Cable got back on track in 2015.
Both Time Warner Cable (UNKNOWN:TWC.DL) and Charter Communications (NASDAQ:CHTR) ended the year with net gains in total video subscribers. Time Warner Cable added 32,000 subscribers and Charter added 11,000 for the year. Meanwhile, cable giant Comcast (NASDAQ:CMCSA) posted its smallest loss in nearly a decade, losing just 36,000 subscribers.
While 2015 results were strong for cable companies, investors are always looking toward what the future holds. 2016 looks to be another tough year for the pay-TV industry. Can cable continue to take market share this year?
What the cable companies say
In order to determine whether cable companies can expect to continue their positive trend, it's important to understand what got them here.
Time Warner Cable points to its improvements in customer service as one of the biggest reasons it started gaining subscribers again. A better customer experience led to a lower cancellation rate in 2015. Customer churn declined 5% in the fourth quarter.
Charter, meanwhile, chalks up its better results to bringing more of its customer service in-house. Ninety percent of customer calls are handled in-house, and 95% of service truck rolls are direct employees of Charter, not contracted out. This approach reportedly results in a better customer experience and reduced churn. CEO Tom Rutledge said subscriber adds were due to both reduced churn and improved gross additions.
Comcast also saw reduced churn. It points to its differentiating factors, including its X1 set-top box and TV Everywhere service, and its ability to segment the market better (i.e., find higher-quality customers) as reasons it's seeing its best results in nine years.
What the cable companies didn't say
None of the big cable companies made mention of the fact that one of the biggest factors affecting their subscriber results is their competition. After all, they've been losing subscribers since 2007, well before cord-cutting became a thing.
Wouldn't you know it? AT&T (NYSE:T) and Verizon (NYSE:VZ) significantly slowed their footprint expansion for their fiber-delivered video service in 2015. Verizon sold off key assets marking a close to its FiOS TV expansion, and AT&T bought DirecTV, which means it can offer television service without having to build any more infrastructure.
So of course cable had a good year; the competition wasn't nearly as fierce as it's been in the last decade.
Can cable keep growing in 2016?
All three cable companies believe they offer a better product than the competition -- faster Internet speeds, more video options, and better user experiences. But cable operators also have to deal with cord-cutting, which is expected to accelerate this year -- with pay-TV households dropping an estimated 700,000 -- meaning cable will be battling for an even smaller pie with telecoms and satellite companies.
One factor that could help cable companies grow is their ability to offer skinny bundles. Satellite providers' installation costs are too high to offer such low-cost bundles. But Time Warner Cable and Comcast both say skinny packages aren't a huge part of their overall customer base.
Nonetheless, they continue to expand their offers for skinny bundles. Comcast, for example, last year started offering Stream, a streaming service that only includes local broadcast stations and HBO available exclusively to Comcast Internet subscribers. Stream costs the same as a subscription to HBO's over-the-top streaming service. Note that Stream subscribers are counted as video customers.
If cable plans to keep growing despite the competition from over-the-top services, it will need to offer aggressive deals that appeal to that customer base while maintaining its premium services to compete with full-service pay-TV competitors. That may mean a decrease in average revenue per subscriber and a potential decline in operating margins. Just because 2015 was a good year for cable companies, doesn't mean they're out of the woods just yet.