping quickly, over the first two years of launching Peacock. He also forecasts that the service will break even by year five. That suggests annual revenue between $1 billion and $2 billion.

But those numbers also suggest Cavanagh doesn't expect very high levels of engagement for subscribers. Peacock will launch with 20 million subscribers built in from Comcast's video subscriber base. To reach $1 billion in annual revenue, it would only need to generate a little over $4 per existing subscriber. That's less than half of what Hulu generates in ad revenue per subscriber.

That highlights an interesting challenge for Peacock. If the content isn't engaging enough to drive viewership comparable to Hulu for customers that get the service free, how can it expect consumers to pay anything for it when there are better options? 

All of the streaming competitors are relatively inexpensive. Even HBO Max's $14.99 per month price is tiny compared to the average cable bill. Consumers will pay slightly more for a more attractive slate of content and completely forego Peacock even if it's priced below the competition.

To be sure, Cavanagh's forecast implies it won't see a lot of paid subscribers compared to Disney or WarnerMedia. Peacock seems more positioned as an extra source of on-demand content for Comcast subscribers, and may appeal less to cord-cutters. 

If Comcast offered the service for free to everyone, it could accelerate cord-cutting -- much to the detriment of the overall business. So it's charging a relatively high price considering the subpar perceived value of the content.

Comcast's conservativeness with Peacock may ultimately cost it. Cord-cutting isn't slowing down, and it may be better served long-term by aggressively going after the streaming market and taking share while the competition is still nascent.