The Cable Industry's "Dying", but Where Are All the Cord Cutters?

US Household Formation Chart
US Household Formation Chart

With pay-TV subscriptions remaining relatively flat while millions of new households come into the fold, it means that there's a growing number of homes that either cut the cord or never plugged it in in the first place. New households help to offset those cord cutters as most households (including new households) subscribe to a pay-TV service. Despite this help, MoffetNathanson analyst Craig Moffett believes the bump in pay-TV's subscriber base doesn't exactly match the rising pace of new households and estimates that, on a trailing 12-month basis, "1.4 million homes have cut (or never had) the proverbial cord."

What does this mean for investors?

For investors, this is both good and bad news. The growth in new households is enough to offset the number of customers ditching pay-TV for now. On the other hand, it's clear that there's a growing population of people who are going without cable, and the options to go without are only going to get better in 2015. It's not clear the industry will be able to maintain its 100 million-plus subscribers for much longer, even with the phenomenal growth in new household formations.

Still, most pay-TV operators have successfully increased their average revenue per customer, which ensures growing revenue from their video operations. Price increases can't last forever, however, especially as the number of streaming options proliferate at lower prices.

Most cable operators and telecom companies also offer high-speed Internet service, which is a very good hedge against cord-cutting. Neither of the satellite providers offers compelling Internet service, however. That makes the merger between DirecTV and AT&T extremely important for DirecTV investors. DISH Network , meanwhile, released Sling TV -- a live television streaming service -- as a hedge against cord-cutters.

Overall, the trend isn't great for pay-TV providers, but it's not terrible, either. Most providers have strategic hedges in place, or are at least working on them. If new household formation keeps up the pace in 2015, it could mask the growth in cord cutting. But it seems my prior thesis that cable subscriptions will grow with household formation was simply incorrect.

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The article The Cable Industry's "Dying", but Where Are All the Cord Cutters? originally appeared on

Adam Levy owns shares of The Motley Fool recommends, Netflix, and Verizon Communications. The Motley Fool owns shares of and 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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