Big cable has been losing subscribers, but it's more than made up for those drops by adding broadband customers. In fact, while cable has been losing customers for four years, the gains these companies have made in broadband subscribers has outpaced any losses.
For cable companies, the real risk is whether an alternative to traditional internet arises. That could happen with 5G, but it's not going to happen anytime soon. That gives cable companies years to figure out how to modify their businesses.
A full transcript follows the video.
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This video was recorded on Dec. 4, 2018.
Vincent Shen: The next group that I want to talk about, though, is the big cable providers. These companies are starting from much larger subscriber bases. You mentioned the 86 million cable subscribers. The penetration rate in general in the U.S. is still pretty big for this segment. They're seeing slower rates of cord cutting, but they're also leaning on growth in broadband or internet service as a crutch to keep up with that. Do the numbers in 2018 so far, in your opinion, paint this doom-and-gloom picture in terms of death of cable?
Dan Kline: They don't. This isn't music, where records are going to go away, and people stop buying music in a meaningful sense and switch to streaming. There is still a huge base for cable. We may not have hit bottom. Bottom might be another 10 million losses. But there is still a place. If you're a family -- I have a 14-year-old, and I'm married, and we all like different things. To be able to have cable with 200 channels, there's a value to that. I don't think that value is going to go away.
Comcast has about 22 million cable customers. Charter has 16 million. Comcast lost 106,000 this quarter. Charter lost 54,000. Both of those gained more than that when it comes to broadband. While the broadband numbers have slowed down as we're nearing penetration, in general, the gains for broadband have been dramatically bigger than the losses for cable. Until we see a true alternative to using your cable company for broadband, or in some markets, there's one or two choices, maybe 5G changes that and some of the younger people decide, "I'm just going to watch on my phone or my tablet." But these companies are not seeing their revenue slow down. They're just seeing their basket shift up a little bit.
Shen: Absolutely. I've heard this analogy from a few Fools in the past, and I think it's pretty fitting. You take the comparison of these traditional cable companies like Charter and Comcast, and you compare them to big tobacco. With big tobacco, U.S. smoking rates have been falling for decades from their highs in the 1960s, over 40% to just 14% last year. But it took 60 years for that to happen. In the meantime, tobacco companies consistently raised their prices to make up for the reduced volume.
Cable penetration, on the flip side of that, it's still really high. It's still like 78%. It's down maybe 8% from their highs about a decade ago. But even if cord cutting accelerates -- and we're not seeing it accelerate to the extent that a lot of headlines will make it appear -- traditional pay TV companies still have a lot of time to come up with different solutions, to develop these other businesses like broadband to make up for that. That's something that tobacco companies, frankly, haven't had yet until now with some of their other opportunities.