Comcast (CMCSA) announced some sexy content initiatives today including the launch of “Project Infinity” — a massive increase in the number of movies and shows available via video-on-demand. The company also formally launched Fancast, its yawner of an entry into the online movie/TV portal business. Comcast should shutter Fancast and buy Netflix (NFLX).
Fancast was a snooze last summer, and it’s a snooze now: sort of a Hulu clone, sort of a professional video start-page, sort of an online version of an airline magazine movie section. Fancast might have been a good idea three years ago, but it’s late now, and, in our opinion, it doesn’t have much of a chance. So Comcast should stop throwing money and reputation down a rat hole and buy a real online video business: Netflix.
Yes, right now, Netflix is primarily a DVD-by-mail service. But over the next few years, it should migrate into being a movies-and-DVDs on demand service–one that eventually makes its way onto set-top boxes. Netflix has 7 million subscribers, many of whom are wild advocates for the brand and service. It also has the best model for online video distribution: an all-you-can eat subscription service (consumers hate being nickeled and dimed to death).
Comcast is a major player in The Battle for the Living Room, and there is no reason why consumers should ever have to buy more than one TV box (eventually, one hopes, they won’t have to buy any). Netflix’s migration online will force consumers to buy another box. If Comcast owned Netflix, meanwhile, it could build the service into its own boxes, thus offering consumers a more convenient service that many of its customers are already using. Other benefits:
- Owning Netflix would also allow Comcast to build a subscriber base outside its cable service areas (and circumvent FCC ownership limitations).
- This added critical mass would give Comcast more negotiating power with content providers, as well as the ability to cross sell VOD and other services to customers outside its cable systems.
- Netflix would start to diversify Comcast away from the capital intensive pipe business and move it up the value chain (without compromising its neutrality)
Comcast could probably woo Netflix with an offer of $2 billion (vs. the current $1.6 billion market cap). This would amount to only a few percentage points of dilution assuming the purchase was financed with a mix of equity and debt.
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