shelled out $16.7 billion this month to acquire the half of NBC
Universal still owned with partner
,analysts suggested the deal would provide the nation's largest
cable company with another path to growth.
Frankly, the deal is not about growth -- but survival.
Some serious clouds are beginning to form over the major cable
companies, whichwill either need to alter their business models
radically, or prepare for steady annual sales declines. From
, competition is abounding.
Cutting the cord
Investors are already well aware of the threat that Netflix
represents. The video-streaming and DVD-by-mail company has been
securing the rights to many popular TV shows, realizing that many
consumers are willing to cut the cord with cable TV if they can
still catch up on the most popular shows from recent years.
Netflix of course has company. Hulu,
, Aereo and others are making it so easy for consumers to watch TV
shows and movies, that a decision to ditch cable services (and
their expensive monthly fees) becomes easier with each passing
The Google end-around
To be sure, cable companies are still generating solidcash flow ,
in large part because of their virtualmonopoly on Internet access.
Yet the cable executives are nervously watching Google, which
continues to test its own citywide Internet access networks in
places such as Kansas City, Mo. Google has always been clear about
its intentions: Provide low-cost hardware, software and other
components to build high volumes on its platforms. For example,
providing the Android mobile software platform to Samsung, LG and
many others for free enables these firms to build phones that tie
right into the Google eco-system. That's why Google's ad business
keeps on growing.
Building out a national Internet access network would prove to
be very expensive, but Google's efforts in Kansas City need to be
seen as the first moves in a longer-term game. Cable companies
operating in Kansas City are already feeling the heat,offering
profit-sapping price discounts to retain customers. And they dread
announcements from Google regarding additional cities.
Here comes Intel
Yet it's a little-noticed move by Intel that might really shake up
this industry. Later this year, Intel plans to launch a paid
Internet service that runs through devices being tested at the
company's Santa Clara, Calif., headquarters. Intel aims to deliver
a service that carries the functionality of a set-top box, though
it will place slightly more emphasis on Internet-related content
than the current cable TV offerings. Intel also sees the device as
a way to usher in the next generation of video-conferencing,
enabling family and friends to interact virtually, whether they are
in the next town, or across the country.
There are many hurdles in Intel's way, so this initiative isn't
really an endorsement of Intel'sstock . For example, many
programming networks may be reluctant to alter their current
profitable relationships with cable companies. And Intel has almost
no experience in the area of consumer sales and branding.
But regardless of the relative success of Netflix, Amazon.com,
Google and Intel with these moves, it is increasingly clear an
expanding array of consumer choice will lead to ever greater
pricing pressures for cable companies.
Let's take a closer look at Comcast as an example. Years of
heavyinvestments in capital spending have only recently enabled the
company to start reaping prodigious cash flow.
Comcast's ImpressiveFree Cash Flow
Yet it's important to remember that Comcast carried more than
$40 billion in short- andlong-term debt at the end of 2012. This
means robust free cash flow is crucial to help thebalance sheet
from starting to buckle. (These figures don't reflect the early
2012acquisition of the remaining stake in NBC Universal
Although Comcast's Internet access customer base is stable for
now (and not yet seeing any negative effects from Google's modest
initiative), it's already possible to see the impact that companies
like Netflix are having on the cable TV business. Comcast lost
459,000 video subscribers in 2011 and another 336,000 in 2012. The
impending move from Intel into this space surely doesn't help.
Risks to Consider:
As anupside risk, a firming U.S.economy may enable all of the
companies in the media landscape to raise prices, which would
offset some of the customer attrition.
Action to Take -->
Shares of Comcast have risen from $15 in early 2010 to a recent
$40, giving the company an eye-popping $110 billionmarket value .
In this time frame, shares of
Time Warner Cable (NYSE:
have more than doubled, as have shares of
Charter Communications (Nasdaq:
If you've been fortunate to ride thesestocks all the way up, then
the looming storm clouds should give you ample reason to lock in
-- David Sterman
P.S. -- One stock has raised its dividend 33 consecutive
quarters. Another has beaten the market by nearly 100 points in the
past three years. And another has $9 in cash on the books... but
trades for just $20 per share. Together, these stocks and seven
others make up Elliott Gue's Top 10 Stocks for 2013. To learn more
about all 10 of these stocks -- including several names and ticker
symbols -- visit this link.
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of INTC in one or more of its "real money" portfolios.
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