With Peacock, Has NBCUniversal Found a Smart Streaming Strategy?

Comcast brass are wary of jeopardizing NBCU's $11.8 billion cable revenue even as the conglomerate lays groundwork for its streaming future: "We think we've identified a unique approach."

"We're all in," WarnerMedia CEO John Stankey declared in October as he unveiled a multibillion-dollar bet on streaming with HBO Max. His pronouncement followed similar remarks by Disney CEO Bob Iger that the entertainment giant is reorienting its business around direct-to-consumer offering Disney+. Yet outgoing NBCUniversal chairman Steve Burke made no such declaration when he took the stage at 30 Rock's Studio 8H on Jan. 16 to unveil new streamer Peacock, in which the conglomerate will invest $2 billion through 2021.

"We think we've identified a very unique approach," Burke instead told the assembled investors of Peacock, which unlike its streaming peers must thread the needle between NBCU owner Comcast's cable business while also stanching the loss of viewers to the company's portfolio of linear TV networks as audiences flee to on-demand, over-the-top platforms.

With Peacock, Comcast has found a compromise: a product that it hopes will appeal to streaming natives but not necessarily entice existing cable subscribers to cut the cord and jeopardize NBCUniversal's $11.8 billion cable business. However, by aiming to mollify its cable provider partners with the Peacock unveiling, the conglomerate risks eventual Wall Street ire over what could be more modest streaming subscriber gains than its rivals achieve.

A free, ad-supported version of Peacock will offer a taste of NBC programming — a curated mix of classic TV shows, movies, news, sports and Spanish-language series — without giving away all the goods. For that, a customer will either need a Comcast Xfinity or Cox subscription or be willing to shell out $5 per month for (still ad-supported) Peacock Premium, which will offer full access to library programming like The Office, originals like Tina Fey-produced Girls5Eva and Sam Esmail's Battlestar Galactica reboot, and live sports including Olympics coverage and more than 140 Premier League matches. (For an additional $5 per month, Peacock Premium will stream without ads.)

"As you can probably tell, we like the idea of zigging when others zag," Burke explained at the top of NBCU's two-hour Peacock presentation, which featured appearances by NBC talent including Fey, Jimmy Fallon and Seth Meyers.

Between its bundle agreements with Comcast and Cox (other cable providers, including Charter, are expected to sign similar deals in the coming months), NBCU immediately will have access to a pool of 24 million potential subscribers, a big leg up as it strives to reach 30 million to 35 million active accounts in the U.S. and break even by the end of 2024. (NBCUniversal's broadcast group, which includes NBC and Telemundo along with owned and operated TV stations, generated $11.4 billion in revenue in 2018.)

Wedbush analyst Daniel Ives predicts that those numbers are conservative "given the massive content library, sports properties and distribution footprint," and expects Peacock — which will launch widely in July — to hit 20 million subscribers in the next 12 to 18 months. Peacock, like Disney+ and HBO Max, will be chasing Netflix, which on Jan. 21 reported 167 million global members, up 20 percent from the same period last year.

In particular, Ives sees NBCU's focus on the $32 billion ad-supported video market, as estimated by Deloitte, as "a smart move" for Peacock, which will become the last of the major streamers to enter the market, following new entrants Apple TV+, Disney+, Quibi and HBO Max. It allows the company to keep costs down while still earning a healthy (though not quite TV-size) average revenue per user of $6 to $7.

Kevin Westcott, who leads Deloitte's U.S. telecom, media and entertainment practice, says there's an opportunity for a big ad-supported video player to enter the domestic market, especially if it focuses on providing a positive advertising experience. "What consumers tell us: In their view, six minutes is the ideal amount of ads," he explains. "What they complain about is repetition and [lack of] relevance."

Peacock has signed on Unilever, State Farm, Target and other brands as launch sponsors, with "hundreds of millions of dollars" committed to the platform long-term, NBCU advertising chairman Linda Yaccarino said during the presentation.

"Because we are bringing it to the marketplace and we can throw out that old legacy playbook, we have a brand-new platform that will be technologically sophisticated, but it is new," Yaccarino elaborated to Davos attendees Jan. 21, a few days after the Peacock presentation. "So we don't have to worry about tearing anything down of legacy linear television norms, which in the U.S. is an unbelievable amount of ads, from 10 to 15 minutes or so per hour."

To LightShed analyst Rich Greenfield, Peacock's model comes straight out of the Hulu playbook. NBCU was a founding investor in Hulu and remains a minority stakeholder, though rival Disney now operates the business. "NBC pioneered the Hulu business plan," notes Greenfield. "Peacock is picking parts of what other people have been doing and combining it into one."

But Hulu and NBCU's other preexisting streaming entanglements could also become hurdles on Peacock's journey to become a major player. The company has a significant on-demand and live licensing agreement with Hulu for shows including Brooklyn Nine-Nine and 30 Rock that runs through 2024. Peacock, which will share nonexclusive streaming rights to those shows with Hulu, can exit the deal early but would have to give up the licensing revenue.

YouTube and Facebook, meanwhile, carry clips of NBC late night shows and Saturday Night Live, deals that Burke zinged by noting, "While our content drives viewing on these platforms, we don't control the consumer experience. Shows are often cut up into short segments, and we don't control how the shows are sold to advertisers — and in many cases, don't even sell to advertisers ourselves." To combat viewing on other platforms, NBCU plans to release episodes of The Tonight Show and Late Night on Peacock three and a half hours before their broadcast airtime.

This type of cross-pollination between the linear and digital platforms is expected to continue. Lisa Katz, co-president of scripted programming at NBC, told THR in November, "maybe there is an opportunity for something that starts here to live there or premiere something there and bring it here." But co-president Tracey Pakosta signaled that broadcast will still be a priority for top IP: "We can get more eyeballs than any streamer can. That's a giant argument for why we should win. It could go to Peacock after that."

In many ways, Peacock may come to replace the NBC broadcast and cable viewing experience for many subscribers. Matt Strauss, the Comcast veteran who took over leadership of Peacock from Bonnie Hammer in October, told investors during a post-presentation Q&A that he sees Comcast's on-demand offering "condensing into just Peacock" and the service becoming "the default experience that we really want to drive for customers."

While Peacock may not hasten the decline of cable, it will serve as Comcast and NBCU's hedge against the legacy business' further decay. "You either disrupt yourself or you get disrupted," says Greenfield. "This is Comcast recognizing where the consumer is at in 2020 rather than fighting it." Or, as one TV executive predicts, "Peacock will be NBC in three to five years."

This story first appeared in the Jan. 22 issue of The Hollywood Reporter magazine. Click here to subscribe.