What happened

Charter Communications (CHTR -2.31%) has seen a steady decline in cable customers, and that continued in the third quarter, when it lost 54,000 pay-television subscribers. It's a drop in the bucket for a company with 16.6 million cable customers, but it's also part of a disturbing trend.

The cable industry saw a marked increase in cord-cutting in Q3, with just under 1 million customers leaving -- the most to abandon traditional pay television in a single quarter ever. And even though the largest declines came from satellite providers, Charter still saw its stock fall. After closing November at $329.20, shares fell to $284.97, a 13% drop, according to data provided by S&P Global Market Intelligence.

A person points a remote control at a television.

Charter has been losing cable customers. Image source: Getty Images.

So what

Unlike many of its major rivals, Charter makes most of its money selling cable and internet services. It's not a major owner of content, and it doesn't have a secondary business that insulates it from increased cord-cutting.

On the other hand, increases in broadband customers have kept Charter's revenue growing even as it loses cable customers. The company added 308,000 internet customers in Q3, which more than offset its losses in cable. 

The problem -- or at least the fear -- is that broadband is approaching saturation, while cable losses are going to increase. That's a combination Charter can do little to protect itself from, and it will likely be a drag on the business.

Now what

Charter has lagged behind some of its rivals in offering streaming services and other alternatives to traditional cable. And it's likely to suffer steady declines in pay-television customers as cord-cutting increases.

It may be years before Charter starts to see major declines that aren't offset by new broadband customers, but the cable giant needs to find a way to either diversify its business or entice customers not to cut the cord. Given the wealth of options cheaper than cable, the latter is going to be a very tall order.

Check out the latest Charter Communications earnings call transcript.