Comcast and Spotify Face Very Different Subscription Tests

Comcast and Spotify report third-quarter results on October 22, but the two subscription businesses arrive with opposite operating problems. Comcast is trying to slow losses in a mature broadband franchise, while Spotify is trying to convert continued user growth into durable margins.

The comparison is useful only if the businesses remain distinct. Comcast owns networks, media assets, theme parks and Peacock. Spotify operates a global audio platform whose economics depend heavily on royalties, subscriber pricing and engagement. Their revenue bases, accounting and capital needs are not interchangeable.

Comcast must show that convergence is working

Comcast lost 167,000 domestic broadband customers in the second quarter, an improvement of 34,000 from a year earlier. It also added a record 448,000 domestic wireless lines. Management said its strategy bundles broadband with free or discounted wireless service, which initially lowers average broadband revenue per user but may improve retention and create paid wireless relationships later.

The third quarter is the first period in which management expected modest improvement as more free wireless lines convert to paying accounts. Investors should therefore compare broadband customer losses, wireless additions and residential connectivity margins together. Growth in one measure is less persuasive if it requires a disproportionate decline in another.

Peacock offers a separate source of upside. It reached 48 million paid subscribers and generated $189 million of adjusted EBITDA in the second quarter, its first quarterly profit. Sports programming and price increases can support revenue, but content costs can make profitability uneven.

Spotify's test is growth with discipline

Spotify ended June with 300 million Premium subscribers, up 9% from a year earlier, and 777 million monthly active users, up 12%. Revenue rose 14% to €4.78 billion, while gross margin reached 33.4%.

For the third quarter, Spotify guided to 305 million Premium subscribers, €5.0 billion in revenue and a 32.9% gross margin. Hitting the subscriber goal while holding margin near that level would show that pricing and engagement are offsetting royalty, content and product investment.

The two reports will not identify a single winner for consumers' monthly budgets. They will show whether Comcast can stabilize a high-cash-flow but pressured connectivity base and whether Spotify can keep expanding without giving back its recent margin gains. Those are different questions, and each company must answer its own.