By Shalini Ramachandran
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 28, 2018).
More customers are dropping cable TV as they turn toward
streaming services like Netflix Inc., a fundamental shift in
consumer behavior that was on display this week in painful earnings
reports from cable and telecommunications companies.
Charter Communications Inc., the third-largest U.S. pay-TV
provider by subscribers, said Friday it lost 122,000 video
customers in the first quarter, a far worse outcome than the
roughly 40,000 subscriber losses Wall Street analysts expected. In
the year-earlier period, Charter lost 100,000 customers.
The results triggered a selloff that sent Charter shares down
12%, the stock's largest single-day percentage decline since 2009.
They follow similarly negative subscriber reports on cord-cutting
this week from bigger rivals, Comcast Corp. and AT&T Inc.
As viewers flee traditional TV for streaming-video services,
Netflix has arguably been the biggest winner, adding subscribers at
home and abroad at a clip that has outpaced Wall Street's
expectations.
Other tech companies are also angling to capitalize on
consumers' changing habits. Amazon.com Inc. now has more than 100
million customers for its Prime subscription service, which
includes a video offering the company has been pouring money into,
including a deal on Thursday to keep streaming NFL games. Google
Inc. is ramping up its YouTube TV streaming service, an online
bundle of cable channels that competes with the likes of Hulu Live
and Sony PlayStation Vue. And Facebook Inc. and Apple Inc. have
each set aside as much as $1 billion for original programming meant
to lure more viewers away from traditional TV.
Investors are growing concerned about such services stealing
away market share, said Guggenheim Securities analyst Michael
Morris, leading some to sell out of slow-growth traditional cable
and telecom and buy into tech stocks.
"Companies like Amazon and Netflix are delivering game-changing
convenience at incredibly efficient prices," Mr. Morris said. "As
an investor, you say, 'I don't know how this plays out, but I do
know it is very difficult to compete if my competitor is
undercutting me on the pricing side.' "
The upheaval in the pay-TV economy is stark. From the beginning
of 2015 through the end of last year, nine million Americans have
either cut the cord or chosen not to buy a traditional cable
package when moving into new households, according to estimates
from MoffettNathanson.
Comcast said Wednesday it lost cable TV customers for the
fourth-straight quarter due to heightened competition from cheaper
online TV services, and AT&T reported video revenue declines as
growth in its streaming service DirecTV Now failed to offset
higher-value satellite TV customer defections.
Verizon Communications Inc. said it lost 22,000 Fios video
customers in the quarter, compared with a loss of 13,000 a year
earlier, though the company has lessened its emphasis on its
traditional TV product and tried to pivot to digital media in
recent years.
The results have shaken investors' confidence that big telecom
companies' broadband customer growth will offset declines from
cord-cutting as time goes on. Charter said broadband customer
growth decelerated in the first quarter, echoing a trend at Comcast
and AT&T. Charter added 331,000 high-speed internet customers,
compared with an addition of 428,000 a year ago.
Investors are also concerned that cable giants don't have the
right assets and scale to hold their own against global tech
giants. Comcast is trying to address that, in part, with a recent
bid for European pay-TV operator Sky PLC, but its investors are
lukewarm on the idea.
"Cable is currently out of favor, in large measure due to
Comcast's extracurricular activities," wrote veteran Wall Street
analyst Craig Moffett in a Friday research note.
Those growing worries about cable and telecom firms have shaved
chunks off the market values of Comcast, Charter and AT&T.
Since the beginning of February, Charter has lost nearly $30
billion in market value, and AT&T has shed nearly $50 billion.
Comcast's market value has declined nearly $50 billion since late
January.
Charter's results Friday weighed down other industry stocks.
Dish Network Corp. shares fell more than 5%, while Comcast lost
more than 4% and Liberty Global PLC fell more than 6%.
Netflix, meanwhile, has continued to soar. Its already pricey
shares are up more than 62% this year, adding $52 billion to its
market value.
Traditional players like AT&T and Dish Network Corp. have
aggressively marketed their streaming services, DirecTV Now and
Sling TV, respectively, but growth in those offerings hasn't offset
mounting satellite-TV customer losses. Even with online cable TV
services added into the mix, 4.5 million Americans have forgone
buying pay-TV bundles since 2015, according to MoffettNathanson
estimates.
On a call with analysts Friday morning, Charter Chief Executive
Tom Rutledge said Friday the company's optimistic vision for its
future growth hasn't changed. Company executives continue to point
to the ongoing integration of Time Warner Cable and Bright House
Networks, both of which Charter bought in 2016, as a major source
for much of the weakness in subscriber results.
Mr. Rutledge said the integration has some "lumpy aspects to it
as we combine the companies in various ways," but he added "that
integration is actually going quite well and pretty much as
planned."
While subscriber results disappointed investors, Charter
increased earnings 8% to $168 million in the quarter, and overall
revenue grew 5% to $10.7 billion, helped by broadband revenue
growth, cable bill increases and ad revenue growth. Earnings per
share grew to 70 cents from 57 cents a year ago. Profit and revenue
fell short of Wall Street estimates of 98 cents a share on $10.8
billion in revenue, according to analysts polled by Thomson
Reuters.
Write to Shalini Ramachandran at
shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
April 28, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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