While My Guitar Gently Weeps
The $6.8 Billion Business Has to Find a New Home
While My Guitar Gently Weeps
OOH …Here’s One Thing
by Jim Johnsen
Does anyone else like the old Eric Clapton as much as i do? I mean the raw gritty stuff*…not the “newer” polished stuff. Almost as good as Stevie Ray Vaughan IMHO. But I digress.
While winding down from a late night flight on Friday, I allowed myself a few minutes with my secret little pleasure, aka Barrons Magazine. Exciting stuff, right? While flipping pages, I stumbled upon an article that made me feel like Rip Van Winkle, entitled “TV’s Great Unbundling Has Only Just Begun” (July 29, 2019). I mean I knew that the once darling cable business was experiencing some “cord cutting”, but I did not realize that the cable business was no longer really the cable business.
That would be like the OAAA changing its name to something like “BPAA” (i.e. Big Programmatic Advertising Association).
So, trolling around for some facts for this article, I came to learn that the National Cable & Telecommunications Association (“NCTA”) has recently changed its name to The Internet & Television Association. Wow. If that doesn’t signal change. That would be like the OAAA changing its name to something like “BPAA” (i.e. Big Programmatic Advertising Association).
The article mentions “Over the past two years, AT&T and Comcast shed a combined 5.4 million…Add in Dish Network (DISH), Verizon Communications (VZ), Charter Communications (CHTR) and Altice USA (ATUS) and you have about 8 million subscriber losses in just two years.”
But the irony in these dramatic subscriber losses is the cable companies supposedly love it. ARPU (average revenue per user) is way up. “Video’s indirect cost intensity – video demands significantly more customer service and repair and maintenance than does broadband – effectively pushes margins yet higher.” Translation…we make more money providing ‘Plain Jane’ internet connectivity then we do offering 500 channels of programming. Holy altered reality Batman! We just spent the past 40 years and a gazillion bucks bringing the cable business from 24 channels to 500 plus channels and now we wake up and tell the world that it doesn’t matter! All that really matters is we own the pipe into the customers home and we will charge them a toll fee so they can run their Netflix, Hulu, Youtube, Sling TV, Snapchat, et al.
Talk about perfume on the proverbial dog poop! I don’t buy it. Unless the cable operators are willing to hit the complete eject button from video, their programming costs (i.e. what they pay ESPN, etc) are getting spread over fewer subscribers and have to go up overtime. After all, ESPN and all the content providers are happy to sell you direct and bypass the cable companies. Do you think pricing to cable companies are going to get more favorable, or less, over time? My guess is HBO, Showtime, the History Channel, ESPN and the rest have whispered “to hell with the cable operators” sometime during a recent board meeting.
And what the cable cos can charge for broadband access, IMHO, has a ceiling. Lastly, in a 5G world, if I understand it correctly, you can run down to your local CVS and buy a cheap modem and your kids have all the bandwidth they need to run Snapchat, YouTube and Netflix and do their homework at the same time. If that comes to pass, the French are going to lament the day they handed $17.7 billion to the Dolan family and investors for Cablevision.
Okay Johnsen, thanks for the interesting tidbit on another media business that has bit the dust, but really its Monday, my coffee is getting cold and I have things to do.
So here is the thing. Local cable advertising (ya those guys that go door to door selling the nail salon, the car wash and the local car dealer) is $6.8 billion business. All that money has to find a new home. Many of those good sales men and women need to find a new livelihood.
Time to get busy.
Securities transacted through StillPoint Capital Member firm FINRA/SiPC
*Clapton’s early career includes the Roosters, the Yardbirds, John Mayall and the Bluesbreakers, Cream, Blind Faith and Derek and the Dominos, all before the age of 30. He is also the only 3 time inductee to the Rock and Roll Hall of Fame. It’s also interesting to note, Clapton played lead guitar solo on Harrison’s “While My Guitar Gently Weeps” from the Beatles’ White Album. Lastly, rumor has it that Layla was written about George Harrison’s wife who Clapton had fallen hopelessly in love with. Give the song another listen, if that is new news for you.