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April 17, 2007

More Comcast Internet News

Just a few hours after Monday Morning Media Madness noted that Comcast (CMCSA/CMCSK) was building some potentially valuable and underanalyzed internet assets, the following crossed my email box from theflyonthewall.com:

News Corporation, NBC Universal and Comcast Corporation announced a comprehensive distribution agreement in which Comcast's Comcast.net and Fancast.com will serve as key distribution sites for News Corp. and NBCU's recently announced online video venture.

As a reminder, Comcast currently has 11.5 million high speed internet subscribers, 70% of whom use Comcast.net as their homepage. By year end, Comcast's high speed internet subscriber base should grow to over 13 million.

Search on Comcast.net is powered by Google and one analyst has informed that Comcast could provide 3% of all the searches done on Google. Comcast currently generates about $70 million from this relationship and the deal is up at year end 2007. Given the battle for eyeballs on the web as Google, Yahoo, Microsoft and AOL battle searches and ad inventory, Comcast seems to be in a prime position to dramatically up the value of its search deal....

If Fandango and soon to launch Fancast (Comcast's new site "that will enable users to view video as well as search, discover and manage both TV and movie content") can help build traffic owned by Comcast it won’t be long before investors begin see that Comcast is more than just a distribution network that is expensive to maintain. The existence of the network itself gives Comcast the ability to build its own content assets.

We have seen this before in cable when John Malone used his control of the then largest cable company – Telecommunications, Inc (TCI) – to build valuable content assets. In those days it was cable TV networks, either those controlled by TCO or those controlled by others but looking for distribution.

The economics on the net aren’t as good as for cable networks but control of the distribution pipes has many ways to create value for Comcast shareholders. Whether it is through selling an additional product (telephone), selling additional services on existing products (DVRs, HD, VOD for TV or small and mid-size business for internet and telephone), or generating massive internet traffic that can be monetized through paid search and display advertising, the investment necessary to build and maintain the pipes can be produce high returns for shareholders.

Posted by Steve Birenberg at April 17, 2007 02:18 PM in Comcast/Cable TV