It's an oft-repeated narrative: After years of enduring cost increases above and beyond the broad-based inflation rate, many cash-strapped subscribers have finally decided subscription pay TV is no longer worth it and are parting ways with the service. As subscriber losses have picked up, the alliterative-named trend, cord-cutting, has now entered the investing lexicon.
For many following the greater industry, investments in both content and delivery providers have been hurt by a negative outlook in subscription TV. And after a particularly harsh second calendar quarter, which saw subscribers drop over 600,000, many -- myself included -- felt this may be the proverbial tipping-point as far as subscriber losses are concerned.
And while a host of analysts, compiled by Bloomberg, factored a more-narrow loss of 280,000 - 360,000 in the third quarter, this figure is still 70% higher than last year's 189,000 at the midpoint. More recently, however, it seems even this improved sequential cord-cutting figure may be overstated.
A host of earnings reports are good news for the cable industry
Over the last week or so, the narrative has quickly changed. As for the largest cable provider, Comcast, the company reported a rather narrow loss of only 48,000 -- the narrowest loss in six years according to Fierce Cable. And that doesn't appear to be an outlier: Second-largest cable provider, Time Warner Cable (NYSE: TWC) only lost 7,000 video subscribers.
It wasn't a great report for everybody, AT&T (NYSE:T) lost a massive 92,000 U-verse video subscribers, but its DirecTV subsidiary actually added 26,000 subs, which is probably more reflective of poor operational performance in AT&T's U-verse business than a broad indictment of the industry.
Further giving credence to the thought the industry isn't shrinking is Charter Communications' (NASDAQ:CHTR) addition of 12,000 video subscribers and Verizon's net video sub gain of 42,000. In an interesting change, Verizon added less video subs than last year as its newer FiOS service has continued to swim upstream against industry subscriber losses.
A different reason for mergers?
More recently, there's been a rash of consolidation within the industry: As previously mentioned, AT&T paid $49 billion for DirecTV in a cash and stock deal. Time Warner Cable is on its second suitor -- first with its failed merger with Comcast and the company is now in regulatory review with Charter as the acquirer, with Charter's CEO Tom Rutledge now expecting the approval to occur in the first quarter of 2016.
For many, these mergers have been interpreted as signs of a mature and declining market where new consumers are hard to come by. Buying competitors is a strong strategy to offset losses and improve pricing power. Although these providers are also Internet service providers, a rapidly growing business by comparison, these large cable companies (a term specifically excluding AT&T and Verizon) are still driven by their video performance.
In the event cord-cutting concerns are overblown, and the Internet business continues to expand at a brisk pace by adding 232,000 in broadband subscribers in the recently completed third quarter, it's possible Charter underpaid for Time Warner Cable. Of course, this is contingent upon Federal Communications Commission approval and that's never a given.
More broadly, though, it seems as if "the death of cable" isn't occurring just yet. Now whether this quarter is a one-off event or a new, positive trend for cable companies is another question entirely.