Comcast's On-Demand Video Service Worth More Than Blockbuster

by: Trefis

Comcast’s (NASDAQ:CMCSA) on-demand business competes with in-store video distributors like Blockbuster (NYSE:BBI) and online distributors like Netflix (NASDAQ:NFLX). Comcast’s on-demand business includes both video-on-demand (NASDAQ:VOD) for Comcast’s digital cable subscribers as well as pay-per-view (PPV) for analog subscribers.

VOD service has more advanced and interactive features compared to that of PPV service. With increasing demand from viewers to watch their favorite shows at their choice of time, Comcast is expanding its VOD business by introducing on-demand content over the Internet.

Comcast On-Demand 30x More Valuable Than Blockbuster

We estimate that Comcast’s on-demand business is worth $2.4 billion (excluding any debt) and constitutes about 3% of the $18.65 Trefis price estimate for Comcast’s stock. In comparison, Blockbuster has a market cap of about $75 million, making Comcast’s video distribution platform worth more than 30x that of Blockbuster’s brick and mortar video business.

Comcast On-Demand Views Rising

In 2009, Comcast delivered about 4.1 billion on-demand views, up from 3.3 billion in 2008. Approximately 6% of these on-demand views were paid, generating revenues of close to $1 billion. In comparison, rental revenues for Blockbuster declined from $4 billion in 2008 to about $3.9 billion in 2009. Blockbuster had negative profit margins in 2009 and we believe the company’s financial challenges will persist in the near future as a result of Blockbuster’s significant overhead expenses.

On-Demand Views to Reach 10 Billion

We expect Comcast’s on-demand views to increase to 10 billion by the end of Trefis forecast period, driven by shifting consumer preferences to online video viewing and Comcast’s ability to maintain market share amid competition from Time Warner Cable (TWC), DirecTV (DTV), Dish Network (NASDAQ:DISH), AT&T (NYSE:T) and Verizon (NYSE:VZ).

You can modify the forecast here to see how the number of on-demand views can impact Comcast’s stock price.

For additional analysis and forecasts, here is our complete model for Comcast’s stock.

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