Football is back, MTV is launching four new reality series and the whole world is waiting to find out how CBS will replace Charlie Sheen with Ashton Kutcher on Monday night. But even though U.S. consumers still are enamored with TV programming, they’re becoming less willing to pay for it. And that makes for a challenging revenue environment for cable companies such as Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), Charter (NASDAQ:CHTR) and Cablevision (NYSE:CVC).
The bad news for all subscription TV companies — including satellite providers like DirectTV (NASDAQ:DTV) and Dish Network (NASDAQ:DISH) — is that the market is now extremely saturated: 85% of all homes have some sort of pay TV service. What’s worse, a study last week by IHS Suppli found that consumers are unplugging their sets in favor of the Web: video subscription services fell by almost 370,000 homes in the second quarter, to 100.6 million, down from 101 million in the first quarter of this year.
So does that mean cable stocks are starting to circle the drain? No. Despite the trend of “cord-cutting” — dumping cable for Internet video — most subscribers will hang in there. And even in a worst-case scenario, where cable loses 10% of its video subscriber base by 2015, IHS believes operators will retain strong operating margins from their high-speed data and voice-over Internet protocol (VOIP) telephone offerings.
In this market, the 800-pound gorillas are Comcast, with 22.8 million subscribers, and Time Warner, with 12.4 million (satellite providers DirecTV and Dish hold 19.4 million and 14.2 million, respectively). Verizon’s FIOS service has signed up about 3.7 million homes.
Because the industry giants get so much attention, it’s easy to overlook the value proposition of the market’s second-tier players like Charter and Cablevision. Here’s how the two stocks stack up for investors: