What Roberts Said: Move Beyond TV

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Most presentations to financial analysts have a well-honed message designed to make that audience feel better about the company in the spotlight.

But there are, at times, messages that go beyond the script, as was the case last week during Comcast Corp. CEO Brian Roberts’s presentation at the Citigroup Entertainment, Media and Telecommunications Conference in Phoenix.

The headline news was the 202,000 digital phone customers Comcast added in 2005, 185,000 of which came in the fourth quarter. That addressed complaints about a slow start for phone-service sales by the top U.S. cable firm. Comcast, which is now adding 20,000 phone subscribers a week, is on course to achieve its stated goal of adding a million phone subscribers in 2006.

Roberts also said Comcast expects to have 8 million phone subscribers by 2010 — an aggressive goal — to match the 8.1 million Internet-access customers it has today.

But to my ears, Roberts went further in his discussion about Comcast’s data and voice future than he’s gone before.

He talked about having 800,000 data-only subscribers. He said that while Comcast has 22 million basic video subscribers, it passes 40 million homes — meaning the built-and-paid-for plant passes 17.2 million homes that take no Comcast service at all.

In the past, Comcast would lead with video in marketing to those homes. Now, Roberts said, Comcast will begin marketing a data-and-voice bundle to those homes. That package, which would include wireless communications, probably comes later this year when the joint venture between several top cable firms and Sprint Nextel Inc. kicks in.

Comcast management “stressed that they believe the market is too focused on basic sub growth” — that was how Citigroup’s Jason Bazinet summed it up in a research note. “Going forward, management indicated that they will focus less on basic sub growth than they have in the past. Rather, the company plans on selling voice and data to existing video customers and customers that do not subscribe to video.”

Roberts is trying to lay the foundation for a new way to look at the cable industry, where video takes on less importance than data, wireline voice and wireless growth. As he said in Phoenix, “I think you have to move way beyond looking at basic subs.”

Roberts clearly is looking squarely at cable’s worst nightmare and forming plans to deal with it.

Just play with the numbers: If Comcast can get 20% of those 17.2 million homes that do not yet house customers to pay $80 a month for a data/voice bundle, that’s a good business — one that carries a 60% profit margin. In fact, that 20% gain in overall customers, with no video, would more make up for the loss of 20% of your $60-per-month video-only subscribers, if they should flee to satellite, phone companies or download the programming they want on the Internet.

Remember, that video subscriber is laden with programming fees and, typically, set-top expenses. Profits on each subscriber are more in the 30% range.

Privately, some cable companies wouldn’t mind jettisoning programming and set-top costs altogether if they can be made whole on Internet services.

Even if the entire video business goes away, one cable executive told me — granted, an unlikely occurrence because of current programmer economics — cable, not Google or Yahoo, still has the last-mile broadband connection to the home critical for Internet video.

Eliminate programming and set-top costs and double the broadband revenue if the world goes direct-to-Web site video — that’s a margin trade-off cable could learn to love. But that approach can’t be uttered in public, yet.

And if you’re one of those folks who believe Google or Yahoo could buy spectrum for high-speed wireless connections in that last mile, don’t forget: the Sprint-cable consortium could do the same thing, or use other broadband wireless technology to deliver services at 30 Megabits per second-plus over the air to consumers.

Cable is not shut out from the Internet content game. Cable companies could do deals with Google, Yahoo, America Online, the National Basketball Association or Hollywood studios to help sell their owned or amalgamated programming on those Web sites. Nothing prevents Comcast from selling ABC’s Lost and Desperate Housewives on demand or on Comcast.net — other than the will to do the deal and to think differently about what constitutes the core business.

Today, such deals would be a bold step for cable. As is talk of a future where today’s approach to delivering video over coaxial cables has less importance.

It’s a risky mental chasm to cross. But Roberts began building a bridge over that chasm last week.

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