Wall Street Is Starting To Get Very Nervous About Cable TV Cord Cutting

from the from-denial-to-hyperventilation dept

Wall Street is finally starting to realize there's a storm brewing on the horizon for the nation's biggest cable companies. Cable stocks took a notable dip this week after MoffettNathanson analyst Craig Moffett downgraded the entire cable sector because of worries surrounding cord cutting and streaming video competition. Moffett, who not that long ago used to mock cord cutters for being irrelevant basement dwellers, has seen the light -- more recently noting that 2016's 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record.

And in a lengthy research note to investors this week, the analyst warned that the cable industry's approach to cord cutting (raising rates and offering horrible customer service while hoping it all works out) simply isn't going to cut it given the competitive threats to come:

"Broadband growth will inevitably slow, and it will likely do so at precisely the same time that video growth rates also come under pressure from OTT substitution," Moffett said in his Tuesday-morning note. "And while cable operators have the pricing power to offset these headwinds via their broadband business, we believe it is likely that investors will (appropriately) apply a somewhat lower terminal growth rate assumption to a business that is achieving its growth through pricing rather than unit growth."

Wall Street and the cable sector's optimism in the face of a massive sector (r)evolution is running out of oxygen, Moffett insists:

"The cable stocks have climbed a wall of worry to get here," Moffett wrote to clients. “But as any mountain climber knows, the higher you go, the thinner the air."

It's an interesting position for Moffett to take, given the fact that for years the analyst breathlessly supported broadband usage caps and overage fees as a fail-safe solution to this problem, once going so far as to declare usage caps "the next generation of communications." Arbitrary and utterly unnecessary usage caps are one trick Comcast has been using to hamstring streaming competitors, while raising prices on broadband to counter any potential TV revenue loss.

For the moment, Comcast has been cushioned from the cord cutting threat by its growing monopoly over fixed-line broadband service. Companies like AT&T and Verizon have shifted their attentions to media and advertising, and other major telcos like Windstream, Frontier, and CenturyLink lack the courage, money or incentive to upgrade their aging DSL lines at any real scale. So in many markets, customers looking for next-gen broadband speeds only have one option: cable. And when they show up, they're forced to sign up for TV services they may not want.

You'd think that a growing broadband monopoly, usage caps, and the government's decision to gut most meaningful oversight of one of the least-competitive sectors in America would have Wall Street stock jocks pretty damn excited. The fact that many of them are still very worried about the cord cutting threat to come -- despite Comcast's immense position of power -- tells you precisely what kind of threat we're looking at.


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  • icon
    Vidiot (profile), 23 Jun 2017 @ 5:51am

    This is why so many of us find investing so terrifying. Stocks rise meteorically on unfounded, ill-sourced rumors; and dramatic negative shifts apparently can't be foreseen until the bloodletting has already begun. Are these people just dull-witted, or does greed engender some special form of myopia?

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 23 Jun 2017 @ 6:20am

      Re:

      And yet there are those in positions of power who think your retirement savings should be invested in the market.

      Ask your financial advisor if the market is right for you.

      Seriously, as one ages retirement savings should be gradually moved into less volatile instruments. Most sane people realize this.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 23 Jun 2017 @ 6:24am

    PSA - US Internet Poised for Rate Increases

    "cable operators have the pricing power to offset these headwinds via their broadband business"

    Have the pricing power = have a Monopoly so they can raise prices and people can't go elsewhere

    reply to this | link to this | view in chronology ]

  • icon
    TheResidentSkeptic (profile), 23 Jun 2017 @ 7:10am

    Ignoring Facts to make it worse

    So, 80% of the cutters are doing so as it has gotten too expensive - response is to raise rates to keep Wall Street happy with Profits and Growth.

    And that makes more people join the cutters who can't afford it...

    And the rates are raised again to cover those losses...

    This business plan won't work for long - but the charts will certainly have a pretty curve on them...Hyperbolic maybe?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 23 Jun 2017 @ 7:25am

    The legacy-industry play book for dealing with innovation:

    1) Ignore disruptive start-ups; "they're too small to matter."

    2) Mock early adopters; "they're not even really our core customer anyway."

    3) Mock early majority; "you'll miss us once you're gone."

    4) Offer watered-down version of what made the disruptor successful in the first place; "see, you can stream shows from us too! (*streaming limited to 1 show you've never heard of limited to 1 device requiring 23 user name/logon combinations to access and DRM on top of DRM, available with super-premium tier package only).

    5) Panic; "Well, we can always just raise the prices to our remaining customers to make up the difference!"

    6) Die

    reply to this | link to this | view in chronology ]

  • identicon
    KaarlisK, 23 Jun 2017 @ 8:13am

    What they've actually realised is that broadband monopolies will soon cease to exist. Google is investing in Spacex's satellite internet constellation, and they even have competitors.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 23 Jun 2017 @ 10:37am

      Re:

      They had so much money and power that could have been invested in providing what consumers want next - internet, all the time, no wires - and instead they dug themselves a grave. Odd.

      reply to this | link to this | view in chronology ]

      • identicon
        Anonymous Coward, 24 Jun 2017 @ 6:38am

        Re: Re:

        "They had so much money and power that could have been invested in providing what consumers want next - internet, all the time, no wires"

        Actually, you should take a look at the wireless spectrum allocations; there're mostly *empty*, because allowing more spectrum to be used would reduce the monopoly power of the spectrum *owners*, and thus reduce the value of any spectrum auctions.

        The entire telecom business is based upon *manufacturing scarcity* to drive up prices so as to extract monopoly rents; a small fraction of these rents are kicked back through lobbyists to legislators in the form of campaign contributions.

        Don't expect Google/Facebook/etc. to act any different; they use the same lawyers and lobbyists that the telecom companies do.

        reply to this | link to this | view in chronology ]

  • icon
    orbitalinsertion (profile), 23 Jun 2017 @ 9:15am

    _we believe it is likely that investors will (appropriately) apply a somewhat lower terminal growth rate assumption to a business that is achieving its growth through pricing rather than unit growth._

    Since when, on any part of that?

    reply to this | link to this | view in chronology ]


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