Are Cord Cutters Going Back to Cable TV?

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TV fans are coming back to Comcast (CMCSA). The country's largest cable provider closed out the first three months of the year with 22.6 million video customers, 24,000 more subscribers than it had when the quarter began. This follows a sequential gain of 43,000 cable TV subscribers during the holiday quarter.

After suffering through 26 consecutive quarters of sequential declines in video customers, Comcast is finally signing up more cable TV subscribers than it's seeing cancel. Are the increases sustainable?

We Haven't Seen the Last of the Cord Cutters

Something particularly problematic happened last year. The number of pay TV customers in this country fell by 251,000 in 2013, according to industry tracker SNL Kagan. This may not seem like an alarming number given the more than 110 million people pay for cable, satellite or broadband television, but this is the first full year of an aggregate decline.

%VIRTUAL-article-sponsoredlinks%Comcast played a big part in the industry's first down year. It suffered net defections of 305,000 last year, more than the 251,000 total net cancellations. Put another way, take Comcast out of the equation, and the pay TV industry actually grew last year.

That's not entirely fair. Comcast wasn't even the biggest loser, as that honor goes to Time Warner Cable (TWC) which closed out 2013 with 825,000 fewer video accounts than it had when the year began.

In recent years we've seen cable TV customers flock to cheaper satellite and broadband alternatives. Satellite TV may seem like a drag with the dish installations and weather-related outages, but consumers can't seem to resist the lower monthly bills at DISH Network (DISH) or the football-centric NFL Sunday Ticket exclusive to DirecTV (DTV).

The success of DISH and DirecTV -- as well as aggressively priced broadband-based options, including FiOS by Verizon (VZ) and U-verse by AT&T (T) -- has come at the expense of Comcast and its smaller cable TV providers. After all, pay TV subscribers grew for all of 2012, but Comcast surrendered 336,000 of its video customers.

It's Not Just a Housing Play

Some analysts have argued that pay TV providers -- including Comcast -- are stealth housing plays. The real estate market is showing signs of life, and more occupied homes translate into more families watching TV. Despite the industry's first decline in 2013, we saw the number of housing units increase by 323,000 as an improving economy and buoyant real estate market encouraged more people to move into new homes.

However, the meandering pay TV market is no match for the growing popularity of streaming services favored by millennials. Why pay $76 a month -- that's the average that Comcast generated in video revenue a month from its subscribers during the first quarter -- when Netflix (NFLX) costs just $7.99 a month? Consunmers have smartphone data plans to pay. They can buy individual episodes of shows that they just can't wait to watch. They can wait to see somebody eventually roll out a cost-effective service that doesn't bundle a bunch of channels that they aren't watching.

Motley Fool contributor Rick Munarriz owns shares of Netflix. The Motley Fool recommends DirecTV and Netflix. The Motley Fool owns shares of Netflix.


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