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Are Cable Companies in Trouble?
Posted by: Intelligent Speculator (IP Logged)
Date: February 6, 2013 08:30AM

Cable and telecom companies are a major part of many portfolios, especially income/dividend focused ones. Why? It’s certainly not because of their huge revenues or earnings growth. Rather, it’s because like many other types of businesses (utilities, REIT’s, MLP’s, etc), these companies provide consistent income every quarter with little to no volatility. It’s easy to depend on them and they generally do well no matter how the overall economy performs. As much as we pretend that having a television is a “luxury”, the fact is that even in tougher economic times, few customers end up getting rid of their cable/phone/internet connections.

Things Are Changing Though

Let me start off with a quick comparison. I know it’s not perfect.. but hear me out. A decade ago or so, there were 2 basic ways to get music. You could either listen to radio and hope to hear your favorite songs or you could go to a record store and buy that artist’s cd. How times have changed..! Music is now sold through satellite radio, all kinds of online services such as iTunes, Amazon, etc. There is also a growing feeling that artists no longer need labels. They can produce their own music, distribute it, organize shows, stay in contact with fans, etc. The labels still matter of course but they have nowhere close to the power they once had.

Cable Companies Are Scared To Death

Just a few years ago, almost every single one of us had a hefty cable bill to pay that included our phone lines, cable and internet connection. For many, that bill was nearly $200/month. Then, many such as myself started moving to mobile phones, and slowly cutting off our land line phones. The much bigger change though has started only recently. Cable had this amazing model where if you wanted to see a couple of shows per week, you needed to pay for the entire cable package and those 200 channels. Sure, some could be added at an extra fee but there was little choice available.

Fast Forward To 2012

These days, you can get most of the tv shows through online means such as the Apple store, Hulu, Amazon’s Prime streaming service or Netflix. There were 3 missing parts:

-Many shows were still missing
-The better produced shows from HBO and others remain off-limits
-Live events such as sports are not consistently available without cable

Now just look at the what happened in the past few months:

-Practically every show is now available with Disney even getting on-board through an exclusive deal with Netflix
-Netflix and Amazon have now started to produce high quality exclusive tv series
-Several professional leagues such as the NFL and MLB have started streaming and selling their own content

We’re not there yet.. but we’re close to the day where users could cut out cable and get as much content at a fraction of the cost. It has already started, especially among the younger viewers.

Could Even The Internet Service Be Under Attack

We don’t know much about how successful Google Fiber is but the fact that the company is offering a much superior service at a fraction of the cost is one more reason for cable companies to start worrying. What if Google or others started offering such a service?

Are The Cable Companies Toast?

When you think about it, one huge problem is that these companies have huge fixed costs so even a small user reduction would be very dangerous for them. I personally prefer getting out early than trying to get out late. Yes, they do offer very attractive dividend yields but that’s not enough for me.

Do you hold any cable stocks? What outlook do you see 5-10 years from now?

Stocks Discussed: CMCSA, VIAB, SJR, TWC,
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Re Are Cable Companies in Trouble
Posted by: batbeer2 (IP Logged)
Date: February 6, 2013 10:16AM

Cable companies own the largest chunk of bandwidth into your home, BY FAR.

Think about it, 50 TV channels equals how many MB/sec?

You may tune in to just one or two of those channels at a time so a lot of it gets wasted. But that doesn't change the fact that the coaxial cable is the information gateway into and out of your home.

Cable ONE is leveraging this in the areas it serves. If memory serves, half the homes they pass are now hooked up and use that coaxial cable for TV, Internet and phone. They are not going to be dislodged until someone starts digging up front lawns to lay down some fiber.

Netflix, Hulu. Youtube and iTunes etc. are a boon for the cable companies. The capacity of a typical coaxial cable is 1-5 Gbps. That's 10 times the capacity of a pair of copper wires. []

In short, the cable companies are the only ones that can transport multiple concurrent HD video streams into your home. DSL, UMTS and for that matter WIFI is not going to carry that much information.

Just random thoughts.

Stocks Discussed: CMCSA, VIAB, SJR, TWC,
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Re Are Cable Companies in Trouble
Posted by: ePortfel (IP Logged)
Date: February 7, 2013 04:17AM

I don't understand your point Intelligent Speculator.

Apart of course lost brokerage from content selling I see no danger for cables. By the way I am invested in ISP company that has very little (if any) income from TV content brokerage.

If Google sold one bicycle in Kansas City that would be cheaper then competitors' ones would you say that bicycle producers are in danger? Come on. ISPs have far more know how and infrastructure than Google. Deprecation of my ISP company is about 5 years or so. They have big cash to improve equipment quite fast.

So, maybe you can be afraid of companies with big content fees. But not the ones that live from network access fees.

Stocks Discussed: CMCSA, VIAB, SJR, TWC,
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