Why Rumors of Cable's Death are Greatly Exaggerated

Everyone loves a good drama, especially when it involves an entire industry that has drawn our ire. In spite of the fact that it provides a service that's integral to modern life in 2016 America, no industry is as loathed as big cable. The reasons for this are lengthy. One could go on and on, discussing the customer-service failures of the likes of Comcast , and the soon-to-be-mergedTime Warner Cable , and Charter Communications . However, this would ignore the hundreds of billions of dollars that have been invested to provide the average consumer the ability to watchDancing with the Stars and streamDaredevil on Netflix.

Do not take my pointing this fact out as my defending these businesses -- I leave that to their PR departments. What I actually mean to say is that we may dream of a world where we don't hand over $100 to $200 a month for entertainment (most of which we do not wish to consume). But the alternative, the heaven that we dream of so fervently, still requires cable lines, mbps streaming, andinfrastructure.

You may want to cut your cable bill in half, or perhaps get rid of it altogether, but given the way the entertainment industry is progressing, you are likely indulging in fantasy.

How do you spend your couch time?I don't know about you, but I kind of need my Comcast plan. This fact is all the more painful when I reflect on the reality that I did not bask in the glory of even a basic cable package until I was a pre-teen. My parents knew full well, as most everyone does today, that to pay up for a cable package containing scores of channels you'll never even think of watching is wasteful. They started paying up for it anyway because my childhood home, in our particular neighborhood outside of Cleveland, Ohio, didn't get the reception we would have liked via traditional antennae -- our local cable provider had us.

This wasn't a nefarious scheme by an evil corporation -- it was simply how our society has developed. Billions of dollars, probably trillions, have been invested in this enterprise that by all standards does provide a superior product -- for a price. How could old-fashioned broadcast television possibly compete?

The cultural nexus now revolves around 24-hour cable news (particularly, I have noticed, during national elections, when I crave CNN coverage), live sports, reality-tv churning B-list channels, and -- if you're in the mood -- on-demand programming. We are rebelling against this model a bit, but here's the rub: In order to switch to a streaming world where you, dear viewer, are in control, you still need cable lines -- and probably more-expensive, faster Internet plans, too.

We need them, and they know itThis evidence is borne out by the latest subscriber counts of big cable, especially when compared to the underlying tallies of broadband subscribers:

Charter Communications

Metric FY 2013 FY 2014 FY 2015
Video Subscribers N/A* 4.4 million 4.4 million
Broadband Subscribers N/A* 5.1 million 5.6 million

Source: S&P Capital IQ* not reported

Time Warner Cable

Metric FY 2013 FY 2014 FY 2015
Video Subscribers 11.4 million 11.0 million 11.0 million
BroadbandSubscribers 11.6 million 12.3 million 13.3 million

Source: S&P Capital IQ


Metric FY 2013 FY 2014 FY 2015
Video Subscribers 22.6 million 22.4 million 22.3 million
Broadband Subscribers 20.7 million 22.0 million 23.3 million

Source: S&P Capital IQ

The trend is clear: These companies are going to be just fine in an online streaming world. Each continues to gain Internet subscribers even while their bread-and-butter cable programming businesses are flat or experiencing declines.

Foolish bottom lineThe shift to a more streaming-centric world goes hand-in-hand with increasing household broadband usage. Most family homes have multiple TVs, each with the ability to allow different viewers to watch different cable channels. What do you suppose will happen when we start streaming different Netflix shows in different rooms in the house? Sprinkle in the extra bandwidth needed to surf Twitter on your smartphone while watching the latest episode of Netflix's Daredevil, and you've got the makings of some pretty hefty data usage.

Internet packages that offer that kind of bandwidth cost a pretty penny, and our desire for them will only increase as we begin consuming increasingly data-rich entertainment options in our homes. (Virtual reality stroll through the park, anyone?)

Shareholders of these companies can probably rest easy for the foreseeable future. Comcast, for example, boasts a forward P/E of 17.4 according to S&P Capital IQ estimates, and sports a dividend yield of 1.8%. You probably won't get rich owning its shares, nor with the post-merger combination of Time Warner Cable and Charter Communications, but those companies will be here for many years to come, helping us stream programming and providing investors with utility-like returns.

The article Why Rumors of Cable's Death are Greatly Exaggerated originally appeared on Fool.com.

Sean O'Reilly has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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