You would be hard pressed to find a better performing category of stocks than cable – operators and programmers – in the last two years.
A dog could have made money picking cable stocks. A rising tide lifted all boats as new broadband subscribers kicked in, more quality programming showed up and new devices drove more demand for entertainment. The best performing stocks skyrocketed – literally more than doubling in value.
But in the last few weeks, the wind seems to have gone out of cable operators’ sails, and the recent news raises some existential questions that are suddenly becoming clearer for cable CEOs.
Time Warner Cable kicked off the bad news with some of the worst quarterly numbers in virtually every category: video (-304,000), broadband (-9,000) and phone (-116,000). That poor performance was largely the result of the cable giant’s epic 32-day fight with CBS, which many now point to as a turning point for future retrans negotiations. If CBS can get $2 per sub and inflict that kind of damage, the conventional thinking goes, what do broadcasters have to lose? It’s a bad precedent for cable operators, no matter how you slice it.
Meanwhile, station giants are forming in expectation of a big retrans payday. Last week,Multichannel News reported that over the past two years, station groups such as Sinclair Broadcast Group and Nexstar Broadcasting Group have unveiled deals that have more than doubled the number of stations they control, while increasing the number of stations they own in individual markets – creating duopolies that give them an edge in retrans negotiations. And there’s likely to be more deals, as cash-rich station groups like E.W. Scripps have yet to pounce. All of this adds to a cable bill many consumers barely can afford as it is.
Then last week, data from third-quarter earnings reflected not only a continued loss of video subscribers, but, even more vexing, a deceleration in cable’s flagship product – broadband. Growth fell to a measly 3.4%.
Adding to these doldrums is the fact that some of cable’s biggest competitors are gobbling up most of its bandwidth. As our story on page 5 notes, Sandvine’s latest “Global Internet Phenomena Report” found that Netflix and YouTube represent more than 50% of all downstream traffic on North American fixed broadband networks.
And long-term, even cable’s grand effort to innoculate the industry against over-the-top players – TV Everywhere – has yet to really get off the ground. Meanwhile, Netflix last week announced that its already superior user interface is undergoing another facelift.
To be sure, cable operators aren’t standing still. Comcast’s Xfinity, Charter’s brand/plant upgrades and Cox’s customer-service moves promise to turn the tide of negative news. But cable needs a tailwind. Fast.