The Blog

What’s the driving motivation for the Comcast merger?

There are lots of answers to this question, all of which have some truthiness to them:

• beating back the power of ESPN
• avoiding commoditization of the cable distribution infrastructure
• diversifying the company’s economic exposure by playing on the programming side
• gaining additional leverage in programming negotiations more generally
• gaining additional power to avoid bundled-services competition in the metropolitan areas that Comcast uniquely serves

One of the most compelling answers has to do with enhancing Comcast’s position in gaining a larger share of the overall television advertising dollar.  It’s a $75 billion marketplace, that ad spend, and Comcast wants more of that money.

According to an article in yesterday’s Advertising Age, Comcast’s 2009 net media revenue was $32.1 billion, making the company the nation’s largest media concern.

Read this sentence a couple of times:  “Comcast’s 2009 net media revenue is greater than the combined revenue of the [Advertising Age] 1981 report’s top 100 media companies.”  In 1981 the three broadcasting networks led the list, and half the companies listed made most of their money from newspapers.  Things have changed.  After accounting for inflation, the 2009 Comcast number is less alarming – $12.3 billion in 1980 dollars, compared to about $30 billion in 1980 dollars for the top 100 companies at that time.

Combining with NBCU will give Comcast greater power in the advertising market, and cable analysts are predicting that Comcast’s revenue sources will both grow and shift as a result – with substantially more revenue coming from advertising. That advertising will be “multiplatform” and will apparently rely on the accurate measuring of broadband data as well as traditional cable-watching habits to convince advertisers that they’re reaching the right people.  “Hypertargeting,” it’s called.

Yesterday, CableFAX Daily ran an article about the state of “interactive TV” advertising.  This is where the plans of Comcast and the rest of the cable distributors – and the programmers – get more interesting.  The article, “iTV and Advanced Advertising Update,” isn’t available online, so I can’t link to it.

As we’ve known for a while, all the big pay-TV distribution companies, led by Comcast, have been trying to figure out how to collaborate with each other and with the big programmers to reliably target ads at individual subscriber households by pulling together demographic data on all their subscribers and categorizing it.  Now this is happening – the distributors are in a position that allows them to leverage the cable broadband infrastructure and online content to sell ads.

Things are still in a primitive stage.  The first product, called RFI, isn’t terribly interactive.  It allows users to press the arrow buttons on their remote controls and thereby trigger a product sample being sent to them in the mail.  Later products will allow for polling on either side of a commercial break.  The hope is that the common specifications developed for many set-top boxes, called EBIF, will result in a huge ecosystem of applications that will work across operators (so, for both Comcast and Time Warner Cable subscribers) and will rival the Apple app store.  Comcast’s Brian Roberts hopes that consumers will be as loyal to cable as an industry as they are now to Apple.  Users, eventually, will be targeted by household.

All of this takes a lot of cooperation.  “Programmers and MSOs [pay-TV distributors] need to collaborate closely to operationalize iTV and to make it a great user experience that opens new revenue channels.  Both programmers and MSOs will need to work with advertisers to establish a value for apps so we can then agree on revenue share,” says James Mumma, executive director of iTV Product Development at Comcast.

Having a large foot in the programming world will help Comcast nudge this multiplatform advertising model along.