Vertical integration may be contrary to the intent of the antitrust law, but it's great business.
Comcast (CMCSA) is starting to demonstrate this in its financial results, doublng its quarterly profit on the back of stronger results at NBC. At the same time rival Time Warner Cable (TWC) (which is separate from the programming unit Time Warner (TWX) missed its estimates on subscriber losses. (The company spins this differently.)
Both stocks have been strong, increasing about two-thirds in value over the last year. TWC's yield is better at 2.28%, against 1.73% for CMCSA. Because it's a pipe TWC has less variation in its results, generally bringing one dollar in 10 to the bottom line while CMCSA a year ago was only bringing down one dollar in 12. But broadcasting and programming are now accelerating CMCSA's profits - this last quarter it brought one dollar in eight to the bottom line.
The balance sheet of a programmer is also stronger than that of a pipe. CMCSA has just one dollar in debt for each dollar in assets, while TWC's ratio is one in two. Both companies are solid generators of operating cash flow.
What investors should be asking is whether programming or delivery is going to generate stronger, more reliable profits going forward, and I think the answer there is clear - programming. When you own the show you're selling, you can sell it to yourself and put all that money into your pocket, while if you're buying what you sell from others, you have to pay out the market price.
This is why CMCSA needs to be looked at more in comparison with News Corp. (NWS ) and Disney (DIS) than with Time Warner Cable. Unless and until the government decides to break down these cozy relationships, as it did 60 years ago with the movie studios, the profits in vertical integration will continue to grow faster than those in re-sale. And even if the government acted, there would likely be huge profits to be made in the separation - that's what TWX found when it spun-out TWC in 2009.
Thus, CMCSA is, in my view, the better investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.