As the cable television industry has faced increased competition in recent years, they have been losing customers. AT&T (T) Uverse, Verizon (VZ) FiOS and CenturyLink (CTL) Prism TV and many other alternatives have been growing market share at the expense of Comcast (CMCSA) , Time Warner (TWX) and Cox. However Comcast Xfinity has just shown growth for the first time in years. So is this just a short-term gain, or a sign of the recovering cable TV industry?
First, I think it’s important to pull the camera back and take a long-term view of the changing television industry, and see why the cable television industry has been under such competitive threat. See if they have fixed their longer-term and larger industry problems. See why Comcast suddenly had a positive quarter. See whether this could be long-term growth or just a short-term. And see whether we can expect the same from Time Warner Cable, Cox and other companies as well.
The cable television industry has been with us for several decades. It started with loads of small players who have merged over the years. Today there are a very few, very larger players and plenty of small time players as well. In fact cable television looks a lot like the telephone and wireless industries.
However the problem with cable television is prices continue to rise, year after year. In fact over ten years the price basically doubles. Of course the cable television companies keep giving us more channels as well. However the average customers continue to watch their favorite five, ten or fifteen channels. The rest of the channels are, well, often a waste of money.
There are two types of cable television customers. One wants all the new technology and is willing to pay for it. The other wants basic cable television and wants to pay less. The cable television industry continues to focus on one, and pays not attention to the other. And I think that will hurt them long-term. It causes customers to flee looking for other options.
As cable TV prices continue to rise, customers look for an escape hatch. That’s why new competitors like the phone companies offering IPTV have been so successful. I was at AT&T’s analyst meeting last month and they said their Uverse TV service has won roughly 50 percent market share in Dallas Texas. Numbers like that are a threat to the cable television industry.
So competitors are growing while the cable television industry is declining. The problem is telephone companies do not offer their IPTV services everywhere – only in selected markets. So while this is a great growth engine for them, it does not solve the problem nationwide that many customers have with high priced cable TV.
In the meantime, with all these new competitive threats the cable television industry has been trying to reinvent themselves. Trying to grow once again. That’s why Comcast came up with the Xfinity name a few years ago.
It took several years for Comcast to have an interesting product mix, but they seem to be there now. Comcast Xfinity service can now be received on a variety of devices, from your television to your laptop, tablet and smartphone. In fact you can watch your home cable television service while you are away from your home on your devices.
So because of this innovation, and because most customers still don’t have much choice of competitors yet, Comcast had their first good quarter in years. That was good to see once again.
The next question is, will that continue? It’s impossible to say at this early stage. We have to see if this has long legs. I think Comcast will continue to show growth in the next few quarters. The question is what happens when all their customers who want this new Xfinity service, get it? Will growth slow? It may.
If so, what does Comcast have planned next? What is their next growth wave? We have no signal on that yet, but that is one of the very important questions that any investor would want to know. What are their plans for long-term growth?
The next question is as new competitors continue to grow through the marketplace, how will that impact growth for the cable television industry going forward?
Then the next question is will that same thing happen to other cable television companies like Time Warner Cable and Cox?
So there are still plenty of questions and this growth, while a surprise, is still good. However investors are still interesting in the other questions of whether this is short or long term, and what comes next. They are still unanswered.
So congratulations to Comcast. For now they have done a great job this quarter. Let’s hope they can continue. And let’s hope others like Time Warner Cable and Cox can duplicate the same success. We’ll see.
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