Don't Believe The Hype About Cord Cutting

 |  Includes: CHTR, CMCSA, DISH
by: Michael Nielsen


The cord cutting revolution still hasn't hurt traditional cable companies.

Certain cable companies are well positioned to handle the cord cutting trend in the future.

Satellite companies, like Dish Network, are susceptible to the negative effects of cord cutting.

The theory that cable companies are dead in the water because "everybody" is cutting their cable subscriptions is totally inaccurate. Yes, the number of cable TV subscribers has plateaued in the U.S. for Comcast (CMCSA) and Time Warner Cable (TWC). But cable companies are by no means dead in the water. In fact, traditional cable companies actually may be benefiting from the trend. But for satellite TV providers such as Dish Network (DISH), it's a completely different story.

Subscriber numbers

*The graph above was created by Michael Nielsen with data from Comcast's 10-K and 10-Q reports.

As you can see from the chart above, Comcast hasn't exactly been hemorrhaging cable customers over the last 10 years. The customer base for its video cable service has actually increased slightly since 2004. You might also notice that Comcast's Internet service subscriber base has quadrupled over the last 10 years.

*The graph above was created by Michael Nielsen with data from Time Warner Cable's 10-K reports.

Time Warner Cable has been experiencing a similar trend. Its Internet subscriber base has increased by 46% since 2007, while its cable subscriber base has decreased by about 16%.

Yes, it appears people are cutting their cable cords, but definitely not at an alarming rate. Consumers are picking up Internet much faster than they are dropping cable. If anything, cord cutting is actually helping Comcast and Time Warner Cable.

What subscriber numbers mean for investors

On the surface, the fact that consumers are ditching their cable TV services for online content sounds like a bad thing for cable companies and their investors. But let's remember that virtually all cable companies (excluding satellite companies) provide traditional cable as well as Internet services.

As more services become available on the Internet, cable companies should see increased revenue from their Internet-providing operations. This increased revenue should outweigh cable revenue lost by cord-cutting. With that said, let's take a look at how Comcast's and Time Warner Cable's revenues have fared over the last few years:

*The graph above was created by Michael Nielsen with data from Comcast's 10-K and 10-Q reports.

As you can see from the chart above, Comcast's video segment has become a less significant source of revenue over the years. In 2006, Comcast generated 63% of its total revenue from its video cable segment. In 2013, its cable services generated only 49% of its total revenue.

*The graph above was created by Michael Nielsen with data from Comcast's 10-K and 10-Q reports.

You can see in the graph above that despite stagnant cable growth, the company's total revenue increased by 74% between 2006 and 2013 - that's about 8% per year.

As for Time Warner Cable, its total revenue has increased by a healthy 88%, or nearly 9.5% per year, since 2006.

Contrary to popular belief, it seems like the cord-cutting revolution hasn't harmed Comcast or Time Warner Cable at all.

Okay, well what companies will be hurt by cord cutting?

Traditional cable companies such as Comcast and Time Warner Cable seem protected from the negative effects of cord cutting. But satellite TV companies are in a different boat.

Companies such as Dish Network are extremely vulnerable to the negative effects of cord cutting. Dish Network doesn't have an Internet-providing segment to catch revenue from the people who have ditched cable. As more people switch to online sources from pay TV, Dish's total revenue will probably fall along with its number of satellite TV subscribers. Let's see if this trend has already begun:

*The graph above was created by Michael Nielsen with data from Dish Network's 10-K reports.

Dish Network's revenue is plateauing along with its subscriber base.

If Dish Network can't find a new source of revenue, its top and bottom lines may suffer as the cord-cutting revolution continues into the future.


So, it appears cord cutting isn't hurting traditional cable companies like Comcast and Time Warner Cable. In contrast, Dish Network definitely appears to be negatively affected by the trend. If the satellite company can't find a way to take advantage of the inevitable trend, the company, as well as its investors, will be negatively affected in the future.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.