3 Cable Firms that Could Avoid the Online Threat
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The easy availability of TV shows online will likely result in a drop in the number of pay TV subscribers. About 90% of Americans currently pay for television programs, and a drop would spell trouble for cable companies. The following companies all have characteristics that I believe will provide shelter from the expected drop, however.
Shaw is focused digitally
Shaw Communications (NYSE: SJR) is set to be the service of choice in the years ahead. The company is now offering 85% of its programming in digital format. Because subscribers to digital pay about 50% more than those who don't use digital, the company is likely to generate a higher profit margin than many of its competitors.
Furthermore, it is difficult for those streaming video to receive the high definition content that improves viewing quality. Shaw doesn't require the download times that many people need prior to viewing a crisp copy of the show on their computers.
Many of the types of digital services that Shaw offers are gaining increased use, including video on demand and pay per view. That has helped the company's cash flow per monthly subscriber to increase in each of the last four years. Its digital market segment shows no sign of slowing down either.
Analysts look less optimistic, and this could be due to the competition that they see coming from Telus. That company is offering more satellite services that could eat into Shaw's profits. Analysts believe Shaw will only increase its revenue by 2.3% this year and 1.7% next year. I see Telus as needing to focus its cash flow more on a possible joint acquisition with its peers Rogers and Bell in an effort to buy Wind Mobile and Mobilicity for its telecommunications segment, however; this would take precedence over expanding the satellite TV division.
CBS offers more than programming
CBS (NYSE: CBS) is more diversified than many of its competitors, and this could help it remain profitable even with a decline in pay TV subscribers. The company's outdoor advertising segment provides it with a steady stream of revenue that is independent of what might happen to the TV segment. A loss in viewership would be devastating to the company, but at least it has another segment to fall back on.
CBS is earning a profit from the Internet as well, and not just losing viewers to it. Many of the shows the company produces, such as "CSI" and "NCIS," are resold to Amazon.com and Netflix after their initial viewing on networks. This is a new revenue stream that the company previously didn't have.
Analysts believe that efforts like this will help the company to increase its earnings per share by 21% this year and 13% next year. That's on the back of a 5.6% revenue increase this year and a 2.5% increase next year.
AMC has one-of-a-kind programming
AMC Networks (NASDAQ: AMCX) offers the types of shows that many people don't want to wait to download or stream from the Internet. The buzz that has been created by shows such as "Breaking Bad" has many viewers counting down the days until the next episodes air. That creates a massive following that stays true to the television broadcast because it is released before an online version is available.
The quality of its programs has been shown through the winning of multiple Emmy awards, and the company will need to keep up the high quality to continue to profit. That is the biggest risk factor that it faces, since AMC isn't as diversified as its peers. Quality television could lead to quality profits and help this company avoid problems that might be ahead as a result of an increasing trend towards Internet streaming and downloading.
Analysts expect major profits at the company. Earnings per share is expected to increase by 75% this year and 17.5% next year. Revenue is pegged to increase by 14.3% this year and 7.5% next year.
Online is a threat, but could also be the source of profits
The move to online viewing is a source of major concern for these companies, but it could be just a matter of time before the threat represented by content streaming and downloads is eliminated. This could present a valuable source of new revenue, and instead of the Internet posing a threat it would become a gold mine. Despite regulators not being able to find a way to put a lock on viewing content for free, these three companies are somewhat sheltered from a possible blow to profits.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!