5 Reasons Why Comcast Is Able to Keep Cord-Cutters at Bay

by Jonathan Berr | April 22, 2014 2:51 pm

When Comcast (CMCSA[1]) reported its first gain in video customers in six years in January, I joked that the development would have been a “Christmas Miracle”[2] had the development been announced during the holiday season.

Comcast stock CMCSA stock[3]Now that CMCSA has managed to pull this once-unfathomable feet for a second quarter … well, I guess I’ll at least pass on the chance to deliver another quip.

Instead, let’s talk about the baffling trend of Comcast proving the naysayers wrong and actually showing that there’s still growth in traditional cable providers.

Comcast Earnings

First, a look at Comcast’s impressive quarter. Net income at CMCSA improved more than 30% to $1.87 billion (71 cents per share) from $1.44 billion (54 cents) in the year-ago period. Those profits came on revenues of $17.4 billion, which were an improvement of 13.7% year-over-year.

Comcast’s growth was fueled by impressive gains in many of its businesses, including NBC Universal.

However, while those figures beat Wall Street expectations and helped push CMCSA shares up Tuesday, the one data point that is attracting investors’ attention is the video subscribers, which posted a gain of 24,000.

Considering the constant deluge of headlines proclaiming the unabated march of the likes of Netflix (NFLX[4]), Amazon (AMZN[5]) Prime and Hulu as cord-cutters migrate to streaming, that might come as something of a shock.

It’s also surprising given that the pay TV industry posted its first overall decline in 2013[6], according to industry researcher SNL Kagan. Smaller cable companies posted customer losses, and the performance of satellite providers DirecTV (DTV[7]) and Dish Network (DISH[8]) disappointed Wall Street analysts in the fourth quarter because of lower-than-expected subscriber gains.

So, how is Comcast still managing to grow against the grain of streaming? Well, here are a few ideas, in no particular order:

  1. Inertia: Cord-cutters (people who quit pay TV altogether) are a problem for Comcast, but it’s a slow-moving problem. One recent estimate pegs the number of cord-cutters at 7.6 million[9] — 6.5% of households, but up from only 4.5% in 2010. Comcast CEO Brian Roberts certainly is keeping an eye on this data, but he can take comfort in knowing that many of these “rebels” will continue to be Comcast customers in some capacity. Their video comment doesn’t just stream on magic — it needs an Internet connection.
  2. Comcast fights back: What tech reporters often forget is that people don’t like to leave their comfort zone. They will stick by CMCSA despite its dismal customer service — which I have experienced firsthand — and high prices because it’s what they know. That said, if you’re really insistent upon leaving, Comcast likely will do what it did for me — it slashed my cable bill substantially when I threatened to leave. CMCSA won’t fall for this pitch every week, but it does happen because the company doesn’t want to hemorrhage users.
  3. The power of a deal: Speaking of which, CMCSA gained 383,000 broadband customers in the latest quarter. That’s thanks in large part to the “Triple Play” — which combines phone, video and high-speed Internet — which continues to be a powerful draw. Comcast added 155,000 of these customers in the latest quarter, and it touts the “triple play” every chance it gets.
  4. X1: Whether this new set-top box will prove to be the game-changer Comcast claims it will be is hard to say. But the gizmo — which enables voice-based search and provides personalized recommendations — is certainly a strong pull to help retain customers, who might just need a kicker to justify the high prices they’re paying every month.
  5. Choice: Although Comcast has argued that its takeover of TWC won’t inhibit customer choice, many consumers such as me don’t have pay TV companies battling to win our business today. Verizon (VZ[10]) doesn’t provide FioS in my neighborhood and probably never will. Satellite isn’t an option for me because the Comcast regional sports network that shows Phillies games isn’t available on these services. Of course, more readers might identify with dishes not being usable in apartment complexes whose units don’t face in the correct direction.

Bottom Line

Comcast’s legion of haters have underestimated the company for years. Despite all the concern over the Time Warner Cable (TWC[11]) deal, shares are only barely down for the year-to-date.

Those who think cord-cutters will win the day might have the same issue. Sure, they might be right in time — but they’re wrong in thinking that CMCSA will let those users go without a fight.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

  1. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  2. “Christmas Miracle”: https://investorplace.com/2014/01/cmcsa-stock-comcast-stock-customers/#.U1Z8YsaSHFI
  3. [Image]: https://investorplace.com/wp-content/uploads/2012/05/Comcast185.jpg
  4. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  5. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  6. pay TV industry posted its first overall decline in 2013: http://www.hollywoodreporter.com/news/us-pay-tv-subs-drop-689581
  7. DTV: http://studio-5.financialcontent.com/investplace/quote?Symbol=DTV
  8. DISH: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISH
  9. cord-cutters at 7.6 million: http://www.tubefilter.com/2014/04/21/cord-cutters-study-experian-cable-tv/
  10. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  11. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC

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