If Cable Is Dying, Why Is It Still Making So Much Money?

June 27, 2013 Leave a comment

If Cable Is Dying, Why Is It Still Making So Much Money?

By Derek Thompson

Every few weeks, some tech writer holds up a media analyst report allegedly showing, once and for all, that the cable guys have finally lost, and the cord-cutters have finally won. One week, that report might come. It will really be something. This is not that week. Let’s start with news that might appear to be the death throes of cable. Cable companies’ TV subscribers collapsed by more than 1.5 million in the last year, according to Leichtman Research Group. (The Big Two, Comcast and Time Warner Cable, have declined by more than 900,000, alone.) In fact, the trend has been underway for a while. Cable TV customers peaked in the late 1990s and have since fallen to early Clinton-era levels (SNL Kagan data) But the cable companies aren’t exclusively in the business of selling TV. They’re really in the business ofcommunications infrastructure, which is TV, phone, and Internet. The Internet business in particular has done very well for them. Since cable video subs peaked in the late 1990s, the industry has added 45 million high-speed Internet customers (SNL Kagan data, again). The two most important reasons why cable is still making more and more money every year, despite a structural decline in cable TV subs, is that they’ve successfully gleaned more money per customer: both by charging more for television and by getting households to buy more than just TV. For example, 40 percent of Comcast customers take three products (e.g.: video, phone, and Internet) and 70 percent take two products (e.g.: video and Internet). Cable ≠ video, and nothing says it more clearly than the latest earnings reports from the Big Two:Comcast, the largest provider of pay-TV in the country; and Time Warner Cable, the second largest cable provider (but behind DirecTV and Dish in total video subs). Comcast’s total revenue is almost twice TWC’s, but their businesses are remarkably similar. Upshot: If you equate “cable” with TV, you are literally getting only half the story. Cable providers are in the business of communications transport. They’re still in business because selling communications access is still a pretty good business, with high barriers to entry and voracious demand.

Screen Shot 2013-05-21 at 8.59.50 AM Screen Shot 2013-05-21 at 8.42.50 AM Screen Shot 2013-05-22 at 11.11.07 AM-thumb-570x189-122250

Filed under TMT Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment