Against the backdrop of a "pay-TV is dying" narrative, one where cord-cutters and cord-nevers are destroying an entire industry, cable TV executives are shockingly sanguine about 2015. In a recent Hollywood Reporter article, cable executives from Time Warner Cable (UNKNOWN:TWC.DL) and Charter Communications (NASDAQ:CHTR) are both boasting of subscriber increases this year. For Time Warner, this will be the first year of subscriber growth since 2006 -- for Charter, that feat was last accomplished in 2001.
The positive disclosures from these two companies, which are now awaiting Federal Communications Commission approval to complete a merger, come on the heels of a relatively solid third quarter for the industry, one in which the top-13 largest pay-TV providers "only" lost 190,000 subscribers -- much lower than the 600,000 the industry lost in the second quarter -- and it seems the industry is doing better than initially thought... or is it?
As it is in most cases, the answer is more nuanced than it first appears.
The difference between cable and pay-TV is significant here
While the greater U.S. subscription pay-TV industry tends to be referred to as the cable industry, in actuality it consists of three major types of multichannel video programming distributors (MVPDs), which are generally described by their method of delivery.
eMarketer, for example, uses three broad classifications for the pay-TV industry: Cable, which includes Time Warner Cable and Charter, satellite, which includes Dish Network and AT&T-owned (NYSE:T) DirecTV, and telcos, which include Verizon Communication's FiOS and AT&T's Uverse.
Even with a slowly shrinking market, which is an apt definition of the roughly 100 million subscribers currently in the pay-TV market, it's possible for a particular subsegment to do well. In addition, it's certainly possible for a few shrewd operators within this subsegment to post strong performance by consolidating market share, regardless of industrywide headwinds.
And it seems that's what's currently going on with cable MVPDs. After years of struggling against competition from newer satellite and telco pay-TV deliverers, cable appears to be winning back subscribers amid shaky performance from both telco MVNOs Verizon FiOS and AT&T Uverse -- which have recently seen their subscriber figures start to struggle as compared to past results -- and satellite MVPDs, which are becoming more picky about subscriber growth given higher acquisition costs.
Perhaps this is a reprieve and not an inflection point for the industry
In the end, it appears this is more of a reprieve for cable MVPDs and not indicative of a greater trend. eMarketer expects the amount of U.S. households without traditional pay TV to jump from 16.4% this year to nearly 23% by 2019, led by cord-nevers -- mostly millennials who have always relied on streaming-based delivery for programming.
That outlook is outright rosy when compared to PricewaterhouseCooper's newest report that suggests 20% of all pay-TV customers could cut the cord next year in a worst-case scenario. And while I don't personally expect this situation to materialize, it stands to reason no operator will do well, as there's a point where industrywide headwinds are simply too hard to overcome.
More recently, however, the greater pay-TV industry, Time Warner Cable, and Charter have received better news than expected. For the industry, it's in the form of less bad news, and the fourth-quarter subscriber figures should be watched carefully. Investors in Time Warner Cable and Charter should be encouraged by the growth, and perhaps the post-merger entity could overperform on a subscriber basis versus other pay-TV operators.