‘Cord-Nevers’: Why Comcast Would Consider a Deal With Apple

April 4, 2014 Leave a comment

Mar 24, 2014

‘Cord-Nevers’: Why Comcast Would Consider a Deal With Apple

SHALINI RAMACHANDRAN

On Monday, the Journal reported that Apple is talking to ComcastCMCSA +0.60%about a new streaming-television service that would be powered through an AppleAAPL +1.19% set-top box and would get special treatment to bypass congestion on the Web.

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Ensuring the quality of service Apple wants over the “last mile” of the cable operator’s pipes connected to homes wouldn’t be easy. It would require Comcast to make significant investments in back-office technology and network equipment across its service area, the Journal’s article noted. There are also a number of other hangups in talks toward a deal, and the Journal story noted that the two companies aren’t yet close to an agreement.

Still, there are reasons why Comcast may be exploring the idea.

The pay-TV industry as a whole lost subscribers for the first time last year, according to Wall Street research firm MoffettNathanson LLC. Comcast has shed video customers for the past several years, though last quarter it added subscribers for the first time in a long time.

The company could see an Apple deal as an opportunity to reach “cord-nevers”—the younger generation of people who have never subscribed to pay TV—and “cord cutters” who have dropped their subscriptions altogether.

Another reason: Comcast could be interested in reducing its capital expenditures over time, if the new Apple device is sold at retail to customers.

Cable operators have long bemoaned the investments required to be in the set top box business—aside from the boxes themselves, cable firms have to maintain fleets of trucks for maintenance workers visiting homes to replace boxes as technology moves forward.

Though cable companies make significant revenue from charging their customers for equipment-rental fees, many cable executives have said they would like to get out of the box-rental business one day. Earlier this month, Comcast Cable President Neil Smit said at an investor conference that some of the capital intensity of distributing set-top boxes could decline over time as Comcast shifts to video delivered in Internet protocol format—which is compatible with a variety of devices consumers buy at retail, like MicrosoftMSFT +0.85%’s Xbox or Apple’s new TV device.

Still, Comcast has already invested in a cloud-based set top box guide and platform to make it easier to upgrade customers’ TV experiences quickly. That new box and interface, dubbed “X1,” is now available for customers across Comcast’s service area. It’s likely Comcast would only think an Apple deal makes sense if the customer experience it would provide far eclipses what Comcast thinks it can create and offer in the future.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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