Media stocks have taken it on the chin lately in this age of streaming video.
Walt Disney (DIS) saw a double-digit decline after earnings and lowered guidance. Time Warner (TWX), parent of HBO, TBS and TNT, saw shares slump about 7% in the last week after revenue troubles. And, Viacom (VIA), parent of Nickelodeon, BET, VH1 and MTV, is down about 25% in 30 days.
The reasons are obvious: In the age of mobile video and streaming, advertising cash is harder to come by for broadcast and cable content providers.
Oddly enough, however, the cable companies, including Comcast (CMCSA) and Time Warner Cable (TWC), are doing just fine. Comcast is tracking the market in 2015, and TWC is actually up over 25% thanks in part to continuous chatter about the possibility of a buyout.
So, should you buy Big Cable here?
No way.
The long-term trend of “cord cutting” continues to take a toll on cable providers, and companies such as Time Warner Cable and Comcast will not be able to keep up.
Click to EnlargeConsider that Comcast makes about half of its revenue from video subscribers — that is, cable TV. Unfortunately, CMCSA stock continues to bleed video subscribers. In fact, the latest earnings report shows Comcast lost approximately 69,000 subscribers over the previous year. That’s roughly 0.3%, but the movement is steady… and anyone watching the breakneck growth of Netflix (NFLX) knows that this bleed will only get worse over time.
Besides, consider that total figure of about 27.7 million video customers. Netflix, as of last tally, had 60 million users streaming its programming.
This is great for NFLX stock, of course, but obviously trouble for cable companies in the long-term. Even if some short-term benefits can be made from consolidation in the industry, most likely with TWC joining forces with Charter Communications (CHTR), that’s not a very sturdy defense against streaming and digital video’s slow but persistent erosion of market share for cable companies.
Content creators are already feeling the pain, since the ad game is more fluid. After all, ratings and advertising deals can change relatively quickly while many customers commonly sign one or two year contracts for cable — and then, once signed up, tend to stick around until something compelling forces a switch.
But, the mayhem for media stocks such as Time Warner and Disney is only the beginning, and cable company investors shouldn’t rely on outperformance for much longer.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
