Are creatively-priced cable bundles artificially lowering video subscriber losses? It’s a legitimate question for cable sector investors trying to estimate how many cable TV subscribers plan to cut the cord. It may be more than the hard numbers suggest.
Anyone looking for a home Internet connection can often find a lower price for that by agreeing to take television services with it. In November, in a nifty bit of market research, The Wall Street Journal provided a sampling of the practice with rates at Comcast (CMSCA), Time Warner Cable (TWC) and Verizon Communication’s (VZ) FiOS.
That likely means some subscribers are getting cable TV even though they would not pay for it directly. In other words: without an artificial incentive to subscribe, the rate of video subscriber losses for the cable companies would be even faster than their most recent reports suggest.
The hard numbers already look alarming for the three largest cable companies. In the 12 months ending March 31, the number of Time Warner residential video subscribers fell by 557,000, or about 4.5%. Charter’s (CHTR) fell by 199,000, or 4.8%. Comcast, which reports video subscriber numbers that combine residential and generally stickier business contracts, lost 359,000 video subscribers in that period for a 1.6% decline. Any way you look at it, that’s some 1.12 million gone in 12 months from three companies alone.
The muddied churn numbers for cable TV subscribers come as Google’s (GOOG) Internet connection business is expanding, and by dint of speedy Internet connection and lower price could take a big bite out of cable company revenues.
Sorting out just how many cable television buyers will stick around as Netflix (NFLX), Hulu.com and Amazon.com (AMZN) Internet streaming services grow is a big deal right now. Having fewer video subscriptions is a huge drag on cable company earnings, and nailing down the rate and depth of the trend is key to correctly valuing the businesses. A lot of investors are keenly interested in those values now that merger rumors are in the air. The chart below of shows enterprise values, which takes into account various debts and assets but not the potential of business units in the future.
TWC Enterprise Value data by YCharts
Share prices have risen this year on speculation of potential mergers, as seen in a stock chart, including reports of a possible tie-up between Time Warner Cable and Charter Communications.
It’s hard to know if the cable companies are making or losing money by pushing Internet subscribers into cable TV packages. Perhaps they are simply boosting the price of stand-alone Internet services in order to get skeptics to try out cable TV. Lately, it’s been Internet services, not television, that have helped profits. Both Comcast and Charter, for example, have increased their number of Internet subscribers by more than 6.5% in the 12 months to March 31.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com. You can also request a demonstration of YCharts Platinum.
