Cable television

If the cable TV industry is shrinking, why is Comcast growing?


The backdrop remains seemingly dark. Research on the advertising industry eMarketer recently forecast TV ad spending to fall nearly 3% this year, to $ 70.3 billion, confirming that last year’s $ 72.4 billion was an industry high. With the exception of next year’s political ad frenzy, eMarketer forecasters believe TV ad revenue will decline until at least 2023.

Blame it on the so-called cord-cutting movement, of course. In turn, pity cable TV middlemen like Time Warner / Spectrum parent Communication of the Charter or satellite TV provider DISH Network.

Do not worry Comcast (NASDAQ: CMCSA) along with the rest of the industry’s most recognizable names. Comcast is doing very well. You see, cable TV may be its biggest operation, but it’s still a relatively small part of the revenue mix, and most of what it does is doing pretty well.

Numbers don’t lie

For investors keeping an eye out, Comcast lost an additional 238,000 video subscribers in the third quarter. That’s a lot, but not an unusual pace for the cable television industry. The Kagan research arm of S&P Intelligence Group estimates that the entire US cable industry lost an additional 1.9 million paying customers in the third quarter, and UBS estimates that next year’s total losses will reach 6.2 million. That’s slightly down from this year’s pace, although a significant portion of the 85.1 million customers were still signed up at the end of October.

Image source: Getty Images.

Luckily for Comcast, it’s not a crippling headwind. Video is the company’s main revenue driver, but still only accounts for a fifth of revenue. Broadband Internet service is growing in importance as a revenue contributor, and it is interesting that Sky’s direct-to-consumer product is Comcast’s third largest branch, accounting for nearly 14% of its business.

Image of Comcast's historical revenues, by business unit

Data source: Comcast.

The company does not detail its EBITDA results in as much detail, although it is still possible to draw meaningful conclusions from what is on offer. Namely, the cable communications group that runs both the Internet and cable TV is still a cash cow, accounting for nearly two-thirds of Comcast’s total revenue before distributing interest payments, taxes. and depreciation. Its cable business suffered a severe blow in the last quarter, resulting in a sequential drop of $ 163 million in its total EBITDA revenue. He has survived worse, however, and should ignore that headwind as well.

Comcast historical EBITDA chart, by business unit

Data source: Comcast.

Two related metrics illustrate why the business can continue to grow.

Comcast, in short, continues to add paying customers. The loss of cable subscribers clearly goes against this progress. But this inconvenience is more than offset by the addition of business video subscribers, high-speed Internet clients and – surprise! – wireless telephone services, it is launched as a means of making packages for consumers who demand them more and more.

Image of historical Comcast subscriber count, broken down by type of service

Data source: Comcast.

Perhaps most important is Comcast’s ability to monetize these members. Average revenue per user at the end of the third quarter was $ 156.72 per month, with $ 62.34 of that amount recorded as EBITDA. These numbers increased 0.5% and 3.2%, respectively, year over year.

Graph of Comcast ARPU and EBITDA by User, History

Data source: Comcast.

The numbers won’t qualify Comcast as a growth action, but they’re hardly a cause for panic.

Putting the pieces of the Comcast puzzle together

Most investors are surprised to learn that the aging cable giant has remained relevant in the new digital world, and to be clear, Comcast is hardly thriving. She was forced to acquire operations like Sky and pay for the start-up costs of a new wireless service (albeit with the help of Charter and Verizon) in order to secure what is admittedly lukewarm growth. It is also embracing – rather than resisting – streaming video, announcing in September that it would provide a free streaming player to Internet customers who aren’t also cable customers. It’s a pretty restrictive device, but it’s another step in keeping those customers close.

The strategy seems to be working all the same. It’s awkward sometimes, to be fair, and there’s no denying that traditional cable TV is a sinking ship. Comcast can only hope to slow this deterioration as much as possible. What he couldn’t contain on that front, however, he was able to make up for.

The most compelling in the make-up of business income is the number of types of businesses in which Comcast is found. Normally, this diversity can cause an organization to divest itself of certain assets in order to better concentrate. This particular combination works, however, because all of these divisions are closely related and allow efficient cross-use of content and properties. Universal Studios’ blockbuster movie franchises, for example, are operated in its theme parks and also effectively reused as licensed content.

This is one area, in fact, where Comcast could arguably do more – multi-market services and content for existing customers who might currently only pay for one particular product. About a third of its customers subscribe to only one of its services and another third pay for only two.

Still, there’s a reason the wire-cut apocalypse doesn’t pull off Comcast: Comcast just doesn’t depend on cable TV.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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