Is the Cut the Cord Movement affecting big Cable Companies?
The Cut the Cord movement has come about with the advent of the internet. As people are finding new means of entertainment, and new mediums to get the entertainment they received through cable, they have begun to cancel their expensive cable subscriptions. In 2000 there were a total of 68.5 million active cable subscriptions. However, by 2013 that number dropped to 54.4 million. That resulted in, assuming that the average cable subscription costs $50/month, a $8.46 billion dollar loss for the cable industry. So how does this massive loss affect the companies providing these cable services? Of course, the next question would be, how is this massive cut off affecting the television networks’ such as ESPN? But that’s an article for another day.
To start off, we need to figure out what we are going to classify as a big cable company. Well, for simplicity I went ahead and added the top names in the industry to a screener and backtested over the past twenty years.
When compared to the S&P 500, you did pretty well during this time period returning over 1500%. Now, we can spend all day talking about how “good” this trade would have been back in the day, but we are here to figure out if the cable cutter movement is affecting these companies negatively – even if it doesn’t affect their share price.
Before we get too deep into analyzing the past and comparing it to today, let’s take a look at whether or not any of these companies are exhibiting red flags right from the start.
It appears that the only red flag is for AT&T, and that it is simply because AT&T is an extremely large company. Past that, there are no obvious red flags to be found by our red flag Synopsis tear sheet.
My next thought was that maybe cable companies are doing the same thing with dividends as oil companies – borrowing money in order to pay them as they aren’t making as much as before. However, that just isn’t happening. Of the five companies listed above, only three of them offer dividends, and every one of them can comfortably afford to pay those dividends out.
At the very least these companies shouldn’t be making as much money as before because there are fewer people who purchase cable, right? Wrong. Apparently these companies are better run than I ever thought. It seems like there was a minor hiccup in 2011 where they didn’t make as much as previous years, but overall, they are consistently growing their net income.
I came into this article thinking I was going to have the opportunity to crush on cable companies (I haven’t had cable for seven years now and it is one of the best decisions I’ve ever made), and I was disappointed. That being said, I have a new found respect for the management teams of these companies, as, even though the public opinion of the company and their products are negative, they are still able to consistently run a well-oiled machine that won’t be stopping anytime soon.