Cord-Cutting Concerns Spell Bad Week for Cable

Cord cutters increasingly are cutting Wall Street's regard for much of the pay-TV industry, as numerous stocks took a dive last week amid fears of declining numbers of video subscribers and smaller bundles. "It is clear the dynamic with the customer is changing," Cablevision CEO Jim Dolan said Friday in an earnings conference call. "The traditional video bundle does not work for all customers." The march toward smaller bundles "does leave anxiety out there for a lot of companies," CBS CEO Leslie Moonves said in another conference call.

While the investment world long has talked about cord-cutting issues, recent accelerated moves to skinnier bundles "has been particularly shocking for some people," Amy Yong, an analyst with Macquarie Bank, told us. Worries about those evolving business models and earnings trajectories have resulted in "a lot of unknowns" for an industry "traditionally seen as a great place to park your money," Yong said.

Cable companies and programmers had down weeks on Wall Street. Comcast, which lost 151,000 video subscribers over the past year, ended the week down more than 5.5 percent. Cablevision, down 16,000 video subs, ended Friday down 8.5 percent for the week. Disney finished down nearly 9 percent, AMC was down more than 8 percent, Discovery Communications down nearly 11 percent and Viacom lost more than 19 percent.

Cablevision's '"cord-cutter" packages launched earlier this year -- such as one offering Internet, a digital antenna and optional HBO Now service -- "are definitely making the phone ring," though most subscribers are new customers who normally wouldn't sign up for traditional cable service, said Chief Operating Officer Kristin Dolan. Sling TV CEO Roger Lynch told analysts last week that "the vast, vast majority" of its subscribers don't have other pay TV when they sign up. "Many of them have never had pay TV and the ones that are cord-cutters generally cut the cord a while ago," he said.

Since there's not yet "enough programming weight" online and among over-the-top services to entice mainstream cord cutting, Jim Dolan said, "I don't think the sky is falling quite yet. Consumers have become comfortable with the amount of choice cable offers. It will be at least five years for 10 percent of the market to move, and 10 years for at least 30 percent of the market to move."

Some consider worries about the cable industry overblown. "They're not dropping broadband subs, they're dropping video subs more than anything else. And that's not where the profits are," Barry Orton, telecom professor at University of Wisconsin-Madison, told us. "You can almost look at the video subscribers and video service as a loss leader." MoffettNathanson upgraded Time Warner to "buy" Friday, because its HBO "is one of the few global brands -- along with ESPN -- that can operate in an a la carte world," analyst Michael Nathanson wrote investors. "The combination of HBO and Warner Bros.' vast library of premium content offers a unique direct-to-consumer opportunity."

Cablevision has been using the FCC look into changing network nonduplication and syndicated exclusivity rules as an opportunity to push for the agency to break up cable TV bundles (see 1508030058). But the FCC "would be foolish ... to get enmeshed in the whole bundling/unbundling issue," Orton said. "That has been an issue for 30, 40 years now, 'When are we going to have a la carte cable?' The industry knows it takes a beating on that from subscribers [but] decided long ago for the sake of their bottom lines they will live with bad customer relations, a bad image."