PEST and Porter's Five Forces Analysis of Comcast

Introduction: The Case for Dual Strategic Frameworks

Globalization has created an interesting dynamic in regard to Comcast's external environment. What was once a handful of competitors has now grown to include both international and online competition. To better grasp the current competitive landscape with an eye toward future innovations, a PEST analysis and a Porter's Five Forces analysis are necessary. This is particularly true as the business dynamics in Comcast's external markets have fundamentally changed over the years. Competition now extends well beyond traditional cable providers. Innovation and strategic mergers have created new product offerings for consumers. Globalization has produced a rising middle class in many of Comcast's international markets. Finally, internet-based substitutes have placed pricing pressure on Comcast's core product offerings. All of these factors contribute to management's view of future business operations and how to effectively navigate the forces shaping the company's external environment.

PEST Analysis of Comcast's External Environment

A PEST analysis consists of the strategic review of a company's Political, Economic, Social, and Technological factors. Like Porter's Five Forces, it is used to identify threats and opportunities within the business environment. In Comcast's case, the goal is to understand the external environment and its implications for the company's future operations.

The economic factors bode well for Comcast. The U.S. economy has continued to grow at a 2%–2.5% rate, unemployment has steadily declined, and wages have remained relatively stagnant. Most importantly, housing has continued its consistent climb out of the 2008 financial crisis. With approximately one million household starts — well above the lows seen in 2009 — housing represents a key metric for Comcast and its product offerings. Homeowners are particularly inclined to purchase cable, high-speed internet, and phone packages, often in bundles. This bundling behavior is especially helpful given Comcast's high fixed-cost structure (Geraldine Fabrikant, 1999).

Politically and socially, Comcast occupies a unique external position. As the owner of NBCUniversal, Comcast has direct access to media production and distribution. It also owns the Golf Channel, E!, Telemundo, and Universal Pictures. While each of these franchises is valuable individually, together they create an interesting political dynamic. During recent U.S. election cycles, many media companies — including Comcast's properties — have been accused of producing biased content. These perceptions have been viewed negatively by citizens who believe media companies are indirectly influencing the political climate (Romm, 2014). This reputational risk does not bode well for the company's brand with the American public. From an economic standpoint, however, the company's reach provides significant profit incentives, as political campaigns tend to invest heavily in advertising on these platforms. Due to its extensive network portfolio, Comcast can command premium advertising rates.

From a technological standpoint, the external environment is changing dramatically. Large mergers are forcing Comcast to rethink its overall strategy. The company became the second-largest pay-TV subscriber base following the DirecTV and AT&T merger, which created a stronger and more formidable competitor. AT&T's ability to integrate its existing product offerings with DirecTV's platform enables bundled packages that may offer consumers a more compelling value proposition than those offered by Comcast.

The internet has also reshaped the technological external environment in significant ways. As noted, wages have remained stubbornly stagnant while inflation has been modest. The prices of products — including those offered by Comcast — have risen while consumer purchasing power has stayed relatively flat. This pricing pressure is placing particular strain on middle-class American consumers. Although unemployment has declined, the underemployment rate remains very high. Many college graduates work multiple part-time jobs simply to make ends meet. Massive student loan debt burdens further limit job prospects and disposable income. Housing costs for millennials are also rising sharply — at least 30% of a millennial's income is often consumed by rent.

The middle-class consumer is the primary demographic Comcast competes for. Because this consumer is frequently under financial strain, many have chosen to forgo cable and bundled products altogether, turning instead to cheaper alternatives such as Netflix, Hulu, and YouTube. When purchasing internet service, these consumers also tend to select lower-cost options rather than the higher-margin products offered by Comcast. As technology continues to evolve, this trend places ongoing pricing pressure on Comcast as younger consumers continue to trade down.

References

Geraldine Fabrikant (January 21, 1999). "The Media Business; SBC Communications to Buy Comcast Cellular Operations." New York Times.

Peter Key (July 5, 1999). "Comcast: Not Just Cable Anymore." Philadelphia Business Journal.

Romm, Tony (March 9, 2014). "Comcast Spreads Cash Wide on Capitol Hill." Politico.