Every time that the pay television industry and its many friends on Wall Street talk about why consumers need to pay lots of money for channels that they don’t watch, they claim that allowing real consumer choice in the form of a-la-carte pricing would bring about the end of the world.
Well, maybe not quite the Apocalypse, but they do see a world of higher prices and less choice.
Today’s announcement by Dish Network (DISH) of a low-cost service featuring ESPN is going to make those arguments tougher for consumers to swallow, increasing the odds that a-la-carte TV pricing may come sooner rather than later.
Dish Announces Sling TV
Called Sling TV, the Internet-based TV service is aimed squarely at millennials who increasingly are quitting pay TV (if they ever even signed up for it). For $20 per month, subscribers get access to variety of popular channels including Adult Swim, along with Scripps Networks’ (SNI) Food Network and HGTV, as well as Time Warner’s (TWX) TNT, TBS and CNN. But the real coup for Dish Network is ESPN.
The “Worldwide Leader in Sports” has been the most watched cable channel for as along as anyone could remember. It’s a cash-cow for corporate parent Walt Disney Co (DIS) because sports remains one of the few genres of programming that most people continue to watch live. Sports also attract young, male viewers that advertisers will pay a premium to reach.
Viacom Inc’s (VIA) popular MTV and Comedy Central channels are notable for their absence. The New York-based media conglomerate controlled by billionaire Sumner Redstone has waged high-profile fights with Internet rivals such as Google’s (GOOG) YouTube over the years. Redstone famously coined the phrase “content is king.” While that’s certainly true, its kingdom is undergoing a massive change, and Charlie Egen, the billionaire who controls DISH Network, is trying to stay ahead of the curve.
Ergen has argued — correctly, in my view — that combining DISH Network with DirecTV (DTV) makes loads of sense. The Sling TV announcement only underscores that point further because DTV will now have to develop a similar service to compete with DISH and the so-called skinny bundles that being offered by providers such as Comcast (CMCSA) and Verizon Communications (VZ).
How to Trade Sling TV
Figuring out the right way to trade this situation is difficult, but there are a few stocks that stand out. The first is DTV, which trades at a price-to-earnings multiple under 16 and trades at about 9% under its average 52-week price target of $93.40.
Let’s not forget about CMCSA stock, either. Comcast is so huge that it can withstand almost anything the market throws at it. Pundits always underestimate the Philadelphia-based company, which makes CMCSA stock an even more compelling buy. Not only is CMCSA stock reasonably valued at a price-to-earnings multiple of about 18, but it’s trading about 14% under its average 52-week price target.
The days of people watching programs at a set day and time are coming to an end. When I tried to explain the idea of a “network” to my tech savvy, 8-year-old son, he gave me a puzzled looked. It’s easy to see why — he’s used to watching his favorite Food Network shows at a time and place of his choosing (and with mom and dad’s permission).
With the advent of Sling TV and other new services such as HBO GO and the surging popularity of Netflix (NFLX), the television network may soon become as antiquated as a rotary telephone.
Cable Bundles Aren’t Going Away Just Yet
Even so, I am not ready to write the obituary for cable companies like Comcast quite yet. While the Slingbox and other so-called over-the-top services will surely pressure the Philadelphia-based company’s margins, the legions of CMCSA haters often under estimated its resiliency. For one thing, if a cord-cutter says goodbye to Comcast’s televison service, they will likely stay Comcast Interent customers because video content isn’t going to stream itself.
Moreover, as the Wall Street Journal noted, the streaming TV business is becoming crowded with the likes of Amazon (AMZN) and Hulu. Even hapless Sony (SNE) has gotten into the “over-the-top” business.
There also aren’t going to be huge numbers of cable and satellite customers buying Sling TV because it doesn’t local have television channels or popular channels such as Fox News Channel. Also, Comcast-hating tech geeks also forget that many people would deal with the devil they know rather than an unknown company, particularly for a service that won’t provide them an apples-to-apples viewing experience.
Comcast has plenty of flexibility to be price competitive with these new services and can offer slimmed-down bundles to compete for budget-conscious customers.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
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