Comcast can't fight disruption by growing bigger

A company that pursues growth through buyout while ignoring the market realities that are undermining its position will just make a louder noise when it finally falls

Comcast caused all kinds of consumer panic when it announced its intention to buy Time Warner Cable recently. Sure, the buyout, if approved, would greatly reduce competition, and that matters. But the real story is that Comcast is trying to fight change by getting bigger -- and that rarely works.

The problem for Comcast is that it wants very badly to be a content player. That's why it bought NBCUniversal. But at its heart Comcast is a pure infrastructure player facing a number of disruptive forces from streaming media services and even Aero. Its future is very likely as an Internet service, not a content provider.

As Alfred Poor points on Anewdomain.net, researchers found that 70% of U.S. households now have broadband, and 63% of homes with broadband had a TV connected to the Internet. Those TVs are able to bypass cable TV and access streaming content instead. That fact might bode well for Comcast's role as an Internet provider, but not so much for its cable delivery aspirations.

Comcast executives very likely see the same trends and have so far made some clumsy attempts at reacting to them. They have offered Streampix, a mediocre streaming service that doesn't really compete well with Netflix and others. Comcast is one of the owners of Hulu, but those owners as a group seem confused by the property. It looks like a love/hate relationship, with the owners never quite sure whether to invest more in Hulu or sell it.

And Hulu itself is less attractive than services like Netflix, YouTube and Amazon Instant Video because it includes commercials, even on the pay version, Hulu Plus.

Time Warner Cable was ready to meet the disruption head on with a deal to run Netflix on its set-top boxes, but that deal was reportedly scuttled when the Comcast deal was announced.

Meanwhile, the inevitable tide of change is sweeping over Comcast. It must contend with growing numbers of cord-cutters, people leaving cable-TV providers behind and using a streaming box like Apple TV, Google Chromecast or Roku (or even an Internet-connected game console) and running the streaming services on their big-screen TVs for a lot less money than cable.

Sure, those cord-cutters still might use cable for broadband, but what is the incentive to pay big bucks for Comcast content when you can get Netflix for as low as $7.99 a month? Or, if you're an Amazon Prime member, you can get access to Amazon Instant Video for $79 a year. That's less than the cost of a single monthly cable bill for most people.

The only thing that keeps the tide of change from becoming a tsunami is that a lot of people enjoy the quality and variety of content they can get from cable providers. I think that's going to change before too long, though. Cable TV, already well established when all the streaming and other alternatives started to spring up, retains its hold on premium content because the entertainment industry continues to follow a strategy of licensing its content narrowly. It has yet to understand that there's money to be made by distributing content as widely as possible. Eventually, content providers will figure that out. (Note to potential cord-cutters: You can watch a lot of A-list entertainment by renting titles from iTunes or Amazon, with little danger of spending more than you already spend on cable.)

This is the environment that Comcast surveyed before deciding to try to grow its way out of the problem by buying Time Warner Cable. Is there any real chance that will work? It's doubtful. As Larry Downes wrote in the Harvard Business Review, this is basically a fool's errand on Comcast's part, because getting bigger is not a sign of strength:

"Mergers and acquisitions among traditional infrastructure providers is not a sign of their growing power, in other words, but of increased pressure on their traditional business models, another sure sign of Big Bang disruption in process," Downes wrote.

Exactly. And even as Comcast grows ever larger, it is doing little to slow down the disruptive trends -- or accommodate them. It refuses to put Netflix on its set-top boxes, but can it really believe that decision will do anything to slow the rising tide? Every day brings more consumers who buy a new TV or disc player that comes with Netflix access built in; access to streaming content is going to keep expanding, despite Comcast's decision not to help it along.

Downes, in HBR, pointed out that Comcast is following a path similar to the one that has now led Blockbuster to the end of the line. Blockbuster was the king of the content hill until Netflix undermined its business model. Blockbuster tried a bunch of things, usually too late, and in the end it couldn't get out of the way of the basic nature of who it was.

Comcast differs from Blockbuster, though, because it could at least have a future as a pure infrastructure play. If its executives are already thinking that's the way to go, then the Time Warner deal might make some sense, since the bigger company will be able to provide broadband Internet service to a larger market. But if Comcast is still hoping to expand its reach as a content provider, it is going to be disappointed with the results.

Ron Miller is a freelance technology journalist and blogger. He is an editor at FierceContentManagement and a contributing editor at EContent Magazine.

Read more about internet in Computerworld's Internet Topic Center.

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