Maybe Cable Isn't About to Die After All!

Cable operators like Comcast and Time Warner Cable are on the defensive, but don't count them out just yet.

Feb 1, 2014 at 10:15AM

On Thursday, No. 2 U.S. cable operator Time Warner Cable (NYSE:TWC) reported what even management called "dismal" subscriber losses for Q4 and all of 2013. At first glance, this would seem to support the theory that the combination of strong competition in TV from phone and satellite companies and the rise of Internet video services such as Netflix (NASDAQ:NFLX) is gradually strangling the cable industry.

Images

Time Warner Cable lost a lot of video customers in 2013.

However, the story isn't quite so simple. While Time Warner Cable lost a lot of subscribers last quarter, that weak performance can be largely traced to the after-effects of a big contract dispute with CBS (NYSE:CBS). Based on the early data available, Time Warner Cable seems to be bouncing back now.

Meanwhile, top cable operator Comcast (NASDAQ:CMCSA) actually reported very strong results earlier this week. Thus, while plenty of people are still complaining about the size of their cable bills, cable operators are finding ways to stabilize their video subscriber numbers. If recent trends are any indication, the cable industry may be surprisingly long-lived.

The Comcast turnaround
Comcast surprised many investors by reporting that it increased its video subscriber base in Q4. While the company added only 43,000 video subscribers, the Q4 gain followed 26 consecutive quarters of subscriber losses. Just a few months ago, Comcast's residential business seemed to be stuck in a downward spiral; now it looks like it may be stabilizing.

Images

Comcast gained video customers last quarter for the first time since early 2007!

There are many potential explanations for this improvement. For example, Comcast has worked to increase the percentage of customers subscribing to double-play and triple-play packages (combining video, high-speed Internet, and/or voice service). These subscribers have been less likely to cancel any of their services, historically.

Comcast is also investing heavily in the new X1 platform, which is an Internet-connected set-top box. X1 (and its successor, X2) makes Comcast much more competitive with Netflix from a user-interface standpoint. Comcast claims that X1 users are more likely to become "triple play" subscribers, and are less likely to cancel their Comcast service.

Signs of life at Time Warner Cable?
Time Warner Cable has had more trouble than Comcast in retaining subscribers in recent years. Its problems reached a peak over the summer, when a dispute over fees with CBS caused the latter to pull its broadcast channel and premium channels like Showtime off of Time Warner Cable for more than a month. This service interruption was a big reason why Time Warner Cable lost more than 300,000 video subscribers in Q3.

Time Warmer Cable lost another 217,000 residential video subscribers last quarter, which is not exactly encouraging. However, the bulk of those losses came in October, when the company was still suffering blowback from the CBS dispute.

In each of the next three months, Time Warner Cable has seen better retention numbers, culminating in its best January performance in the past five years.

Looking at the big picture, Time Warner Cable has posted strong earnings growth in recent years, and its stock has performed quite well despite its video customer losses. I'm still not convinced that the company will be able to return to growth in the TV business, as management would like to do. However, Comcast's solid performance last quarter and the improving trends at Time Warner Cable at least provide hope that stabilization is feasible by the end of this year.

Foolish bottom line
While Netflix's explosive growth has been a major story of the last year or so, for the most part it has not cannibalized pay-TV operators. As Netflix CEO Reed Hastings has often noted, the Netflix streaming service has grown to reach over 33 million subscribers, yet the total number of pay-TV subscribers has remained constant at around 100 million.

Images

Netflix's explosive growth has had a surprisingly small impact on pay-TV operators.

Still, with Netflix and other streaming video services such as Amazon.com's Prime improving their content quality (and quantity), investors have had good reason to wonder whether pay-TV operators' days were numbered.

Comcast's return to video subscriber growth -- albeit very modest growth -- should give investors more confidence in the viability of traditional pay-TV over the next decade or so. Even perennial laggard Time Warner Cable seems to be stabilizing its subscriber base. Cable companies may be on the defensive, but they're not dead yet!

The smartest way to profit from the evolution of TV
The battle between traditional pay-TV services and Internet video outfits like Netflix and Amazon has turned into a full-fledged war for your living room. However, three companies are poised to profit no matter who ends up winning this contest. Click here for their names! (Hint: They're not Netflix, Google, and Apple.)

Adam Levine-Weinberg owns shares of and has options on Apple, and is also short shares of Amazon.com and Netflix. The Motley Fool recommends and owns shares of Amazon.com, Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers