Like so many things technology related, the idea of people dropping their cable service or "cutting the cord" wildly exceeds the reality. According to Portfolio Manager Dan Martino of T. Rowe Price, cable isn't going away anytime soon.
Martino says the average American watches a horrifying 230 hours of content via cable compared to a mere 10 hours of internet video. The latter number gets closer to 20 hours of online viewing as you move into younger demographics, but that still leaves plenty of time and advertising dollars for the cable companies.
Still, with content providers pushing for a bigger piece of the pie, wi-fi competition, and younger generations threatening to drop the remote and pick up a tablet, there's reason to doubt the cable guys' long-term prospects. In the attached video Martino explains why he thinks cable is going to win and picks his favorite stock in the group.
It sounds sort of defiant and Guy Fawkes-ish to rip your cable wire out of the wall, but that's going to leave you without the most reliable, and depending on where you live, the fastest way to get online. Even if you don't buy the cable content you're going to miss the connection, or at least most people will. That's no small advantage for the the cable companies with their virtual monopoly on the last mile into your home.
Time Warner Cable (TWC) and Comcast (CMCSA) own the pipe to 70% of the homes passed throughout the country, by Martino's estimate. The companies thus own what he says will "always be the lowest cost alternative" for broadband.
Content guys are compressing broadcast margins but owning that pipeline gives cable a lot of ways to win. Games, home security, voice, cloud functions, and much more are ways cable can grow revenue and profits even as the networks demand more in monthly fees. Taking advantage of those other services takes corporate agility. That brings us to Martino's favorite stock.
"Comcast is by far the best asset in the group in terms of execution," he says. The company has 1,000's of software engineers, constantly updated applications, and many more to come.
Both Comcast and TWC are pushing 52-week highs, suggesting Martino's points are pretty well understood by the Street. The question for investors is if they want to ride the winners or bet on the next big thing. From the looks of it getting long cable may let you do both at once.
- cable service