Market Insight

Watchable: Comcast softens pay-TV walled gardens and enters advertising platform war

October 09, 2015  | Subscribers Only

Dan Cryan Dan Cryan Executive Director – Research and Analysis, IHS Markit

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The largest U.S. cable operator, Comcast, has launched the beta version of Watchable - its ad-supported, cross platform online video offer. The new service aggregates online short-form video content from 30 online network partners in a move to tap into rapidly growing online video advertising budgets.

Watchable is available on the web, as an iOS app and, for Comcast video subscribers, on the X1 set-top. The launch partners include companies owned or partially owned by Comcast such as NBCUniversal, Buzzfeed and Vox, as well as third parties including Awesomeness TV, Discovery Digital Networks, GoPro, Machinima, Maker Studios and Scripps Networks Interactive. Comcast plans to add more partners, personalization and social sharing options as the service evolves over time. 

Our Analysis

The launch of Watchable needs to be seen in two contexts: 

  • First it represents another step in the softening of pay TV walled gardens as operators in the U.S. and internationally are increasingly bringing in services controlled and directly delivered by third parties on to their set to boxes (STBs).
  • Second Watchable should be seen as move in the emerging platform war in digital video advertising. 

The subsequent analysis looks at these in reverse order. 

Comcast is aiming to be a bigger part of the growing digital video advertising market and insulate itself against the migration of linear TV advertising budgets to online video, which today are largely absorbed by social platform players like Facebook and YouTube.

Comcast is well positioned to provide the technology for a scalable video advertising infrastructure, as it will look to leverage its experience in dynamic ad insertions and further utilize its ad-targeting acquisitions of FreeWheel and This Technologies. Its content investments in Buzzfeed and Vox mean that Comcast will enter the video advertising space not a as pure technology intermediary, but supported by its own content, a stark difference to both Facebook and YouTube. The consumer appeal of brands like Buzzfeed also creates traction for third party content owners to join. Notable is the inclusion of multichannel networks like AwesomenessTV, Machinima and Maker Studios. These all have their roots on YouTube, but are increasingly diversifying to other platforms both in order to follow audiences and to make themselves commercially less reliant on a single gatekeeper. Leveraging its subscriber information also provides Comcast with a rich pool of first party data containing email addresses, credit card information, physical location and other data that allows specific individuals. To be identified. This is an advantage over YouTube, which does not have such data at scale, and enables Comcast to compete with Facebook’s concept of people-based marketing, which promises to identify real people and not statistical averages or data lookalikes for targeting purposes. Watchable stands in the context of an emerging platform war, expressed by a broader push from telecoms firms to destablise the Facebook/YouTube video advertising duopoly and provide alternative platforms for consumers and content. Verizon is vying for a similar advertising approach with the impending launch of its mobile first ad-supported service, go90.

Comcast is aming to attract content owners to Watchable by offering its partners a higher share of the revenue than they typically receive from other platform owners. The company’s  terms are likely to have contributed to the decision by early content partners signing up. It is important to note that some of the early ‘partners’ in the service are owned wholly or in part by Comcast. I If Watchable generates a significant amount of usage, other content owners will likely sign up. However, taking share from incumbents like YouTube and Facebook will be no small task.

Comcast is not the only pay TV provider experimenting with the inclusion of services controlled and delivered by third parties delivered directly to its STBs. In the U.S. these ‘over the top’ services have slowly been gaining traction e.g Netflix has been available on Dish’s Hopper since late 2014, Verizon offers FiOS TV customers access to services such as Pandora on their STB. To provide this porous walled garden Comcast is leveraging its X1 platform, which provides an enhanced TV experience compared to its traditional STBs. These efforts appear to be paying off as Comcast has started to see significant improvements in video customer declines, even leading to a few positive quarters. The cable giant shed a mere 69,000 subscribers in Q2 2015, the best Q2 performance in nine years which it largely attributes this improvement to its X1 platform and consistent improvements in its broadband internet offering. As of the second quarter of 2015 3.3 million, a third of triple play, customers now have X1, with plenty of room to grow across the rest of Comcast’s foot print.  Furthermore, it is plausible that, through license agreements for X1 technology, both Shaw and Cox will distribute Watchable. If this is the case, the fledgling service could get an early boost and have a large addressable reach as time goes on.  

Watchable will provide yet another boost to the growing list of features for the X1. Taken in isolation it is unlikely stimulate a significant new demand for the box, or a Comcast subscription. But the suite of services X1 affords does differentiate X1 compared to other flagship set-top boxes from its competitors. The move to include Watchable on X1 makes sense; it is a signal that short-form content has become a mainstay entertainment option in American households.

Organization
Comcast
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