Comcast's Peacock Launches, Banking on Consumer's Appetite for Cheap TV

Comcast's Peacock debuts nationally on Wednesday into a crowded marketplace for streaming video services.

Comcast's new streaming service, Peacock, launches nationally today in an environment that no company could have anticipated. 

Peacock joins a crowded field of streaming services, and will compete for viewing time with the likes of heavyweights Netflix  (NFLX) - Get Report, Disney's  (DIS) - Get Report Disney+, Amazon  (AMZN) - Get Report Prime Video. But with so many people spending time at home and millions of Americans out of work, the COVID-19 pandemic has also potentially expanded the opportunity for entertainment providers -- particularly those that offer it at low or no cost. 

Peacock launches nationally with three payment tiers, following a limited rollout to existing Comcast customers. Peacock's free, ad-supported tier features about 13,000 hours of programming, including daily news and sports content, and limited access to Peacock originals that are otherwise available on the paid tiers. The paid tiers are two versions of Peacock Premium, one of which costs $5/month with some ads and the other that costs $10/month with no ads. 

"Having an ad-supported component of your service allows you to offer a wider range of price points, particularly at the low end," said Andrew McCollum, CEO of Philo TV. Like other streaming providers, Philo TV, which offers a live and on-demand streaming bundle for $20/month, saw a period of rapid growth this spring as stay-home orders took effect. 

In response to the COVID-19 pandemic, Peacock had to tinker with its original July launch plan, which had the Summer Olympics as its centerpiece. The company retooled its programming with an emphasis on nostalgic, familiar content as well as news programming, and told reporters in April that it would "test and learn" from the response to the early launch for existing Comcast customers. 

At a shareholder conference in June, Comcast CFO Michael Cavanagh said that the early performance of Peacock had outperformed the company's internal expectations "by a bit," and that he expects a significant ramp-up in the service tied to the Super Bowl and the rescheduled Summer Olympics next year. 

"We think that's the right setup to generate the type of creativity, such that when we come out of that period of the early days, the first sort of phase of Peacock, we'll have all proven to ourselves, and each other and to the market broadly, what we think will be...very high CPM [cost per thousand impressions] values of advertising on this particular AVOD [ad-supported video on demand] service," said Cavanagh. 

Peacock is anchored by programming from Comcast's NBCUniversal and other media properties, and will include perennially popular shows such as The Office and Parks and Recreation, exclusive Premier League soccer games, current and archived Saturday Night Live content, news channels and a 24-hour channel dedicated to Today, among other programming. 

Services that mimic a live viewing experience where users don't have to make as many choices could help differentiate offerings like Peacock. 

"One thing that live TV provides is that there’s a constraint stream of stuff all the time, and there’s some value to that," added McCollum. "It lowers this paradox of choice."

At launch, Peacock will not yet be available on either Roku  (ROKU) - Get Report or Amazon connected TV platforms, which together which together make up about 33% of the market, according to Parks Associates. Negotiations are reportedly still underway with those two platforms; in the meantime, Peacock will be available on other platforms such as Apple TV, Google's Chromecast and Microsoft's Xbox One. 

Comcast has told investors that it will invest $2 billion in Peacock over the next two years, and expects that the service will begin generating a profit in 2024. It's targeting between 30 million and 35 million active accounts by that time, and has not updated any of those projections in response to the pandemic. By comparison, fellow ad-supported streaming service Hulu, which is owned by Disney, currently has about 32 million paid subscribers while ad-free Netflix has 183 million subscribers worldwide. 

Comcast shares are down about 10% year to date amid accelerating cord-cutting for pay TV services, and were down 0.8% to $40.86 in pre-market trading on Wednesday. Comcast lost 409,000 cable subscribers in the first quarter of 2020.  

"We think Comcast could face a unique balancing as it looks to break through an increasingly crowded streaming landscape against persisting subscriber attrition for its legacy cable business," wrote CFRA analyst Tuna N. Amobi on Tuesday. "This could prove very crucial as Peacock looks to line up other key distribution partners such as Roku and Amazon."

Disney and Amazon are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.