Why Wall Street Doesn't Mind Cable's "Dark" Pay TV Future

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Comcast, Verizon and Charter are convincing investors that their core business — selling internet access — far outweighs cord-cutting concerns, but satellite services aren't so lucky.

When Bernstein analyst Peter Supino on Oct. 15 launched coverage of the telecom, cable and satellite industries with a 79-page report, he wrote that "video's outlook is dark." The number of U.S. households that carry the traditional TV bundle has dropped from 101 million in 2014 to just 87 million in 2019, headed for 78 million by 2022.

Nevertheless, Supino has a positive outlook on the sector as cable firms rack up more cash from selling the sort of high-speed internet access that Netflix, YouTube, Hulu, Apple TV+ and, starting in November, Disney+ are so dependent on. "Stop worrying about video subscriber losses and own cable," Supino told investors, and he's not alone in his bullish assessment.

"The impact of the direct-to-consumer services hasn't been felt yet, but the real sea change is that the cable operators no longer feel compelled to defend the status quo," MoffettNathanson analyst Craig Moffett says. "They're quite comfortable losing low-value video subscribers, and they now know that investors are comfortable seeing video subscriber losses as well."

Comcast CFO Michael Cavanagh echoed the sentiment during the company's Oct. 24 earnings call when he declared that the parent of NBCUniversal is no longer interested in pushing cut-rate TV packages.

"Video is still an important profitable component … but we continue to be disciplined and are not chasing unprofitable subs." Comcast Cable CEO David Watson added: "If we can't profitably serve this segment, then we're going to move them to a broadband-only relationship."

Altice USA and Charter Communications are a couple of Supino's top picks because their "dense fiber networks are precious," he says, with customers paying upward of $90 per month for big-bandwidth internet access. Of course, the move to digital video isn't doing channel operators much good, with Disney's ESPN, for example, shedding 2 million subs in its latest fiscal year.

And not all providers are created equal, hence Supino is bearish on satellite, figuring that shares of DirecTV parent AT&T are headed for a 3 percent fall in the next 12 months while Dish Network stock loses 13 percent, as the silver lining of increased internet access making up for declines in television doesn't apply to the satellite services.

During an Oct. 28 call with analysts, AT&T CEO Randall Stephenson shifted the conglomerate's focus toward the launch of its flagship $15 HBO Max streaming service next May — but kept some perspective. "We're very excited about putting wireless with HBO Max," Stephenson said, adding, "It's a great bundle with our broadband business, particularly the fiber business."

This story first appeared in the Oct. 30 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.