I have a front row seat to the shift away from the traditional cable bundle, as many of my friends and family have cut the cord and rely on their local cable operator for high-speed broadband internet access only. While not technically a "millennial" those included in my under-40 demographic group often have enough to watch by simply paying for Netflix (NFLX) and HBO, coupled with their Amazon (AMZN) Prime membership which includes plenty of video-watching options.
Before we declare the basic cable channel lineup dead, it is important to understand that there are many households, of all ages, that still want to watch stuff on cable. For instance, I am not willing to stop watching favorites like Better Call Saul on AMC (AMCX) and my wife loves her cooking shows on Food Network, owned by Discovery (DISCK). While we are not willing to pay any price the likes of Comcast want to charge for these stations, the combination of a good price and impressive technology (X1 from Xfinity is very impressive, in my view).
Cable Lovers Save Minimally With OTT Services
So why do I find the cable bundle to still provide value to my family? Well, to start with if we went to a broadband-only cable bill, we would be paying a heck of a lot of money. Here in Seattle, our current 150 mbps internet service, unbundled, would run us $80 per month plus taxes and fees. Contrast that with our current cable bundle, which includes more than 100 channels, which costs us $149 per month including taxes and fees. The cable portion is only an incremental $60 per month, or so, for two outlets across our home.
That incremental $60 for cable may seem high, depending on what over-the-top options may interest certain consumers. Many services are increasing prices fairly early in their lifecycle, though. DirecTV Now, Hulu with Live TV, and YouTube TV are all $40 per month plus taxes/fees and include fewer channels. All in all, a $20 monthly savings is not overly convincing, considering it means potentially losing some channels you prefer to keep.
For those who prefer to go the HBO Go + Netflix route and lose basic cable channels, the price is still going to be around $30 per month. The savings are really not all that earth-shattering, which is why it is unlikely that cable penetration is going to dramatically fall.
The Price Gap Narrows Further With Mobile Phone Service Included
To be sure, there are millions of families who would love to save $20 or $30 per month on their TV and Internet packages. With the likes of Comcast (CMCSA) and Charter (CHTR) inking deals with Verizon (VZ) to lease their cellular network, they can offer wonderful deals for wireless customers.
My wife and I are light data users (1 GB per month each) and we were thrilled to add Xfinity Mobile to our packages for $12 per month per GB of data. Toss in another $25 per month for high-end phones and we are getting our mobile service for $80 per month including taxes and fees. This compares very favorably to previous relationships with Sprint ($105 per month excluding subsidized phone hardware costs) and Google Fi ($60 excluding phone hardware costs).
When bundling mobile phone service, we are paying $230 per month for over 100 channels of cable, 150 mbps internet service, and mobile phone service with phone costs included. No doubt that is a lot of money, but for a household that wants cable, it is very convenient to have all of these services on a single bill. Here is a look at how it compares with three comparable cord-cutting strategies who have cut the cord:
|Xfinity Internet a la Carte||$0||$88||$88||$88|
|Xfinity Mobile (including phones)||$80||$0||$0||$0|
|Google Fi Phone Service||$0||$60||$60||$60|
|Google Fi Phone Payments||$0||$50||$50||$50|
|Total payments per month||$229||$213||$221||$236|
Cable Providers Are Still Not Standing Still
As you can see from the figures above, my family is quite happy with our cable bundle. And there is more to come, it would seem. Comcast has announced that they are working to cut the cord themselves, eliminating the need for cable boxes and offering its X1 platform over-the-top wirelessly. Surely, the price will be the same whether you need a cable box or not, but how nice would it be to not have to run wires from the wall to your set-top box, to your TV?
There are also plans to integrate Amazon Video into the X1 platform by year-end 2018. This will allow those of us who have cable boxes and Amazon Fire TV boxes connected to our TVs to get rid of both (Netflix is already available as an app on the X1 platform).
If we can keep the same services we have now, but only have a TV and a single power cord required to view everything we want, for the same price, it would only reinforce the notion that we are getting plenty of value from our cable bundle.
End Result: Don't Write Off Leading Cable Operators Just Yet
There is little doubt that other leading cable operators like Charter and Altice (ATUS) will mimic Comcast's product innovation as it relates to wireless and over-the-top convenience. Doing so should ensure that tens of millions of households keep their bundles, in some form or fashion, for a long time to come. In that scenario, companies like Comcast and Charter stand to do just fine for their customers and shareholders alike.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.