Here’s the Latest Cable Cutting Data

Steven is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There’s been a lot of debate surrounding the topic of ditching your cable plan in lieu of internet streaming.  I’ve taken both sides, by writing about companies that would benefit from a mass cord-cutting movement, and by discussing how cable companies could remain in control.

Today we’re not here to debate the promise and peril of this topic.  Let’s examine the most recent cold-hard-data available to see if customers have begun a mass exodus from their cable plans.  We’ll be using data from the five largest publicly traded cable companies, which represents nearly 70% of the US cable market.              

<table> <tbody> <tr> <td> <p><strong>Company</strong></p> </td> <td> <p><strong>Video Subscribers Q3'12</strong></p> </td> <td> <p><strong>Y/Y Change %</strong></p> </td> <td> <p><strong>Internet Subscribers Q3'12</strong></p> </td> <td> <p><strong>Y/Y Change %</strong></p> </td> <td> <p><strong>ARPU      </strong></p> </td> <td> <p><strong>Y/Y Change %</strong></p> </td> </tr> <tr> <td> <p><strong>Comcast</strong> <span class="ticker" data-id="203139">(NASDAQ: <a href="">CMCSA</a>)</span></p> </td> <td> <p>22,022</p> </td> <td> <p>-1.55%</p> </td> <td> <p>19,025</p> </td> <td> <p>+6.83%</p> </td> <td> <p> $150.7</p> </td> <td> <p>+8.77%</p> </td> </tr> <tr> <td> <p><strong>Direct TV</strong> <span class="ticker" data-id="203347">(NASDAQ: <a href="">DTV</a>)</span></p> </td> <td> <p>19,981</p> </td> <td> <p>+1.19%</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p> $96.4</p> </td> <td> <p>+4.55%</p> </td> </tr> <tr> <td> <p><strong>DISH</strong> <span class="ticker" data-id="203311">(NASDAQ: <a href="">DISH</a>)</span></p> </td> <td> <p>14,042</p> </td> <td> <p>-0.14%</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p>$77.6</p> </td> <td> <p>+0.75%</p> </td> </tr> <tr> <td> <p><strong>Time Warner Cable</strong> <span class="ticker" data-id="209903">(NYSE: <a href="">TWC</a>)</span></p> </td> <td> <p>12,159</p> </td> <td> <p>+1.84%</p> </td> <td> <p>10,860</p> </td> <td> <p>+10.9%</p> </td> <td> <p>$113.7</p> </td> <td> <p>+2.25%</p> </td> </tr> <tr> <td> <p><strong>Verizon</strong> <span class="ticker" data-id="206030">(NYSE: <a href="">VZ</a>)</span></p> </td> <td> <p>4,600</p> </td> <td> <p>+15%</p> </td> <td> <p>5,300</p> </td> <td> <p>+15.21%</p> </td> <td> <p>$103.9</p> </td> <td> <p>+10.25%</p> </td> </tr> </tbody> </table>

ARPU = Average Revenue Per User.  Subscriber data in thousands.     

Cumulatively, 676,000 net new video subscribers were added since last year, representing a 0.9% total increase.  That’s in addition to the nearly three million net new internet subscribers during this period, which was good for 8.5% growth.  To boot, ARPU was up across the board.  Together, all of this data suggests that cutting the cord is not a major trend.

But what if?
What actions could these companies take if the data suggested that mass cord cutting has taken hold?  Well, if the company provides internet services, it gives them the ability to raise rates to help mitigate video losses.  In this particular case, that would make Comcast, Time Warner, and Verizon the more defensive companies.       

This obviously wouldn’t please internet-only customers, but they could justify it by arguing that “demand” for the service has skyrocketed.  More than likely, they are one the few games in town and chances are slim that alternatives exist, especially if you live in an apartment building.  Apartments are notoriously monopolistic when it comes to service options.  As the saying goes, when they’ve got you, they’ve got you.       

Who’d be most at risk?
First on my list would be Dish.  For one, revenue has declined on a year over year basis.  Secondly, they lack an international presence.  Third, they don’t offer broadband services to help hedge their business.  To top it off, they purchased Blockbuster Video last year.   

Direct TV, on the other hand, has been steadily growing revenues, their subscriber base, and are a big player in Latin America.  Last quarter their Latin American operations grew by 543,000 net new subscribers.  In other words, they are more diversified than Dish, and could cope with a mass cord cutting movement in the US.                 

Bottom line
The numbers don’t lie.  Cutting the cord isn’t an imminent threat.  So far, it’s a niche idea that hasn’t taken hold.  These companies account for nearly 70% of all US cable subscribers.  And if trouble isn’t showing up in this big of a sample size, it’s not going to show up anywhere.  Be sure to check back next quarter when I’ll reexamine the results with fresh data.


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