When it comes to stocks, it pays to play the long game, because the headlines might give you an incorrect idea about the future of a particular industry. Take the entertainment industry, for example. In recent weeks we’ve heard decidedly mixed messages – on one hand, the squabble over Chinese telecom firms listing on the NYSE seems to have spooked investors; on the other, there have certainly been some entertainment stocks that benefited from the pandemic.
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Take a broader view, however, and you’ll see that there are some seismic shifts that will eventually make these short term blips – and yes, even the pandemic – meaningless. And one is probably visible in your living room right now. Cable TV is slowly dying. There are good reasons for that, and in this article we’ll explain them. Then, we’ll give you three stocks that are going to grow as cable TV continues its slow but inevitable decline.
The Death Of Cable
First, let's assess why cable TV is dying and what that means for the economy as a whole.
The first fact to note here is that there are some very good reasons for the coming cable exit. It might surprise you to learn, for instance, that the price of basic cable has increased 250% since 1996, and cable companies are among the most hated in the world, thanks largely to their under-funded customer service departments.
In this context, it’s no surprise that as soon as an alternative came along – streaming services like Netflix and Hulu, for instance – it didn’t take much to get people to leave their cable company. The numbers here are pretty extreme, in fact:
- 32 million households are now "cord cutters." That's 27% of homes, compared to just 4.5% in 2010.
- 45% of Americans stream television shows at least once a month.
- 24% of TV viewers ages 18 to 34 (the prime advertising demographic) don't subscribe to any traditional television services.
- In 2020 alone, more than 6 million people decided to cut the cord.
These figures are even more striking when you consider the economics. The cable TV industry, in its prime, was a corporate behemoth, and was worth more than $100 billion a year. This means that, as cable companies die away, there is an awful lot of money suddenly up for grabs. It will be taken by those companies who know how to position themselves in the emerging market for streaming TV services.
Our Picks
At first glance, it might seem that the companies that look the most like cable companies – Netflix and Hulu, for instance – will be the winners from the death of cable TV. However, things may not be that simple. The market for streaming services is dynamic, highly competitive, and highly risky. Customers now expect to be able to change their streaming provider quickly and easily, and they may do so several times a year.
For investors, this means that investing in streaming platforms themselves can be a risky business. Even a company the size of Netflix can see its share price fluctuate widely in response to viewer numbers for a particular show. It’s better to take a broader view, and invest in those companies that are providing the infrastructure for the streaming revolution, and who will continue to do so no matter which platforms people are using.
With that in mind, here are our picks:
It might seem strange to pick Verizon Communications Inc. (NYSE:VZ) in this list, given that the company is representative of the “old guard” of telecom companies. The truth, however, is that many Americans now stream TV through Verizon broadband connections, and many more will start doing so in the next few years.
The reason why Verizon is well-positioned to take advantage of the death of cable is simple – they have invested in 5G across the USA. 5G is all but necessary to enjoy the new breed of streaming services which are coming on to the market today. Verizon was one of the first telecom companies to see this, and are likely to see their customer numbers increase because of this.
Google - Alphabet Inc (NASDAQ:GOOGL) - stands to gain in a number of ways from the death of cable TV. Many of the streaming services that are replacing cable rely on infrastructure provided by Google, for instance, and in many cases Google accounts are used to access streaming content. This means that Google, already the world’s biggest advertiser, is poised to become the biggest broker of video ads across these new services.
The company also has a few surprises up its sleeve, though. One is the fact that it is investing in the satellite internet market. At the moment, poor internet access is what is holding back many customers in rural areas from cutting the cord – if Google’s plans come off, that will no longer be the case.
A slightly more unusual idea is to invest in the companies that provide the infrastructure needed for streaming services. CoreSite Realty Corp (NYSE:COR) is a company that leases real estate to some of the biggest companies in the technology industry, mainly so that they can build data centers. As the streaming revolution gathers pace, more and more of this kind of space is going to be required, and stocks in companies like CoreSite are likely to rise in parallel.
The Bottom Line
It’s impossible, of course, to predict the future of the cable industry with a high degree of accuracy. The industry is still in recovery mode from the pandemic, after all, and many people have better things to worry about than whether their cable subscription is the best choice. Year by year, however, the cable tv industry is dying, and that means that canny investors can make some major gains.
Please note we are not a professional investment advisory service and have no idea if these suggestions will work to your benefit or not. This information is informational only, with no profit implied or guaranteed. Please consult a financial advisor before proceeding and don’t invest money you can’t afford to lose.
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