Comcast reported its Q2 ’18 results this morning, with the good news being the addition of 260K broadband subscribers, the best Q2 the company has experienced in the past 10 years, along with the improvement of operating margins. The broadband surge was Exhibit A for management to point to on the earnings call as evidence its strategy of being a “connectivity” provider is paying off.

However, Q2 ’18 also saw the loss of 140K video subscribers, the most in a Q2 since 2014. Video sub losses have accelerated from -4K in Q2 ’16 and -34K in Q2 ’17. On the earnings call, management put the blame squarely on virtual MVPDs or “skinny bundles,” adding that they “expect pressure to continue in the video business” as virtual MVPDs ramp up.

While management clearly identified the cause of video subscriber losses, it didn’t articulate any strategy for how it intends to defend the video business. To the contrary, CEO Brian Roberts said, “we’re focused on segments we can serve profitably” and that “we’re not going to chase low-profitability video” (skinny bundles’ low to non-existent profitability has been a persistent issue since their initial launch).

Rather, Comcast sees its broadband business benefiting from increased skinny bundle usage, while its NBCUniversal business will benefit from increased distribution. Though those are likely true, the question still remains: why isn’t Comcast doing more to defend its video business from the rise of skinny bundles, which along with cord-cutting, is arguably the biggest threat the business has faced since the launch of satellite?

It’s not an academic question, as the video business still generates the most revenue of any specific segment Comcast operates in. Q2 ’18 video revenue was over $5.7 billion, far higher than the $3.9 billion the broadband segment generated and over double the $2.7 billion that the cable networks segment within NBCUniversal drove.

Video is still Comcast’s bread and butter, yet on the earnings call management relentlessly returned to its “connectivity” theme, highlighting growth and innovation in broadband/WiFi and business services. Multiple times management called out the company’s emphasis on broadband-only promotions as critical to its strategy (“Packaging is entirely broadband centric now”). And X1, the company’s industry-leading set-top box, whose growth was a mainstay highlight of recent earnings calls, merited only a cursory mention toward the end of the call as “highly penetrated” and in its “late stages” of growth.

Put it all together and it’s clear that video is fast becoming a secondary line of business for Comcast, with its 21 million video subscribers becoming highly vulnerable to cord-cutting and attractive new offers from skinny bundles. AT&T may be the biggest beneficiary of this dynamic as it reported Tuesday that it grew its DirecTV Now skinny bundle to 1.8 million subscribers at the end of Q2.

Comcast’s deemphasis of video seems both surprising and short-sighted. It’s also an early indicator of how significantly the pay-TV industry as a whole is likely to shift in the next few years. Big players like AT&T (with DirecTV Now), Google (with YouTube TV), Disney (through Hulu) and potentially Amazon (through a skinny bundle it will inevitably launch) are going to become important new pay-TV providers.

The key to understanding their motivation is that skinny bundles, while inherently profit-challenged on their own, serve important larger corporate purposes: AT&T (supporting wireless), Google (driving TV ad revenues), Disney (establishing more direct-to-consumer relationships and control over its destiny) and Amazon (complementing other video offerings and devices plus supporting Prime). It’s actually still very early days for marketing and promotion of skinny bundles, which are still mostly in early-adopter phase.

This onslaught of competition is coming Comcast’s way, and as things stand, the company doesn’t have a strategy to defend its video business. As viewers’ behaviors shift to SVOD and inexpensive connected TV devices proliferate, the value of bloated, high-cost multichannel bundles and expensive STB rentals will rapidly diminish. In this context, Comcast’s video subscribers will become ripe pickings for competitors (as I recently noted, after subscribing to YouTube TV for several months and then calling Comcast to drop my video service, the rep made no attempt to retain me with a lower-priced option).

Comcast is correct in saying that all of these skinny bundle subscribers will need robust broadband which is good for the company. But while Q2 broadband subs blipped up, the specter of 5G, which is telcos’ biggest priority, is concerning. When AT&T can promote to its DirecTV Now/wireless subscribers that an unlimited 5G plan can solve their video streaming needs, Comcast’s broadband growth will no doubt be impacted.

All of this is why I was a big proponent of Comcast acquiring a controlling interest in Hulu as part of the Fox drama. Hulu is a uniqe asset and would have given Comcast a nationally branded, scaled video service with a robust SVOD library and rapidly-growing skinny bundle. Hulu is a leader in CTV viewing and is poised to become one of the biggest beneficiaries of targeted CTV advertising. Hulu would have given Comcast an immediate option to recommend to any video subscriber calling in to cancel service and go broadband-only. Recently, Steve Burke, CEO of NBCUniversal, said of Hulu, that Comcast would be “very interested in investing and growing that business in the future.”

But it now appears Disney will control Hulu, on top of its forthcoming SVOD service, instantly making Disney one of the most important players in the streaming era. Add to that the outsized role Netflix is now playing, plus others like Amazon, Apple, Facebook, etc. and the whole video industry seems up for grabs.

Comcast has spent billions of dollars over the years improving its video service. With X1 it became a truly innovative industry leader. But now the company is pivoting to a “connectivity” focus and leaving its massive base of video subscribers vulnerable to competing offers. At a time when defending the core domestic video business should be job #1, Comcast is instead looking to expand internationally by spending over $34 billion to acquire Sky.

I’ve always had a tremendous amount of respect for the Comcast management team, but this new strategy is very puzzling to me.