Building the Cable Company of the Future

Brian Roberts's small bets may not only save the cable business but set him up to be an Internet mogul too.

The choice was obvious. The economy's nadir in the summer of 2001, as dotcoms continued to implode, wasn't the time to go on some wild Internet ride. But when Brian Roberts, CEO of Comcast Corp., had AOL and Yahoo "knocking down our door" to build a portal for Comcast's high-speed Internet users, his answer was no. Even though Comcast had just 948,000 broadband customers, he had at least an inkling that his nascent high-speed Internet business could eventually be valuable, and he didn't want to give it away.

During a trip to Japan with Liberty Media chairman John Malone to check out upcoming TV technologies—especially high-definition television—Malone told Roberts he thought high-speed data promised more, sooner, than HDTV. Bill Gates, a Comcast investor, agreed. Roberts mulled it over with his president, Stephen Burke. "Neither of us liked" the AOL and Yahoo proposals, he says. If they were going to invest in the Net when everyone else was backing away, they wanted to use—and hopefully maintain—the kind of market power that would let them call the shots.

So Roberts and Burke quickly decided to hire 50 people and set out to create Comcast.net. They didn't really have a plan. "Comcast.net was born without a clear purpose," Roberts admits.

What once felt slightly uncomfortable has since become the cornerstone of Comcast's future. And maybe just in time. At the Cable Show 2007 in May, many speakers openly speculated that the cable industry could be toppled by new companies such as Joost, which promises free Internet TV with interactive features such as instant messaging while watching. "I love watching TV on my computer," Wall Street Journal columnist Kara Swisher said during one panel, wondering whether the Joost founders, who also created Kazaa and Skype, weren't onto something. Why would anyone pay for cable when TV is free on the Web? But as Comcast has ramped up its online initiatives within the last year—a process that will culminate with the launch of a video-search hub called Fancast by the end of the summer—the nation's largest cable company has devised a Web strategy that extends and insulates its cable business.

Comcast's online strategy speaks to folks who've never heard of Joost, which was still in invitation-only beta at press time. "Our target audience is all of the people who are not computer experts but who are on the Internet and who want to be able to download content," Roberts says. The base for that audience is the surprisingly large number of Comcast.net users. The site now ranks in the top 35 Web sites as measured by unique visitors, with 14 million. And the average visitor went there 17 times a month, propelling it into the top 10 in frequency. It's an automatic audience, and in some ways, an accidental one, built on Comcast's 12 million high-speed Internet users, 70% of whom use Comcast.net for email.

Fancast is an ambitious attempt to reach outside of the Comcast.net bubble for a mass audience. The site is intended to help people sort through the deluge of video available in various formats. "We're saying, 'Come to Fancast, and if you're looking for a specific show, say, information on The Office, we'll tell you where to find it on TV, video on demand, online, and/or where to buy it on DVD,'" says Amy Banse, president of Comcast Interactive Media, the division the company created in 2005 to develop its emerging Internet businesses. "Basically, our mission is to tell people where and how to watch what they want."

Fancast fits within Comcast's overall plan to be a kind of arms dealer in the video race. Its traditional cable channels, including E!, Style, and Sprout (a joint venture with PBS in children's shows), give it programming that it can pump out to services such as the forthcoming NBC—News Corp. YouTube competitor. Its services such as Fearnet, a horror channel, live both online and on video on demand. Comcast also recently acquired ThePlatform, a Seattle company that helps video providers build Internet and mobile platforms. Customers include Verizon's Vcast and Vongo, Starz's movie-download arm.

This spring, Comcast inked a deal to let Yahoo manage advertising on its sites. Its search contract for Comcast.net, currently with Google, will generate additional cash. The company projects these will earn it $1 billion in revenue over the next six years. Not a bad return, Roberts notes, on the company's total $120 million investment in its Internet strategy.

Comcast's online moves serve another goal, of course: keeping its cable customers. That part of the business generates $28 billion in annual revenues. Roberts and Banse see cable as something that's only enhanced, not replaced, by Internet video. "People are investing in their TVs," Banse says. "They're buying huge screens, high-def, and surround sound."

Comcast has significant cost advantages over competitors because it can optimize video over its cable infrastructure without having to pay extra, which it would have to do if it used the public Internet. That should let it deliver longer and higher-quality video at a lower price than, say, YouTube. "They are better positioned to dominate the digital connectivity to consumers than Google or Microsoft," contends Mark Cuban, chairman of the cable network HDNet, in an email. "But they won't get there unless they create programs that encourage entrepreneurs to develop for Comcast Web sites and networks."

The early signals seem promising. Fearnet, for example, is the product of a relationship with video startup Guba. Roberts, while attesting that Comcast will open itself up and won't be a closed network, believes his high-speed bet pays off whether people use his apps or someone else's. That's why music-sharing technologies benefited Comcast. "Anything that helps spur innovation, helps us," he says. "It's sort of heads we win, tails we win."

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