It's been nearly two years since Comcast (NASDAQ:CMCSA) introduced Flex, a streaming video device it offers its home internet subscribers. The device is currently limited to the cable giant's broadband subscribers that don't have traditional video service with Comcast, but management said it now has over 1 million active users on the platform, and that number is growing quickly. It had deployed 1 million devices by May and that number climbed to 2 million by September.
The limited availability of the device makes those numbers pale in comparison to market leader Roku (NASDAQ:ROKU), which counts over 51 million active accounts. But Comcast sees a big opportunity to expand the platform.
The next phase for Flex
"This is a long-term platform opportunity for us," Comcast Cable CEO Dave Watson said on Comcast's fourth-quarter earnings call. "Right now it's working great within footprint, but we're building our plans beyond that."
Up to this point, Comcast has mostly thought of Flex as a way to attract and retain its broadband-only subscribers. And to that end it's been a great success for the business. High-speed internet net additions have increased in each of the last two years with Comcast adding another 1.97 million subscribers last year.
That said, it didn't quite keep pace with similarly sized Charter Communications (NASDAQ:CHTR) in 2020, but Comcast showed continued strength in the fourth quarter while Charter's net adds slowed.
Taking Flex beyond its broadband subscriber base means Comcast needs to turn it into a self-sustaining business, not one that merely increases the lifetime value of an internet subscriber.
Watson mentioned Comcast's acquisition of Xumo, an ad-supported streaming service, as a means to help accomplish that goal. Comcast also launched Peacock last year, another ad-supported streaming service. "That's one piece of being able to drive -- help drive advertising," he said. Watson also sees potential for Comcast to share ad inventory or revenue with other streaming services. "We could participate in revenue in the app splits that we get."
Roku has built a substantial advertising business on top of its platform. eMarketer expects its ad sales to grow from $740 million in 2020 to $1.5 billion in 2022. That's minuscule compared to the $100 billion-plus Comcast brings in each year. But considering the potential profit margin on those ad sales, it could provide a meaningful boost to Comcast's bottom line. Net income for the company totaled $14.4 billion in 2020.
Comcast has a couple of advantages
Comcast is in a good position to scale its Flex platform beyond its footprint. It has two big advantages that weren't available to Roku when it started building its business.
First of all, Comcast has existing relationships with media companies. As more cable network owners look to expand to streaming, there's an opportunity for Comcast to negotiate distribution rights for those services on the Flex platform alongside distribution of traditional cable networks. "Programmers are approaching us with their content and seeing what both the X1 platform and Peacock platform and Flex platform can do for them," Comcast CEO Brian Roberts said on the earnings call.
Being able to leverage its position as a large traditional distributor into a position of strength in streaming negotiations can help Comcast bolster revenue from the Flex platform. Roku's built up its negotiating power over years, and it's just now starting to win more favorable terms with its media partners.
The second advantage for Comcast is its dominant position as a pay-TV provider in Europe through Sky. Many European consumers don't use a designated connected-TV device to stream video, but stream content through their video provider's set-top box. Management talked about plans to integrate the same software that's in Flex into Sky's set-top boxes.
Getting customers familiar with the Flex platform through their set-top box sets Comcast up for long-term success. Even if customers cut the cord, the familiarity with the Flex platform should lead consumers to seek it out as a solution to replace pay-TV.
The international market has a lot more opportunity for growth than the United States. If Comcast can take advantage of its presence in Europe through Sky, it may be able to carve out a valuable segment of the market.