How Much Of An Effect Is Cord Cutting Having On Cable Companies?

With the recent introduction of Dish Network‘s Sling TV and HBO’s HBO NOW service, as well as the continued success of Netflix, the threat of cord cutting to U.S. pay-TV companies is as high as it has ever been. In fact, in Q1 2015 the U.S. pay-TV industry lost more subscribers than in any other quarter, according to analyst Craig Moffett. ^[1] So how much of a threat is this to U.S. cable companies? Not as much as you might think. Here’s why:

• While Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) are generally thought of as cable TV companies, they are really broadband providers: for example, we estimate that Broadband accounts for 47% of Time Warner Cable’s value, compared to 31% for Cable TV. So even if more subscribers start cutting the cord and watching content online, these companies still control the distribution platform, as most streaming content is still viewed over broadband rather than mobile networks. Eventually we may see broadband providers transition to tiered data plans, so subscribers who view a lot of streaming content will have to pay more for their Internet access.
• Dish Network and DirecTV (NASDAQ:DTV) are more vulnerable as they aren’t broadband providers, but DirecTV has the NFL Sunday Ticket and Dish has its massive wireless spectrum position and the potential of merging with a wireless company. We view Dish as the most vulnerable at the moment, as demonstrated by its recent subscriber losses.
• Some of the rampant M&A activity in the industry is likely motivated in part by the prospect of cord cutting. Since acquiring NBC Universal, Comcast owns a significant amount of content, so it will still be making money from streaming video. There are also talks of pay-TV companies merging with wireless providers, which would provide further insulation from the impact, as they would control an alternative distribution platform as well as a more diversified business.

Overall, while cord cutting is a very real threat – one that is already in effect – we believe that U.S. cable companies are not as vulnerable as one might think. What do you think? Let us know in the comments section, and see the links below for more information and analysis:

• Dish’s Sling TV Off The Blocks Quickly, But Still Has A Long Road Ahead
• Is A Comcast-Sprint Deal Next?
• Merger With T-Mobile The Right Step, But Dish Needs To Speed Things Along
• Trefis analysis: Time Warner Cable’s Pay TV Market Share
• Trefis analysis: Comcast’s Pay TV Market Share
• Trefis analysis: Dish Network’s Pay TV Market Share
• Why Cord-Cutting Won’t Kill Comcast (Daily Finance)
• Analyst: With pay-TV down 31K subs in Q1, ‘It’s not too early to get worried about cord-cutting’ (Fierce Cable)

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1. Analyst: With pay-TV down 31K subs in Q1, ‘It’s not too early to get worried about cord-cutting’, Fierce Cable, May 2015 [↩]