While the overall pay-television industry has to worry about cord-cutting, the two top cable companies have figured out how to ride out that storm.
It's not that Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR) are immune to the growing trend. It's that both companies have been able to minimize losses in cable while growing in broadband.
Going forward, these companies still have to worry about customers opting to drop their pay-TV packages, but they have various ways to deal with that. Both have enough subscribers to demand flexibility from content partners and that, along with the ability to grow in broadband, should make Comcast and Charter stocks that you can hold without having to worry.
What do the numbers say?
The overall pay-TV universe has been getting smaller. The entire industry, which includes cable and satellite providers, dropped 795,000 subscribers in 2016, more than twice what it lost the previous year, according to data from Leichtman Research Group (LRG).
In 2016, Comcast actually gained 161,000 cable subscribers while also adding 1.3 million broadband customers. Charter did lose 187,000 pay-TV subscribers but more than made up for it by adding 1.6 million internet customers.
Those trends have continued in 2017. Through two quarters, Comcast has gained 8,000 video customers while adding 605,000 internet subscribers. Charter lost 165,000 cable customers but added 725,000 broadband subscribers.
It's also worth noting that "in the first quarter of 2017, the number of broadband subscribers surpassed the number of pay-TV subscribers in the U.S.," according to LRG President Bruce Leichtman.
What happens next?
Cord-cutting will continue to increase, but it's important to understand that people who drop traditional cable aren't swearing off television. In most cases, cord-cutters replace their pay-TV package with various paid streaming services as well as some free options.
Accessing streaming services requires a good broadband connection. Comcast and Charter have clearly benefited from that. In addition, both companies should be well positioned to meet changing consumer demands by offering more a la carte or "skinny" cable options.
Comcast has 25 million broadband customers but only 22.5 million cable subscribers. Charter has just over 17 million on the cable side and 23.3 million internet customers. That's a very large audience to market to that should allow both companies to be able to make good deals with content providers.
Neither cable provider has done much with skinny bundles beyond limited tests. In the future, both are likely to offer digital streaming bundles as well as more choices for cord-cutters.
Nothing to worry about
Even as cable customers leave, more broadband users will show up to take their place. As long as Comcast and Charter maintain their overall customer bases, they remain able to sell other services. That could mean alternative pay television products or unrelated properties like home security or smart home services. Smaller cable companies may get crushed by the industry's changes, especially ones that can't afford to keep their broadband network up to par, but Comcast and Charter will be fine.
Obviously, Comcast is much more than just a service provider and its assets in cable, film, and broadcast may help it keep cable customers over time. That could mean special content packages or something unique like a discount on Universal Studios admission for customers who buy bundled services. So far, however, that has not been necessary and any offer like that would be a growth play, not an attempt to stabilize a declining company.
Charter is primarily a cable and internet company and it has shown that it's well poised to see exactly where the cable industry goes. There will be continued cord-cutting, and that will require both of these companies to continue to adapt. Comcast and Charter have shown they can do that, and their businesses may look different in a few years, but they will almost certainly still be strong.