Investors need to be able to separate what they hear in the news media, from what is actually going on at the company itself. How many headlines have cried that customers are canceling their cable subscriptions in favor of services like Netflix, Inc. (NASDAQ:NFLX), Amazon.com, Inc. (NASDAQ:AMZN) Prime, Hulu, and more?
Here’s the problem with these dire predictions, cable companies are not only surviving, they are actually doing pretty well. A prime example of a company with a proverbial target on its back is Comcast Corporation (NASDAQ:CMCSA).
Cutting The Cord Isn’t As Easy As It Seems
Since a large portion of Comcast Corporation (NASDAQ:CMCSA)’s business is tied to cable services, it only makes sense to determine if this “cutting the cord” phenomenon is a real problem. When it comes to cutting out primary television channels, you could make the argument that a digital antenna would do the trick. This may give the customer access to Comcast Corporation (NASDAQ:CMCSA)’s NBC channel, CBS Corporation (NYSE:CBS), and The Walt Disney Company (NYSE: DIS)’s ABC lineup. However, if customers want sports coverage from ESPN they are out of luck. If they want premium channels like Time Warner Inc’s (NYSE:TWX) HBO, or CBS’ Showtime network they won’t have that option either.
I know that some would say they can get a lot of shows on services like Netflix, Inc. (NASDAQ:NFLX), Amazon Prime, and Hulu. However, each of these services all have one thing in common, you need a good high-speed Internet connection. For this connection, there are basically two choices, cable Internet or the telephone company’s DSL or FiOS offerings. Since cable and telephone companies know they are the two big fish in an otherwise empty pond, pricing isn’t significantly different at the same connection speeds.
Where does this leave the cable company? Honestly,it means that many people who try to cut the cord end up having high-speed Internet from the cable company anyway. Since most cable companies charge a higher price for high-speed Internet if you have no video service, in many cases this idea just doesn’t make sense.
A Unique Competitive Advantage
In the recently announced deal between Comcast Corporation (NASDAQ:CMCSA) and General Electric Company (NYSE: GE), Comcast will acquire the 49% of NBCUniversal it didn’t already own. Comcast Corporation (NASDAQ:CMCSA) said they mainly sped up the purchase of this asset due to bullishness around the prospects of NBCUniversal. The company backed this up by also raising their dividend 20%, and announcing a $2 billion share repurchase plan.Comcast will have a distinct advantage of owning the “pipes” and the content.
Comcast Corporation (NASDAQ:CMCSA)’s nearest competitor Time Warner can’t claim this since they split the Time Warner Cable Inc (NYSE: TWC) company into a separate entity. While CBS has excellent content, and Walt Disney has iconic brands, neither of these companies own their own distribution either.