Will a Price Hike in New Year Benefit Cable Companies?
Per a recent FierceCable report, cable and satellite television companies are gearing up to hike prices of their packages. Major cable companies like Comcast Corp CMCSA, DISH Network Corp DISH and Cox Communications Inc have notified their customers about increase in programming packages rates, effective from 2018. U.S. telecom behemoth, AT&T Inc T has also announced monthly price increase for it’s over the top (OTT) online streaming service DirecTV Now.
The move comes at a time when cable companies are reporting video subscriber losses to the online video streaming service providers. Online video streaming providers such as Netflix, Inc NFLX, Hulu.com, YouTube, etc. pose severe threat because of their cheap source of TV programming.
Video offering, which represents the core business function of cable-TV operators, is losing popularity. Per a FierceCable report, traditional pay-TV services, including cable and satellite, lost 1.2 million customers in third-quarter 2017, thanks to cord cutting. (Read more: Pay-TV Subscriber Loss Rises in Q3, Cord Cutting Still a Woe)
In the first nine months of 2017, cable companies lost 801,000 video customers — 114% higher year over year. Total U.S. traditional pay-TV subscribers are approximately 91.7 million. The subscriber loss trend is expected to continue in the upcoming fourth-quarter 2017 results.
In such a scenario,price hike can negatively impact the companies. This is because viewers always look for cheaper packages.
Moreover, people are in festive mood. It is rare for operators to increase prices during this time of the year. Celebrations are always welcomed with offers and attractive discounts, to lure more subscribers.
Why the Price Hike?
Companies have cited various reasons for price increase. Increasing cost of programming content continues to be one of the main reasons of video rates increase. Continuous investment in network, products and services also add to the company’s budget.
In third-quarter 2017, Comcast’s Cable Communications segment witnessed a 5.3% increase in operating expenses due to a 12% increase in video programming costs and a 1.1% increase in non-programming expenses.
In the reported quarter, DISH Network’s operating expenses were more than $3,134.40 million. The company, in their press release, stated that programming expenses are increasing and could adversely affect future financial condition and operations.
AT&T’s total operating expenses in third-quarter 2017 were $33,265 million compared with $32,514 million and $32,501 million in the previous two quarters of 2017, respectively.
Evolution of new technologies have resulted in cutthroat price competition. Expenses related to the upgrades have also increased the company’s overall costs and expenses.
Price increase is also a business strategy to recover their monetary losses.
Our View & Zacks Rank
The justifications for the hike looks satisfactory. However, persistent video subscriber losses coupled with increase in package prices is likely to dent the companies’ video businesses, thus severely affecting margins. We look forward to seeing if these companies rake in profits in 2018.
Currently, Comcast, DISH Network and AT&T carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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