Time Warner Cable (
Comcast (Nasdaq: CMCSA)
and privately-held Cox Communications have taken their customers
for granted for far too long.
Even as consumer income has barely kept up with
in recent years, cable bills soar ever higher. Here in upstate New
York, Time Warner gets $130 from me every month so I can get
high-speed Internet access, a DVR and far more channels than I ever
bother to watch. I have long vowed to cut the cord, as soon as it
That day is finally here. Technologies are rolling out that will
expand consumer's choices. And most ominously for those big cable
companies, many of those choices will be either free or far
Breaking it down
As I look over my monthly cable bill, a few things stand out. I
like to record shows and watch them when it's convenient. Time
Warner charges me $13 a month for the service. Trouble is, to get a
DVR, I also need to get digital cable ($7) and the "Standard
Service" ($43), which is largely comprised of obscure channels that
I'll never watch. So my DVR really costs $63 a month. Yet on a
recent trip to
Best Buy (
, I found $250 DVD players with massive hard drives built in,
capable of recording dozens of hours of programming. I could ditch
my DVR and the unwatched hundred extra channels, downgrade to the
basic $14 cable TV programming, and recoup my investment in just
four months. After that, it's just pure savings.
4 Stocks Poised for a Post-Summer Rally
That DVD-with-a-hard-drive is just an interim step. Soon enough,
Apple (Nasdaq: AAPL)
Google (Nasdaq: GOOG), Amazon.com (Nasdaq: AMZN)
will deliver my favorite TV shows to me through a web connection,
bypassing the need for a cable box. They'll start slow, but
eventually create truly viable alternatives. For example, Apple
just announced plans to show certain TV shows for just $0.99 an
episode. That's still pricey, but look for costs to come down and
the number of shows available to expand over time. As an even
cheaper alternative, you can wait until after a season has ended
and get the DVDs from
Netflix (Nasdaq: NFLX)
for a nominal cost (I'm just now watching the last season of Dexter
as the new season ramps up next month on Showtime).
As for Google, consumers need to simply wait for the next
generation of Internet-accessible TV sets to start hitting
showrooms this fall and into 2011 (another reason that I'm a fan of
Best Buy). [Read why it's also "
George Soros's Favorite Retail Stock
"] Once those TVs come into your living rooms, Google will
more aggressively roll out a TV offering either this fall or
sometime during the winter.
The company intends to capitalize on its Android Software, which
will allow for a common user interface between its web browser,
smart phone operating system and the next generation of TV sets.
Google is currently negotiating with Hollywood studios and the
broadcast networks, and it needs to assure them that profits
without the cable middlemen can still be robust.
Meanwhile, Amazon is working on a new subscription service that
would deliver TV shows and movies over the Internet, according to
The Wall Street Journal
. That service might focus on offering delayed content, which is
less threatening to the networks and studios. That's fine for
consumers like me that need basic cable for real-time news, weather
and sports, and are willing to wait a bit to see everything else.
Sony, looking for a content strategy that ties its PlayStation,
web-enabled TV sets, Blu-Ray DVD players and other devices
together, is said to be planning a similar service to Amazon.
Action to Take -->
The cable companies will tell you that they've heard all this
before. Services like Hulu and SlingBox have barely made a dent
into their customer bases, but they don't have the muscle of Apple,
Google, Amazon and Sony.
Time Warner Cable and Comcast appear to be boosting sales at a +4%
to +5% annual pace, thanks entirely to price hikes that offset a
slowly shrinking customer base. As the tech giants noted above
start to steal customers at faster pace, price hikes will appear
unsustainable. That could well start a trend of ever-shrinking
A similar theme has already been playing out among the phone
has already seen its shares drop by a third during the past three
years (and they would have fallen more were it not for the
still-strong half-owned Verizon Wireless unit).
also peaked in late 2007 and has fallen by a similar amount. The
cable companies increasingly appear to be relics of a previous
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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