Cable Television: A Slow But Inevitable Demise

Written By Jason Stutman

Posted August 6, 2015

Long-time subscribers of Tech Investing Daily already know we’re not particularly bullish on the cable television industry.

Companies like Netflix, Amazon, and Google (YouTube included) have all spent the last half-decade chipping away at the foundation of cable TV.

It’s been a long and arduous process, but when you take a look at the facts, it’s obvious the $100 billion oligopoly is finally starting to crumble.

The most recent research report to bring cable’s demise to light comes from investment research and management company Sanford C. Bernstein.

Most notably, the Sanford report shows that while cable TV viewership is down 9% since last year, ad time on some networks is up as much as 10%. 

Bernstein senior analyst Todd Juenger describes the situation perfectly:

The continued ad stuffing is an obvious and unsustainable (some would say “desperate”) action by the networks to prop up ad revenue in the face of declining audiences. Not only can this not be sustained going forward, it further contributes to the audience declines, making SVOD (streaming video on demand) that much more preferable for viewers made numb by the absurd amount of ads (as well as decreasing the efficacy of the advertising that is still seen).

All the while, nearly 8 million American households have already cancelled their cable TV subscriptions, including nearly half a million in the past quarter alone.

Further, 45% of Americans now stream television shows at least once a month, with eMarketer expecting that figure to hit 53% by 2018.

Perhaps the most concerning figures for the cable industry come from younger demographics: 83.1% of new households are now choosing to live without cable, and 24% of TV viewers ages 18 to 34 (a prime advertising demographic) don’t subscribe to any traditional television service at all.

Again, overall ratings across national cable television networks fell 9% in 2014. For perspective, that’s triple the decline seen in 2013 and more than quadruple the decline seen in 2012.

It’s not just the threat of fewer viewers, either. Decreased viewing time is a threat as well:

monthly cable viewing time

It’s no wonder Business Insider believes the cable industry is “starting to collapse.”

For customers, of course, this is all excellent news… The price of basic cable has increased 176% since 1995, and cable companies are among the most hated in the world. Comcast (NASDAQ: CMCSA) even beat out Monsanto, the government’s primary manufacturer of Agent Orange and DDT, in their respective primes.

Many customers have begun to realize they don’t actually use the majority of their cable television services and are now seeking out their shows “a la carte.” They’re starting to ask, “Why should I have to pay for over 300 channels when I only watch six?”

It’s a great question, and it’s tearing down the cable industry piece by piece.

Researchers believe that if cable subscribers were allowed to choose their stations one by one, or even in smaller groups, the telecom industry would lose $70 billion in revenue, or 50% of what they make every year.

The simple fact is that an a-la-carte model for television saves consumers money. No one wants to pay more than they have to, and the savings consumers are beginning to realize are hard to ignore.

a la carte cable

All Hail the King!

I’m sure you’ve all heard this a hundred times before, but ultimately when it comes to television, content truly is king. It doesn’t take a rocket scientist to realize customers are going to migrate to where their favorite shows and programs are…

Now, cable has previously managed to survive by holding onto HBO and sports networks exclusively, but its grip on these entities is obviously crumbling.

Earlier this year, viewers got their first taste of HBO Now, the over-the-top video streaming service that finally allows customers to access HBO on a standalone basis. The service costs just $15 a month, which ends up being a steal for many customers spending $80 or more just to get a few of their favorite shows.

The sad reality for cable providers is that they can’t seem to nab breakthrough series anymore. Think of the most hyped-up series recently: True Detective, Game of Thrones, House of Cards… all have been available off-cable.

With viewership on conventional cable waning and shows like Game of Thrones nabbing record audiences (up to 19.1 million weekly viewers), the threat to cable is immense.

Besides sports, HBO is the single most valuable entity on cable. In fact, The New York Post has recently suggested HBO alone is worth more than Fox’s $80 billion bid for all of Time Warner…

Further, networks like Showtime and ESPN are also already touting standalone streaming services. At the same time, Dish Network’s (NASDAQ: DISH) new Sling TV streaming service is offering customers the most-watched cable networks (AMC, TNT, TBS, CNN, ESPN, Cartoon Network, A&E, History, etc.) starting at just $20 a month.

As is usually the case with any form of disruption, know that the fall of cable is, in fact, a moneymaking opportunity for any public investor out there. This should be apparent with Netflix’s seemingly unstoppable stock market climb.

NFLX Daily 1yr

Other than betting on the success of streaming providers such as Netflix, there are two other ways investors can reliably profit off the fall of cable.

The first method is to short major providers like Comcast (NASDAQ: CMCSA) and Time Warner (NYSE: TWX). From the wide loss of content and viewership to emerging infrastructural competition (Google Fiber and SpaceX ‘s proposed network of microsatellites), the industry will no doubt be facing major headwinds in the coming months and years.

The final method is to buy shares of video data storage companies. These companies can provide very attractive dividend situations and even allow you to profit off the expanding storage needs of Netflix and companies alike.

In any case, if you have any stock in Comcast or Time Warner, my personal recommendation is to get out while you can. Both companies have performed quite well over the last five years, but that rally is nearing an end.

Until next time,

  JS Sig

Jason Stutman

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