Cable Companies’ Future is Online (CHTR, CMCSA, TWC, DIS, VZ, T, PCS, LEAP, FTR, NFLX, AAPL)

The line between mobile wireless carriers and cable and satellite TV providers has been blurring for a couple of years and may be on the way to disappearing entirely before too long. The short version of the story is that wireless broadband, heralded by speedy 4G networks, is showing fast subscriber growth, while cable and satellite subscribers are staying away if not actually “cutting the cord.”

We get more evidence of the switchover today from Charter Communications Inc. (NASDAQ: CHTR), which reported results this morning including miss on an already awful estimated EPS loss of -$0.57. Charter’s EPS loss came in at -$0.95. The company added a scant 20,000 customers for video in the first quarter compared with 141,000 new customers for Internet service.

As we noted last week in our look at earnings from Comcast Corp. (NASDAQ: CMCSA), bundling of services and content is becoming the new way of doing business in the space once dominated by cable providers. For example, Time Warner Cable Inc. (NYSE: TWC) and Comcast both have long-term deals with Walt Disney Co. (NYSE: DIS) to offer WatchESPN, the online and mobile version of Disney’s ESPN network. The cable providers are hoping that the offer of free mobile content will stem the flow of unsubscribers.

Verizon Communications Inc. (NYSE: V) and AT&T Inc. (NYSE: T) also offer high-speed digital content and are working on deals to offer new bundles to customers. Verizon’s attempt to acquire more wireless spectrum in its $3.6 billion deal for SpectrumCo gives the company’s wireless carrier, Verizon Wireless, the opportunity to bundle programming from Comcast and Time Warner Cable along with access to mobile broadband.

The cable providers, in turn, are able to offer a bundle to their customers that now includes Verizon’s high-speed mobile broadband. It should be no surprise that smaller carriers like MetroPCS Communications Inc. (NYSE: PCS), Leap Wireless International Inc. (NASDAQ: LEAP), and Frontier Communications Corp. (NASDAQ: FTR) are struggling.

Research firm Convergence Consulting recently released studies on broadcast and cable TV and bundling. Between 2000 and 2009, cable TV subscriber additions averaged 2 million a year. In 2010 additions totaled 272,000 and in 2011 additions totaled just 112,000. The firm estimates that 2.65 million cable subscribers “cut the cord” between 2008 and 2011, choosing instead to rely on “over-the-top” services from Netflix Inc. (NASDAQ: NFLX) and others. By the end of this year, the firm estimates there will be 3.58 million cord cutters.

Convergence Consulting estimates that the audience for free online/mobile viewing has plateaued at 19% of all TV viewing. But that seems low, especially in light of the cross-licensing deals between the wireless carriers and the content providers like Disney and the cable networks.

The other thing that could raise that plateau is another technological wonder from Cupertino. Rumors of an “insanely great” Internet TV box from Apple Inc. (NASDAQ: AAPL) have been rampant for months, if not years. There are already several options available for these ‘over-the-top’ boxes, but if Apple were to come up with a killer piece of hardware, the ground could shift in a hurry.

Of course the TV and movie industries have learned from the music industry that Apple drives a hard bargain, and they can’t let themselves give up currently large broadcast revenues in exchange for much smaller online sales. What Apple should hope for is that a game-changing device with one or two significant content partners will convince consumers to force the rest of the media moguls to toe the line.

The transition from wired high-speed broadband connections to wireless connections is just starting. There are lots of different companies involved and the one or two with the deepest pockets or that are able to discern what the future holds will prosper. As for the rest, who knows?

Paul Ausick

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