In the pay-television market, the big keep getting bigger. The two industry leaders in cable, Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR), dwarf every other provider except for AT&T's DIRECTV, which has a major disadvantage in that, as a satellite company, it cannot directly offer cable broadband service.
The cable business has, of course, been struggling. Cord-cutting, the practice of people dropping traditional pay television in favor of streaming options, has increased. In 2016 alone, the industry lost nearly 800,000 subscribers, but that only tells a piece of the story.
Why is Comcast a top cable stock?
In a market where every other pure cable player lost customers in 2016, Comcast managed to gain cable subscribers. The company added 161,000 pay-TV subscribers during the year, according to data compiled by Leichtman Research Group (LRG). That's especially impressive when you consider that the No. 1 provider of cable did that while only dabbling in offering skinny bundles or other cord-cutting options.
In addition to not losing cable subscribers, Comcast added 1.37 million broadband customers, according to LRG. That's an important number, too, because many of its 22.5 million cable customers and 24.7 million broadband users bundle both services.
When customers buy bundles, they get added savings. They also become more tied to the provider, making cord-cutting harder, and in many cases reducing its cost-saving benefit.
Why is Charter a good pick?
While Charter was not able to pull off the same magic trick as Comcast and add cable customers, it lost just 187,000 subscribers in 2016. However, it more than offset the loss by adding an industry-leading 1.6 million broadband subscribers.
That's a pretty strong gain in customer relationships, and ultimately Charter may be able to convince its growing broadband base to buy some sort of pay-television product. The company has been working toward doing that by introducing new pricing offers for its Spectrum cable brand across all its territories. CEO Tom Rutledge spoke about those efforts in the company's second-quarter earnings release.
"That product is working in the marketplace, and we continue to see higher year-over-year customer connect volumes across our new footprint," he said. "As we move forward with our integration, more of our customers are getting better products at better prices, which will drive higher customer satisfaction, lower churn and greater value into our business."
A solid path forward
Cord-cutting is not going away, but Comcast and Charter have weathered the storm well. It seems likely that eventually Comcast will start losing cable subscribers, but much like Charter has done, it should be able to offset that with gains in broadband.
Both of these companies have done a good job tweaking their offers to make it reasonable for people who need broadband service to also hold on to or even add cable. Both pay-TV providers also offer some content -- regional sports networks mostly -- that would not be available to cord-cutters.
The two companies will have to be clever, as competing with low-cost cord-cutting remains a challenge. Still, cord-cutters need broadband, and Charter and Comcast remain the top choices for internet providers in their markets.
As long as these two companies have a relationship with consumers as internet service providers, a door remains open to sell additional services, such as skinny bundles, streaming services, or pretty much anything else that can be sold on a subscription basis. Cable may wither, but until a company figures out how to deliver internet without building a massive infrastructure, Comcast and Charter have a solid, well-entrenched business that should only get stronger.