Cord-Cutting Is for Babies

Comcast (Nasdaq: CMCSA  ) , the biggest of the U.S. cable operators, continues to convince me that it will enjoy a bright future, despite the industry's slew of doomsayers.

Before we dig into the latest perceived threat, let's take a quick look at the results the company reported on Wednesday. Comcast's financial metrics included earnings of $1.02 billion, or $0.36 a share, versus $955 million, or $0.33 per share, in the year-ago quarter. The per-share number was $0.04 higher than the analysts' consensus forecast. Comcast booked $9.72 billion in revenue, up 7.2% from the year-ago quarter.

On the same day, Cablevision (NYSE: CVC  ) also reported earnings of $114 million, or $0.38 per share, up from $78 million, or $0.26 a share, in the last quarter of 2009. However, analysts had expected a per-share number closer to $0.42.

But the key to the quarter from the cable companies' perspective was what we can glean from their subscriber additions and subtractions. Focusing on Comcast, there's been a gnashing of teeth in some quarters regarding the steady departures of basic cable customers. Pessimists suspect that customers are "cutting the cord" -- dropping cable in favor of receiving their video online from the likes of Netflix (Nasdaq: NFLX  ) .

The numbers simply don't support that contention. Sure, Comcast lost about 135,000 basic cable subscribers during the quarter. But its number of digital video customers -- who pay more for that service, with its higher number of features -- increased, as it has each quarter of late. Also, data and voice subscribers increased, helping the company add about 700,000 to its total of what the industry calls revenue generating units. As a result, its revenue per subscriber grew by nearly 11%.

At the same time, the telephone companies like Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) , which also offer video, experienced customer gains for the quarter. And I'm willing to bet that the same will be true for satellite video providers DIRECTV (Nasdaq: DTV  ) and Dish Network (Nasdaq: DISH  ) , which will report next Wednesday and Thursday, respectively. These expected net additions make it hard to buy the notion that the pay-TV model is wavering.

Indeed, as an erstwhile cable analyst, I believe that basic cable attrition is economic, rather than technical. Given our current economy, some folks simply have to trim spending, and cable is a logical place to start. On that basis, I'm still hawking Comcast, with its superb management team and the heightened array of content opportunities resulting from its new combination with NBCUniversal.     

Netflix is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Fool contributor David Lee Smith doesn't own shares in any of the companies named in this article.  The Motley Fool has a disclosure policy.


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  • Report this Comment On February 17, 2011, at 11:08 PM, MonicaPell wrote:

    I would guess that the percentage of "cord cutters" is growing rapidly. As more people experience online tv services like Tvdevo.com , they'll find that it's easier to use and, in some ways, superior to traditional cable. Bottom line is that Cable tv companies are hurting because the internet is eating into their market. The same thing happened to the video rental business and many other industries. They can't stop the tide of change.

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