Can Comcast Cope with All the Cable Cord-Cutters?
Things might appear peachy at the country's largest cable provider based on Wednesday morning's quarterly report. Revenue soared 51%, and free cash flow climbed 36% higher. However, these figures are inflated given the NBCUniversal deal that had yet to be completed a year ago. Lump it all together to arrive at more accurate pro forma results, and revenue clocks in just 5% higher during the period. Operating cash flow rose by a mere 3%.
It gets worse.
The real trouble spot here is buried several paragraphs deep in Comcast's report. It's there where investors will see that Comcast is down to just 22,360,000 video customers. That's 577,000 fewer than the 22,937,000 couch-potato homes it was servicing a year earlier.
This is a Comcastic problem, folks.
Anatomy of a Cord Cutter
Losing video customers isn't new for Comcast. It may have shed 165,000 net cable subscribers during the past three months -- and 443,000 year-to-date -- but the cord cutting has been happening for a long time. Comcast shed 757,000 net video accounts in 2010 after losing 623,000 customers in 2009.
This is still something that Comcast will need to address.
The popular theory has been that penny-pinching homes have been nixing their cable television subscriptions, turning to HDTV antennas for free access to local channels and using their WiFi connections to stream everything else.
Netflix's (NFLX) booming popularity over the past few years has fueled the notion that Netflix streaming is Comcast's biggest enemy, but that's no longer true. After its unpopular summertime rate increase, Netflix shed a whopping 800,000 domestic subscribers during the same three months that Comcast experienced 165,000 net cancellations.
Cheaper Video Killed the Video Star
The fact that Comcast's video revenue is growing while its video audience is shrinking should tip you off to the real problem here. Comcast is just too darn expensive, and folks are getting fed up with the perpetual rate increases.
Compare your latest cable bill -- if you haven't kicked your cable provider to the curb already -- with what you were paying a year or two ago. You'll be surprised at the slow creep that you never saw coming, quietly justified by your provider in adding new channels that you don't necessarily care for.
Cheaper television providers are holding up just fine. AT&T (T) U-verse gained 175,000 broadband television accounts during the same quarter, and a good chunk of that probably came from the 165,000 homes that Comcast lost. Cheaper satellite television and alternative providers have also been gaining ground. DIRECTV (DTV) -- while not necessarily cheaper than Comcast as the top dog in satellite television -- has been able to set itself apart with its exclusive NFL Sunday Ticket, which provides coverage of every football game.
So, yes, Comcast has a problem that the big numbers in this week's quarterly report can't disguise. It's fading as a cable provider, and that's not going to change unless it either gets cheaper or finds a way to make its escalating ransoms worth paying through proprietary content.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. Motley Fool newsletter services have recommended buying shares of Netflix.