Cord-cutting is already a threat for Comcast (CMCSA), Time Warner Cable (TWC), Charter Communications (CHTR) and other cable TV providers. Pay TV subscriptions peaked in 2011, and many experts believe there are only declines ahead for Comcast and its peers.
This isn’t just because of existing streaming video options like Netflix (NFLX) and YouTube from Google (GOOG), either. It’s because of a new crop of disruptive entertainment technologies that threaten the entire model of cable TV providers.
The biggest example of this right now is Aereo Inc.
Click to Enlarge For those unfamiliar, Aereo is a unique technology that essentially connects a local broadcast TV antenna to the cloud in select cities around the U.S. Then, Aereo transmits that “free” broadcast programming to any Internet-connected device, and all a subscriber pays for is really the delivery — not the programming.
The idea is that since TV signals are broadcast for free over local airwaves, all you need to pay for is Aereo. The selection is limited to broadcast channels like your local CBS (CBS) affiliate, but at roughly $8 a month, the price is very appealing to many. You can even use a DVR to record those shows if you don’t want to watch them live, adding flexibility.
As you can imagine, traditional TV operators are not pleased. Broadcasters like CBS, Disney (DIS) — which owns ABC — and 21st Century Fox (FOX) aren’t thrilled with the service and have filed lawsuits contending Aereo has to pay them licensing fees for their signal just like a cable providers like Comcast do.
Equally miffed are the cable providers themselves, who don’t like the idea of an $8-per-month service that allows even more Americans to cut the cord.
Aereo currently is pretty small potatoes, serving a handful of markets including New York City, Atlanta and Dallas. But Aereo raised $38 million earlier this year from investors and has plans to move into the Midwest and increase its penetration in the Mid-Atlantic region, with aims to reach from Boston all the way to North Carolina.
Furthermore, Aereo continues to win court battles — including an October ruling regarding its Boston operations — and now seems to have some friends in Congress given the blessing of a recent proposal in the Senate.
There are many uncertainties regarding Aereo and similar disruptors that are looking to steal some eyeballs from conventional cable companies.
But one thing is certain: Comcast, Time Warner Cable and other legacy TV companies face an uphill battle in the years ahead. Investors should adjust their portfolios and expectations accordingly.
But hey, there might be a bright side here … namely, an Aereo IPO in the next year or so if the company continues to expand at this rate.
More on Aereo and Cable Stocks
- About Aereo and how it works. (Aereo.com)
- Some studies show TV subscriptions will decline about a percent a year all the way to 2017. (Paid Content)
- Aereo wins another court case. (Reuters)
- Tom Taulli on Aereo’s expansion. (IPO Playbook via InvestorPlace)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.