Comcast: the day after tomorrow

Walking away may be the easy part for Comcast. The media juggernaut announced a surprise deal for rival Time Warner Cable in February 2014, thinking the merger would be complete within a year. That year has passed, and the company is meeting with regulators this week to discuss salvaging the merger. Regardless of the outcome, the industries Comcast plays in have evolved since last year, and its dominance in them is slowly eroding.

Comcast is the rare media company to have successfully executed a content and distribution strategy. Its pay-TV and broadband units have more than 20m customers and accounted for two-thirds of its $68bn in annual revenue. While the number of subscribers to its bundles of television channels is shrinking - it lost 200,000 last year - the decline is slower than competitors. And it is adding about 1m broadband customers annually. The operating margin on TV/broadband business is more than 40 per cent.

Both areas have come under assault this year, however. HBO and CBS are offering their content over the internet, outside of a traditional channel package. Verizon, a telecom that also distributes TV, introduced a "skinny bundle" - a smaller set of channels at a lower price. (Content producers Disney and 21st Century Fox argue that skinny bundles violate their contracts with Verizon.) Comcast's broadband strength is a hedge against weakness in pay-TV, but US "net neutrality" rules, enacted this year, may curtail Comcast's pricing power there.

The concerns on the content side, at Comcast's NBCUniversal unit, may be more immediate. The past year has seen a sharp drop in cable television ratings and, subsequently, advertising revenue. In the fourth quarter, Comcast cable advertising revenue fell 6 per cent and even with good results in other units such as broadcast television and theme parks, NBCU's total revenue was up just 2 per cent.

Comcast, like every traditional media company, is trying to guess how content will be consumed in the future. Mergers may protect profits whatever happens - the TWC deal came with $2bn in cost savings. The more intriguing option is to find fresh ways to compete in the new world. The $4bn venture capital fund Comcast just created to invest in emerging technologies may be a step in the right direction. Old media's survival hinges on building something different.

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