Comcast (NASDAQ:CMCSA) unit NBCUniversal announced details for its Peacock streaming service at a star-studded investor event held at the famed Studio 8H at 30 Rockefeller Plaza -- the home of Saturday Night Live (SNL). The event was hosted by a variety of Comcast and NBCU execs and included celebrity appearances by Tina Fey, Jimmy Fallon, and Seth Meyers.
The company's approach will combine a premium catalog of content with a sustainable advertising and subscription model that will delight viewers and investors alike.
Plenty of choices
Peacock will take a different approach from existing services with a hybrid style that turns the streaming model on its head. The service will offer three tier choices with something for everyone. The first tier will contain 7,500 hours of long-tail and current programming that will be free to everyone. The second tier will offer 15,000 hours of content, including premium and original programming and will be free to Comcast and Cox cable subscribers and $4.99 per month for everyone else.
By using targeted advertising, Peacock will limit commercials to five minutes per viewing hour, but viewers can go completely ad free for an additional $5 per month.
A huge library of current ad back catalog content
The service will offer a deep library of content including hit NBC shows like The Office, Parks and Recreation, Will & Grace, Bates Motel, Brooklyn Nine-Nine, every episode of SNL, 30 Rock, Frasier, and Cheers, and all of Dick Wolf's Law and Order and Chicago franchises.
There will also be a laundry list of movies from Universal, including Bridesmaids, Shrek, Field of Dreams, American Pie, A Beautiful Mind, Back to the Future, and E.T. the Extra Terrestrial, as well as films from The Mummy, Fast & Furious, Bourne, Despicable Me, and Jurassic Park franchises.
Not to be outdone by its streaming rivals, Peacock is also developing a broad slate of original shows, including Dr. Death, based on the true-crime podcast; Brave New World, based on the dystopian novel by Aldous Huxley; and the Tina Fey-produced Girls5Eva, "about a one-hit-wonder girl group from the '90s that reunites to give their pop star dreams one more shot." Peacock will also release revivals/reboots of popular nostalgic favorites including Battlestar Galactica, Punky Brewster, and Saved by the Bell.
One thing that has been lacking in many streaming services is access to current news and live sports, but Peacock's familial connection with NBC puts that issue to rest. The streaming service will have access to news programming from NBC News, MSNBC, CNBC, and Sky News with both live news and same-day rebroadcasts. For sports fans, Peacock will have live coverage and exclusive coverage of the 2020 Olympics, Premier League Soccer, and Ryder Cup golf.
Good for investors
While the lion's share of Comcast's revenue -- about 38% -- comes from its cable business, the phenomenon of cord-cutting is accelerating. Peacock gives Comcast a way to simultaneously protect its legacy pay-TV business while profiting from the ongoing consumer shift toward streaming. A look at some of the metrics the company provided shows a pretty robust opportunity and plenty for investors to like.
Management said Peacock will eventually generate between $6 and $7 per month in average revenue per user (ARPU), but that could be conservative. Hulu is the closest approximation of Peacock's business model, with a free ad-supported tier and a premium tier with no commercials. While some estimates put Hulu's ARPU at about $8 per subscriber for its ad-supported tier, Comcast management said the figure was closer to $10. This gives Peacock room to expand its ARPU, even accounting for its promise of just five minutes of ads per viewing hour.
That isn't all. Comcast said it expects Peacock to attract between 30 million and 35 million subscribers by 2024, and it already has a head start, as 24 million Comcast and Cox cable customers will get free access to the ad-supported tier of the service with their cable subscription. To put Peacock's goals in context, Disney expects its Disney+ subscriber base to grow to between 60 million and 90 million by 2024, with about one-third of subs coming from the U.S.
A big opportunity
Wedbush analyst Daniel Ives, fresh from the investor presentation, said Comcast was lowballing the subscriber estimates. "We believe given the massive content library, sports properties, and distribution footprint that these sub numbers are conservative as we believe 20 million subs over the next 12 to 18 months is a realistic goal," he said.
If Peacock were to reach its extremely modest ARPU and subscriber goals -- and there isn't any reason to think it won't -- it will reach adjusted EBITDA profitability by 2024 or sooner, and the majority of revenue from each successive subscriber will drop to the bottom line.
By providing both premium content and a free price tag -- as well as low-cost upgrades -- Peacock is focusing on an untapped segment of the streaming market, which could turn out to be both popular and lucrative.