Many big service providers make all their money from the connection they sell you — it’s what you pay for, where their near-monopoly makes it hard for you to switch, and what is so costly for competitors to replicate.
Comcast delivers cable TV to 30ish million homes and that’s a huge business. Interestingly, the broadband world has been a whole new line of business for these guys over the same wires. Even though they are not meaningful players online (does it matter that they are a top 5 email host, if they don’t run any of the moneymaking or strategically crucial franchises?), they have driven up average revenue per user meaningfully. About half or 2/3 of their users get broadband from them — an extra $20-40.
So why waste time buying hit-driven, unreliable content creators? Yes, there is a cost to the NBC content that Comcast delivers and one imagines that ‘vertically integrating’ would save Comcast some bucks. Like oil-wells-to-gas-stations Standard Oil.
But you don’t see Apple buying EMI. Hit content is like oil in some ways — you never know where you’ll find it and a gusher is worth *something*. But the money’s all in the delivery mechanism (not in Texas real estate), the part you can control. iTunes not EMI, cable not the shows.
What Comcast should be buying is Netflix. It’s pretty clear that TVs are about to start getting smarter, incorporating a lot of what set-top-boxes used to do. And as the premiere ‘stream movies’ brand with 10 million or so paying customers, putting Netflix in your TV will help you sell more TVs. So there will be loads of TVs in non-Comcast households ready to go.
With their paid-programming delivery service getting hooked into so many TVs all over the place, irrespective of the broadband wires/wireless under the hood, those Netflix guys are going to soon have the kind of franchise that you really want if you’re Comcast. And whoever the media champs are will have to go through them to find a big audience.
P.S. Netflix’s market cap is now 10x Blockbusters, as of today. How long before it exceeds Comcast’s?