Comcast's (CMCSA 0.16%) Peacock streaming service has gained a lot of momentum since its launch in April 2020. It's a momentum that couldn't come at a more crucial time for the cable and media company.
The streaming service, which includes a free and a premium tier, accounted for 1% of all television viewing in December, according to Nielsen's latest The Gauge report. It's the first time Peacock reached the necessary level for Nielsen to break out its results from other streaming services, and it's yet another indication Peacock is seeing strong engagement growth.
With cord-cutting continuing to weigh on Comcast's results, the shift to streaming is extremely important. Management increased its investment in streaming content last year, and investors will be looking for that bet to pay off. It looks like it's working so far.
Extremely susceptible to cord-cutting
Comcast is one of the biggest pay-TV providers and a major cable network operator, making cord-cutting a big threat to the company's profits. Cord-cutting is expected to continue getting worse in 2023 and beyond. The number of U.S. households subscribing to traditional pay-TV will decline by 5.4% to 62.8 million, according to estimates from eMarketer. That number will fall to 54.3 million by 2026.
Cord-cutting is reflected in Comcast's Cable Communications segment. Video revenue declined 4.4% year over year last quarter, as rate increases weren't enough to offset subscriber cancellations.
The NBCUniversal business grew its media revenue by 4.9% through the first nine months of the year after adjusting for one-time broadcast events. But if you exclude Peacock's revenue from those results, media revenue declined by about 1.5% yearly.
For the media business to keep growing, it'll need to increase revenue from Peacock. And while Peacock can't do much to offset cord-cutting in the Cable Communications segment, Comcast is doing well with other parts of that business, including broadband and wireless service.
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Key Data Points
Pushing toward profits
Growing Peacock hasn't come cheap, and so far, it's been a big drag on Comcast's earnings before interest, taxes, depreciation, and amortization (EBITDA). The increased investments in content in 2022 led Peacock's EBITDA losses to grow for the year. Management expects $2.5 billion in EBITDA losses for the streaming service for the full year after losing $1.7 billion in 2021.
Improving the profitability of Peacock may be even more important than growing its subscriber base and revenue. Even when you account for the streaming service's drag on profits, the media segment is generating less profit in 2022 than it did in 2021. If Peacock can't turn profitable, investors are looking at a permanent reduction in earnings going forward from the media business.
The good news is Peacock's investments are paying off so far. The December report from Nielsen is just the latest indication. Management said it reached the 18 million subscriber milestone two months into the fourth quarter, up from 15 million at the end of the third quarter.
The momentum coincides with an increase in content, including new access to next-day broadcast programming, Sunday Night Football, and its pay-one window with its own Universal Studios. Consumers have responded well, and that could put Peacock on a timeline to reach its goal of breakeven profitability before management's stated goal of 2024.
With the pressure of cord-cutting weighing on the rest of Comcast, it's a great sign to see Peacock showing momentum as the company appears to be successfully pivoting with consumer behavior.
