Comcast's (CMCSA 1.06%) streaming service, Peacock, is starting to show some momentum.
After adding 2 million paid subscribers in the third quarter, management revealed it's already added 3 million more in the first two months of the fourth quarter. That's great news following management's plans at the beginning of the year to double its content investments in the streaming service.
Some analysts were wary of management's decision. But with the content investments laid out to start the year showing up on Peacock this fall, it's worth taking a closer look.
Exceeding its original expectations
When Comcast unveiled its plans for Peacock nearly three years ago, it provided an extremely modest long-term outlook for the streaming service. The company has managed to far exceed those expectations.
Management said it would have 30 million to 35 million total active accounts by 2024, and those accounts would generate an average of $6 to $7 each. It had already reached 30 million total accounts by the end of Q3. As of the end of November, Peacock had 18 million paid subscribers, generating an average of nearly $10 per month. If Comcast can maintain the pace of the last five months, about 1 million subscribers per month, it'll reach 30 million paid subscribers by the end of 2023.
Driving that growth, at least in part, is the increased content spend. Management said it planned to increase its 2022 budget from $1.5 billion to $3 billion.
That included things like buying back certain streaming rights from Hulu, of which it owns about 30%. Disney (DIS -0.18%) owns the other 70% and has operational control over the streaming service. Buying back those rights allows it to put shows like Saturday Night Live and The Voice on Peacock the day after they air. And that's been a clear driver of subscriber growth following the fall season premieres.
While management may have committed to spending more on content rights for Peacock in 2022, much of that spend won't really show up in its catalog until next year. That may mean more growth ahead as a new slate of originals comes out on Peacock.
Navigating the competitive landscape
More and more streaming services are moving downmarket to offer ad-supported subscription options. Combined with a weakening advertising market, that could pose a threat to Peacock, where the vast majority of subscribers are on the ad-supported version of the service.
Netflix (NFLX -0.92%) launched its ad-supported subscription last month. It said it's planning to make an impact at next year's upfront ad sales event. Upfronts used to be the domain of traditional television networks, but streaming services have started to play a significant role lately. While Netflix's ad-supported business is still in its infancy, it might not take very long for it to have a significant effect on the entire industry,
Meanwhile, Disney launched its ad-supported tier for Disney+ earlier this month. Disney brings years of experience selling advertisements on its linear networks as well as on Hulu and ESPN+.
Comcast isn't concerned. NBCUniversal CEO Jeff Shell says there's already such a big digital video advertising market that the effect on supply from Disney and Netflix is minimal. To be sure, connected TV remains one of the few bright spots in the advertising market. Interactive Advertising Bureau (IAB) expects ad spend on connected TV to grow 14.4% in 2023, far faster than any other channel.
Can Comcast make it profitable?
When management said it was going to double its content budget, it warned it may have to delay its plan to reach breakeven profitability by 2024.
But with the strong results it's seeing in 2022, it might be able to hit that target. The uncertainty and new competition in the advertising market may hold it back from profitability in the short term, though. As more ad dollars flow into the connected TV space, Comcast has the capabilities to win ad sales, especially if it has the content and audience to sell it against. As of its most recent update, it sounds like Comcast has put Peacock in a strong position to capitalize on its investment.
