Cable has been surprisingly resilient even though cord-cutting seems like it should hurt the industry. Image source: Getty Images.
Cable television's demise has been predicted for years, yet the industry remains nearly as strong as ever.
Cord-cutting -- people dropping cable for streaming content services -- seems like something that would hurt the industry, but the reality has been different. Even though it's possible to save money by dropping traditional pay-television in favor of Netflix, Hulu, or other products, the number of people doing so has been rather small.
In 2013, cable lost only 105,000 subscribers, according to numbers complied by Leichtman Research Group (LRG). That number inched up to 125,000 in 2014, and then to 385,000 in 2015, That's a big increase on a percentage basis, but it's still a tiny piece of what remains a 94 million-home universe.
Cord-cutting, of course, remains something for the industry to be worried about, but its major players and one rising upstart still offer the potential for solid returns. This may not be a growing industry, but it's one that hasn't declined in the way many would have expected.
It's a big two
For years, Comcast (CMCSA 1.14%) had the top of the cable industry to itself, but now Charter Communications (CHTR 2.32%) has crashed the party with its merger with Time Warner Cable and Bright House Networks. Essentially, those transactions elevated Charter from a midsized player to No. 2 in the industry, with about 17 million cable customers, compared with Comcast's 22 million, according to LRG.
Being big makes cable companies more efficient. In this case, both big players can spread out the cost of research and development over more paying users. For Comcast, doing so has meant offering technology that leads the industry with its voice-controlled remote and its app, which lets subscribers know when their service technician will arrive.
For Charter, it's still early in the game, and the company has to finish dealing with problems from its merger, but ultimately it should be able to match Comcast move for move. In both cases, these are companies that face limited competition or, in some cases, have regional monopolies. Being able to offer slightly better products than emerging rivals sets the foundation for a significant competitive advantage that Comcast has long been able to exploit and that the new Charter should be able to going forward.
The best of both worlds
While Comcast is the biggest pure cable provider, AT&T (T +0.57%) has the most pay-television subscribers. The company also has a two-pronged approach, offering traditional cable service through its U-verse product and an alternative provider with its relatively recent purchase of the DirecTV satellite service.
Before buying DirecTV, AT&T was a small-time player, serving just over 5 million homes through U-verse. Now with the satellite company, it adds another 20 million customers. More important to the company's potential growth is that it can offer DirecTV users internet and even wireless phone bundles. That's something neither Comcast nor Charter can do.
DirecTV also gives AT&T national reach, as satellite works nearly everywhere. In those markets -- where AT&T lacks infrastructure for internet service -- it can still bundle pay TV and wireless, which again gives it an edge over other traditional cable alternatives.
The risky upstart
While Comcast, Charter, and AT&T are already well established, Frontier Communications (FTR +0.00%) can be considered the unknown contender. The company is still small, with about 2 million cable customers after its recently completed $10.53 billion deal for former Verizon territories in California, Florida, and Texas, but it has been very aggressive in its growth.
Frontier is a tiny player in a game dominated by the big boys. But, as a stock, it potentially has the most upside. Comcast, Charter, and AT&T all have customer-satisfaction problems, as does the entire industry, which cracks open the door for an upstart like Frontier. The smaller upstart aims to operate as a secondary choice in markets that its rivals dominate.
To make that approach work, Frontier has to compete on price -- which it generally does well -- while also offering better service. But its efforts to compete on service have struggled, as it hasn't outperformed its rivals in that respect.
That said, as long as Frontier offers aggressive pricing, and if it can solve its customer-service woes -- a very big "if" -- it has a lot more room to grow its business and its share price than Comcast, Charter, or AT&T do.
