Microeconomics: Comcast Corporation Research Proposals Examples
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Section I. Introduction
As Technology and Media continue to lead the way in growth, change and communications, Comcast is at the forefront of it all. Being one of the biggest American-based mass media corporations Comcast’s broadcast cable estimates indicate that it is an important economic linchpin in the United States. The company has commercial and residential clients in forty U.S. states, and their headquarters in Philadelphia, Pennsylvania. Comcast is ranked the third largest corporation in the American telephone service industry. (Wikipedia, The Free Encyclopedia, n.d.). Comcast's vast growth in the market positions it to continue to be a leader in the mass media, broadcast cable, and telecommunication industry.
The purpose of this research paper is to analyze the market and business data for Comcast Corporation by using microeconomic principles in order to predict the sustainability of the firm and provide recommendations to ensure continued success. This paper is organized as follows: Section II is going to explore the supply and demand conditions for the firm’s product. Section III examines the price elasticity of demand for the firms’ products. Section IV we will examine the costs of the product and in Section V. the overall market for the firm will be examined before we move on to the final section, VI, which will conclude with the recommendation.
Firm History Summary
Comcast was established in 1963 by Ralph J. Roberts, Daniel Aaron, Julian Brodsky, and Brian L. Robert. The founders started their venture when they bought American Cable Systems for $500,000 (Associate Press, 2011). Then by 1972 Comcast had its first public stock offering and through acquisitions of rival competitors it was able to continue to grow in the cable industry before venturing into the mass media and entertainment industry. When 1986 came around Comcast reached over 1 million clients and was well on its way to being one of the biggest cable operator in the United States (Company-Histories, n.d.). Comcast continued in this path and by 1995, it has increased their customer base by approximately 1.3M in its acquisition of Maclean Hunter’s and E.W. Scripps Cable systems. In 1997, the company received a boost of $1 billion investment from Microsoft, which also enabled them to buy Jones Intercable, Inc. and gaining an additional 1 million customers to their existing base. Comcast did sell Comcast Cellular service in 1999 but then acquired Lenfest Communication the following year. The 2002 $47.5 billion merger with AT&T Broadband was a significant milestone for Comcast as it pushed them to the top of the cable TV industry in the United States. The business kept pushing forward in the field of telecommunications, television and technology by offering HD television and video in 2002 and an introduction of digital phone service by 2004. In January 2011 NBCUniversal is formed out of the joint acquisition of NBC Universal by Comcast Corporation and GE (Comcast Corporation, n.d.). Today, Comcast continues to make movements towards growing their business and dominate in their sector as they’ve announced their intent to acquire one of their largest competitors, Time Warner Cable (Kang, 2014).
Comcast functions globally and has mainly ventured in media and technology. The company offers both business and residential services which are segmented into various areas of the enterprise. Two primary business part of Comcast Corporation is Comcast Cable and NBCUniversal, which is further segments into Cable Communication, Cable Networks, Broadcast Television, Filmed Entertainment, and Theme Parks. It is also important to note that Comcast Corporation provides video, high-speed Internet and is a phone provider to residential customers under their XFINITY brand. The last two areas of the company are Comcast-Spectator, the leader in sports management and entertainment in over 48 states and Comcast Ventures working to invest and partner with entrepreneurs. (Comcast Corporation, n.d.). Comcast, known through NBCUniversal segment, is also an international media company since 2011. (Wikipedia, The Free Encyclopedia, n.d.). NBCUniversal is a part of Comcast that deals specifically with news, sports, entertainment, cable networks, Telemundo broadcast networks, NBC, television production operations and station groups, universal pictures, resorts, and Universal parks (Comcast Corporation, n.d.).
Section II. Supply and Demand
The demand for Commcasts goods and services are influenced by the consumer while the supply is influenced by the firms that sell a good or service. The laws of demand indicates that as prices increase the demand will fall and vice versa; while the law of supply indicates that an increase in price causes an increase in quantity and a decrease in price causes a decrease in quantity. Firms can analyze the trends of consumers and sellers in the market place by graphing the data points that can then be used to make accurate business decisions (Hubbard & O’Brian, 2014). Supply and Demand is a critical element that will help lead to the firm’s recommendation as we analyze the trends in demand over time. Evaluating trends in demand and explaining their impact on the industry and Comcast is complex because of the firms’ diversity. Hubbard & O’Brian (2014), indicate that there are variables that can shift market supply and demand outlined as:
Keeping this in mind is crucial as we dive into determining the elasticity of demand. This paper and recommendation will be focusing mainly on the Comcast Corporation Comcast Cable segment with a close focus on Residential Voice, Internet, and Voice in the cable industry. We may extend discussion regarding Comcast Cable Business and Advertisement as well as the NBCUniversal segments as a possible commodity, complementary products and services where applicable.
Based on information obtained from IBISWorld Industry Report 51711a, Cable providers in the US, households are major clients of the cable market with residential consumers making up for about 82.8% of the overall product and service segment which reflects an average growth of 0.4% from 2009 – 2014 in this industry. There are also three top competitors in the industry with Comcast leading at 51.9% of Market Shares. The annual growth of the Cable Market is estimated at 1.3% over the next five years (2014-2019). Also, despite decline in in cable TV subscription rates of about 0.9% per year over the next five years this will be offset by increases in broadband internet connections and the introduction of cable Wi-Fi revenue which is expected to increase.
The impact on the market in this area has also had direct impact for Comcast Cable. The effect is seen on the Customer Matrix detail report from Comcast Corporation 2014 Annual Sales Figure for Comcast Cable products as Report on Form 10-K:
Figure 1: Source: Comcast Corporation 2014 Annual Report on Form 10-K
Notably, a survey conducted by Experian Marketing Services in 2014 and reported by Mintel Academic (2015) indicated that the available income of a consumer impacts their willingness and ability to buy products. As in income rises demand increases and as income decrease so does the demand for the good and service and that is why the cable industry is a normal good.
Source: Hubbard & O’Brien, 2014, Figure 3.2, pg.72
Comcast Cable demand decreased in video subscription due to competition and rate adjustments that caused a decrease in residential video customers in 2014 and 2015 (see Figure 1). Despite the reported decrease revenue continued to increase both years because of customers who received additional service and higher levels of video services grew. Despite this further decline is expected in the residential video consumer area (Comcast Corporation 2014 Annual Report Form 10-K).
Figure 2: Source: Comcast Corporation 2014 Annual Report on Form 10-K
The Income Statement, Figure 2, also shows a consolidated total of the firm annual revenue from sales of their product and services excluding operating costs and expenses. Based on research findings Comcast Corporation Cable segment has had steady and continued revenue growth in all areas of the cable segment from 2012 – 2014. If Comcast were to increase the supply for video segment of their business, it would help increase the revenue as well based on the law of supply which is graphed below. However, they’d want to take into considerations the variables that shift market supply like the price of input, technology changes, expected future prices and so on.
Source: Hubbard & O’Brien, 2014, Figure 3.5, pg.79
Section III. Price Elasticity of Demand for Comcast Products and Services
The price elasticity of demand is defined as the responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in quantity demanded of a product by the percentage change in the product’s price According to Hubbard & O’Brian (2014), pricing is a procedure of determining what a company can attain in exchange for its services and products. Furthermore, demand is considered elastic when the percentage change in quantity demanded is greater than the percentage change in price and inelastic when the percentage change in quantity demands is less than the percentage change in price. The changes in elastic would need to be greater than 1 in absolute value with inelastic would need to be less than 1 in absolute value. We have to also keep in mind that there are various determinants that may also play a part in price elastic including: Availability of Close Substitutes, Passage of Time, Luxuries versus Necessities, Definition of the Market, and Share of a Good in a Consumer’s Budget. (Hubbard & O’Brien, 2014).
Now if we apply the concepts of elastic of demand and take into consideration, the determinants previously mentioned we should be able to determine the elasticity of pricing for Comcast Cable. Today Comcast Corporation cable segment offers internet, television, and voice services. The price for these services is price elastic, and the following are a couple of the factors affecting consumers’ responsiveness to price changes of a particular commodity for Comcast in the cable industry:
Luxury vs. Necessity: The services provided by Comcast in the Cable segment can be considered luxury items so if prices go up consumers may opt to terminate use of some or all of their services
Availability of Close Substitution: While demographical the choices can be limited for certain types of service provided by Comcast there is close substitution. If prices for service increase the consumer may choose to use another provider, like Verizon, AT&T, or COX for example. The consumers are also moving more and more away from using voice phone services at home and substituting this for computer or smart phone applications that use internet service instead, for instance.
The price elastic of demand will impact the firm’s pricing decisions and revenue growth. This is because there is a relationship between rising prices and falling demands. If Comcast can analyze the market data before raising or lowering prices, it can better predict the potential impact of the price change on its sales revenues. As previously indicated, Comcast experienced a decrease in consumer when it adjusted its prices and due to competition in the market which is a perfect example of why understanding price of elasticity of demand is important.
Section IV: Cost of Production
According to Wiki, Comcast had a total operating expense in 2014 of $32.89 billion, which is significantly higher than the base operating cost for most of the telecommunication-giant’s peers, however this number includes a variety of basic, and well managed expenses like the corporation’s supply chain, facilities, transportation, and packaging, however it also includes costs which could be considered major financial considerations for the company.
Perhaps the most notable cost related weakness for the company, is the expenses it incurs related to programming (Marketline 2014). The cost of programming is every on the rise, especially when expenses, like sports programming are considered. The cost of digital video presentation has steadily increased for the last several fiscal years, rising $7,851 in the 2009, to $9,107 in 2013 (Marketline 2014). This, in part, has to do with the cost of supporting unique programing. For example, the Company just paid out $7.75 billion dollars for the rights to air the Olympics through 2023 (Sandomir 2014).
Another major cost related weakness for the company is its legal struggles. The company was facing more than 22 purported class action suits in 2014, and after losing several major proceedings, were expected to have a major cash outflow related to the settlements from those cases, that dated back as far as 2003 (Marketline 2014).
Other major costs of production represent opportunities for the Comcast Company. Most recently the company has made, or moved to make multiple major acquisitions that expand the company’s customer base, and which improve their position and competitiveness in the market. Most recently, the company acquired NBCUniversal, which has significantly strengthened their sports programming, among other benefits (Liberman 2013). Currently, the Comcast Company is working to acquire Time Warner cable, for a total of $35.2 billion, and which would allow the cable company to expand to serve one in three US households (Marketline 2014).
This level of expansion, however, requires the cooperation of the overseeing agencies like the FCC, whose good opinion can, with enough time and effort be bought. As a result, Comcast has one of the largest lobbying budgets in America. The company paid out a total of $16,790,000 for lobbying in 2014, and this is expected to continue to rise throughout 2015 and beyond (Bloomberg 2014).
Section V: Market Overview
It is, to some degree, a challenge to determine the number of market shares that Comcast currently holds and how that directly relates to the health of the market, and Comcast’s performance within that market. Currently, according to the NCTA, Comcast is ranked 8th out of 12 among major Technology and Media competitors, producing $129 billion in revenue annually (2015).
Figure 1: Market Shares in the Technology and Media
However, many of the service providers in technology and media, like Facebook, are not true competitors of the Comcast Company. This is because Comcast has diversified to become involved with so many facilities of the media industry. As a result, Comcast’s true position in the market can only be demonstrated by looking at how the company performs, when compared with its peers, in a single area, like Video Subscription. Currently, Comcast is the second largest video subscriber program in the United States, only being outranged by Netflix. Comcast currently services 22.6 million video service subscribers, and holds a significant percentage of the market shares (NCTA 2015).
Comcast earns the greatest percentage of its revenue from the cable TV subscriber niche, in which it currently holds 22% of the market shares. If the company successfully buys Time Warner, this would increase to more than 33%, or roughly 1/3 of the cable TV niche (Ward 2014).
Source: Ward, Cable TV.com
The sheer volume of market shares current held by Comcast and other major competitors like Direct TV are just one of the hurdles that would make it difficult for new companies to enter the cable TV niche. Other major difficulties include: current legislative hurdles, including the Cable Communications Act of 2984, Consolidation of major players, like Comcast and Time Warner, Regulatory issues, the high cost of production and for entry into the marketplace, the current role of lobbyists and lobbying dollars and the consistent decline in people signing up for cable services each year (Cox 2014). As a result, it is extremely unlikely that new competitors could launch a business and gain a foothold in Comcast’s market niche.
First, it is in the best interest of the Comcast Corporation to complete the purchase of Time Warner Cable as soon as possible. This will both lower the cost of providing cable to customers, and increase the profit margins for the company by increasing their market shares, increasing their consumer base, increasing their regional coverage, and offering them rights to a greater variety of programming. This merger is expected to create $1.5 billion in operating efficiencies, and increase the free cash flow per share (Maketline 2014). Not unsimilarly, it is key that the company work to minimize its legal liabilities. Comcast reports demonstrate that this has become a major area of profit loss for the company (Market 2014).
In terms the changing dynamics of the market, it is important that the company shift away from its dependency on the cable industry. While, to this point, Comcast has been able to grow its cable division, while other companies failed, by increasing programing and other offerings, it is clear that people are trending away from cable services, and towards other Pay-TV subscriptions. Comcast is well situated in that market, with a current ranking of 8th, in the video subscription market, but they need to find ways to capitalize on the fact that it currently reaches approximately 27% of all television households, and convert that reach into increased video subscriptions.
Only this kind of decision making, which bases marketing on the demand trends improve Comcast’s standings over time. This means increasing internet, video subscription, and streaming services, while decreasing the impact of subscriber loss in cable tv, pay-tv, and telecomm services providers.
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Sandomir, R., (2014, May 7). NBC Extends Olympic Deal Into Unknown. NYTimes. Retrieved March 13, 2015 from http://www.nytimes.com/2014/05/08/sports/olympics/nbc-extends-olympic-tv-deal-through-2032.html
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Ward, C., (2014, February 17). Exclusive Data Shows 70% of Americans in Comcast Area After Deal. Cable TV.com Retrieved from http://cabletv.com/blog/comcast-time-warner-buyout-data/
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