Cable TV Is Still the Best Deal for Your Home and Your Portfolio
Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Many feared that cable TV and cable stocks were in trouble as satellite providers and telecom providers encroached on their territory. The cable industry faced these challenges by offering bundled services – cable TV, broadband internet, and telephone service all in one bill. Cable TV providers also have done a great job of securing their home markets and have not engaged in competitive price wars. The result has been a few dominant providers that customers rely on for their cable, internet, and telephone service in key markets.
Not just a play on cable
Comcast (NASDAQ: CMCSA) is the top pay TV operator in the world with over 22 million subscribers. The company is also the top broadband provider in North America with 19.4 million subscribers. Comcast also has a strong presence in the telephone segment with over 10 million subscribers.
One strong area for growth for Comcast is in business services. Whereas some residential homeowners are opting to cut the cord and go wireless, businesses do not have that luxury. They still require reliable broadband and telephone services. Comcast Business Services has attracted businesses that require large amounts of bandwidth. Comcast's fiber-optic network is one of the most advanced in the nation.
Comcast has done a great job in diversifying its assets to include content as well. Comcast is now the full owner of NBC and Universal Pictures. The company also owns the Universal Theme Parks. In the digital realm, Comcast owns 32% of Hulu, which is currently for sale. No matter what happens with the Hulu sale, Comcast is a winner. It received its share in Hulu when it completed the acquisition of NBC Universal.
Comcast will see a boost in revenue and profit from Universal Pictures' new movie “Fast & Furious 6.” The movie had the second-biggest opening weekend of the year. The company will use some of those profits to fund its $2 billion share buyback for this year.
Cable TV in the key markets
Time Warner Cable (NYSE: TWC) is a pure-play on cable TV. Its assets are in the prime U.S. markets of New York, southern California, Texas, Florida as well as other key demographic areas. At the end of last year, Time Warner Cable had approximately 15.2 million cable subscribers. The company, like Comcast, also offers broadband and telephone service to go with its cable services.
Time Warner Cable was late in its transition to a digital platform from analog, but the company is rapidly catching up. The cable operator has been promoting its video on-demand service and just signed a deal with Starz to expand the Starz library on Time Warner Cable.
Where Time Warner Cable has been the most aggressive is in securing rights to sports teams. In the key Los Angeles market, Time Warner Sportsnet broadcasts the Lakers' games. Sportsnet also just signed a blockbuster deal to broadcast the Los Angeles Dodgers' games. Time Warner Cable knows that by providing sporting events, it secures its subscriber base.
John Malone's return to cable
No one person has had more of an impact on the cable TV industry than John Malone. In the 1990s, he was branded “Darth Vader” by Al Gore. He built America's largest cable company, TCI, and sold it to AT&T. Malone's Liberty Media now owns 27.3% of Charter Communications (NASDAQ: CHTR). Liberty's stock purchase agreement gives it the right to raise its stake to 40%.
Charter Communications is a compelling play on what will John Malone do next. He was a cable titan for most of his career and will he seek to do that again with Charter is what investors are wondering. Liberty Media CEO Greg Maffei says that the cable industry could be in for another round of consolidation. Whether Charter becomes a consolidator or a consolidatee remains to be seen.
Besides Malone, there are several other very big names in the stock. Leon Black's Apollo Management owns 17.7 million shares worth over $1.8 billion. This is followed by Mike Novogratz at Fortress Investment Group with a $520 million position. John Scully's SPO Advisory owns 4.9 million shares, and Billionaire Steve Mandel's Lone Pine Capital owns over 4.5 million shares.
The smallest of the bunch
Cablevision Systems (NYSE: CVC) is the one cable operator everyone talks about as a takeover target. Unfortunately, the founding Dolan family has no inclination to sell. Cablevision would be a gem in any media company's portfolio since its cable systems are in New York.
The company's latest earnings report was a disappointment across the board. Revenue came in $300 million weaker than expected and the company posted a loss of $0.06 per share. Expectations are for revenue to pick up next quarter and for earnings to rebound.
Hedge funds are in the stock in a big way. Mario Gabelli is the largest shareholder among the group with his Gamco Investors and Gabelli Funds owning a combined 9.3% stake. Billionaire John Paulson is next with a 7.84% stake worth almost $250 million. Steve Cohen's SAC Capital has just over 4 million shares in Cablevision.
My favorite stock among the group is Charter Communications. John Malone is a man you want to invest with and he has a great track record for creating value in the cable industry. On the opposite spectrum is the Dolan family, who are known for not creating value. However, Cablevision has cable systems in the number one market in the country, so you won't lose money.
Billionaires are in Cablevision, so they're waiting for something to happen like the rest of us. Comcast and Time Warner Cable have solid leadership positions in the industry. Look for them to continue to grow and make money for shareholders.
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