Most Americans would likely agree that access to high-speed internet makes life much easier and more enjoyable. Technology market research firm Parks Associates has quantified the gut feeling. As of last year's third quarter, 76% of the U.S. broadband customers it surveyed indicated it "would be difficult" to lose access to their broadband service. The research outfit suspects the figure has grown further in the meantime in the wake of the coronavirus outbreak that's stranded millions of people at home.
This is clearly great news for cable names like Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR), which also dominate the nation's broadband market. Cable TV providers serve about two-thirds of the country's high-speed internet customers, and Comcast and Charter collectively account for the vast majority of those connections.
However, that's not the most noteworthy detail of the Parks Associates report for Charter and Comcast shareholders. Curiously, only about one-fifth of those internet users questioned subscribe to a streaming video service from their internet service provider, and only another fifth of those broadband users know whether their internet service provider even offers a streaming option.
A little more marketing among their existing customer base could prove to be a big deal for both companies. Charter quietly offers a streaming service that's comparable to traditional cable, and Comcast is nearing the launch of a streaming service called Peacock that will include a free, ad-supported tier.
"Broadband only please"
Parks Associates Director of Research Steve Nason explained the findings this way:
Consumers with OTT subscriptions are shifting away from internet bundles, with this group much more likely to have stand-alone internet service than non-subscribers. This finding indicates providers need to adjust their bundling strategies, to include more OTT video services as options. Currently, less than one-fifth of subscribers receive an OTT service bundled with their broadband package.
Both Charter -- which owns Spectrum -- and Comcast are stingy about sharing data that would support Parks Associates' findings. Given the data the two cable giants are willing to provide, however, the numbers aren't difficult to believe. More than 40% of Charter's customers only subscribe to one of its services, and broadband is by far its most popular offering. Comcast also sports more broadband subscribers than cable or voice, and 35% of its customer base is only signed up for one of its services. For both companies, cable headcounts continue to fall while broadband subscriber counts continue to rise.
It remains to be seen how, or even if, Comcast will disclose viewership metrics for its Peacock service when it launches in July. Charter's Spectrum TV Essentials is a bit of mystery and limited to Spectrum's high-speed internet customers.
Since Charter's service is the biggest of only a few broadband providers that offer a home-grown streaming service, Parks Associates' findings are more likely about Charter's ability or willingness to tout its low-cost streaming option.
Peacock is a standout
Peacock won't be a clone of Spectrum TV Essentials. Indeed, the two are remarkably different.
Spectrum TV Essentials is only available to Spectrum internet customers; starting at $14.99 per month, it's meant to be a solution for prospective traditional-cable cutters willing to pay at least a little something for a streaming skinny bundle. Peacock will at most cost $10 per month even for non-Comcast customers, and will only become cheaper for Comcast internet subscribers and those willing to tolerate a few more commercials. For some users, it will even be free, making it the first ad-supported platform to be this well-supported by a cable company that also owns a major TV network (NBC) as well as a movie studio (Universal). It should be a relatively easy product to sell.
Regardless, if Comcast wants to reach its proposed target of no less than 30 million Peacock subscribers by 2024, its best starting point would be its 26.4 million high-speed internet customers who seemingly are going unaddressed -- or at least under-addressed -- by other broadband providers.
Putting the pieces together
There are two big takeaways for investors to embrace here. The first is the sheer importance of high-speed internet as a revenue-bearing product.
The Parks Associates figure indicating 76% of customers rate access to the internet as highly important comes as little surprise to most people. This finding may even understate broadband's actual value to consumers. That's why cable companies are right to prioritize it over other services like traditional cable or phone. High-speed internet is a vehicle through which all sorts of other products and services can be sold.
The other big takeaway is evidence that internet service providers need to do a better job of explaining to existing customers the full gamut of streaming options available to them.
Charter arguably missed that boat the first time it sailed, perhaps wanting to protect its traditional/linear cable business by not inspiring a wave of defections to lower-revenue Spectrum TV Essentials. Given time though, cord-cutting and clever consumerism won't be able to prevent that from happening.
As for Comcast, the early lessons from the intersection of broadband and streaming leave it well-positioned to make Peacock a winner right out of the gate. Its first target market should be the company's broadband and even cable customers, who've already been promised preference pricing.