Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

More Bad News for Cable TV: Is the Industry Finished?

By Jamal Carnette, CFA - Dec 14, 2014 at 5:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cable-TV industry appears to be struggling. Can the industry survive continued disruption without significant changes.

As the largest cable TV provider, Comcast has the most to lose from demographic and disruptive trends. Source: Comcast

The week has been a poor one for the status quo in the cable TV industry. Among the spate of negative news was PricewaterhouseCoopers' report/survey (via The Wall Street Journal), titled "Feeling the Effects of the Videoquake," pointed out cable subscriptions among Americans aged 18 to 24 dropped to 71% in 2014, down 6 percentage points from last year; Americans aged 25 to 34 with cable dropped a matching 6 percentage points to come in at 67% with a cable subscription.

In addition, a Business Insider article that builds upon a survey from mobile advertising company Marchex found that 26% of all customers who call U.S. cable TV companies request "Internet-only" service. Both surveys point toward a common reason for those who are abandoning pay TV: streaming, over-the-top video services like Netflix and Hulu Plus. For perspective, another earlier study from Nielsen found 18 to 34-year olds with streaming-video watch 20% less TV after they sign up for streaming-video services.

The harshest indictment came courtesy of PricewaterhouseCooper's report, when current subscribers were asked to agree with the statement: I see myself subscribing to cable in five years, only 61% of those answered in the affirmative. If true, this points toward strong headwinds for pay-TV providers Comcast ( CMCSA 0.54% ) and Time Warner Cable (NYSE: TWC) that stand to lose nearly 40% of their customers.

Ad dollars are "following eyeballs" to digital, but still skew toward pay TV
Earlier this year, market research firm eMarketer reported that digital has already overtaken television when it comes to media. Led by huge increases in mobile media consumption, digital consumption -- online and mobile -- now commands nearly half of overall media consumption; television takes roughly 37% of media consumption.

However, when it comes to ad spend, television takes over 38% of total ad spend while digital only commands 28%. Oddly enough, print media's numbers of time and ad spend are 3.5% and 17.6%, respectively.

But it appears media firms are starting to get the memo. As ad dollars follow eyeballs, look for spending to shift to digital media. Another study from media firm Magna Global finds that U.S ad revenues will increase 2.7% to nearly $170 billion in 2015, but television expenditures will drop 1.5% and digital media ad spend will increase 15.5%.

Earlier I've argued this shift has the potential to raise cable bills as content providers like Disney and Time Warner's Turner Broadcasting will ask for higher affiliate fees from pay-TV providers to make up for shrinking television ad dollars.

Content providers are quickly becoming competitors, but both benefit from the status quo
Even the symbiotic relationship between content providers and pay-TV companies has gotten especially contentious. While arguments about content costs have always existed, whether or not a channel decides to launch an over-the-top video service is starting to be an important factor in negotiations. Recently, Dish Network ( DISH 0.13% ) and CBS ( VIAC 5.11% ) inked a multiyear deal after a short break in service and veiled threats from both companies.

Two of the issues dealt with mobile and over-the-top programming; Dish received the right to deliver CBS's Showtime to mobile devices but not to CBS's programming for OTT services. That's important because both companies have an over-the-top service: CBS recently launched its CBS's All Access to target those without pay TV. Dish Network is looking to launch a slimmed-down, Internet-only service for those "cord-cutters" named Nutv.

Unfortunately for both sides, they'd prefer not to have this discussion in the first place. Pay TV benefits from the status quo. As is, large, expensive pay-TV packages benefit content providers and cable companies. As more viewers defect to over-the-top services, look for the acrimony between programmers and cable providers to continue. In the end, this trend has the potential to unravel cable TV as we know it.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Comcast Corporation Stock Quote
Comcast Corporation
$51.78 (0.54%) $0.28
DISH Network Corporation Stock Quote
DISH Network Corporation
$31.23 (0.13%) $0.04
ViacomCBS Inc. Stock Quote
ViacomCBS Inc.
$31.07 (5.11%) $1.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.