I recently added HBO to my cable television subscription. I enjoy the series and the extra movie options I have on the several channels on cable line up. What I enjoy more is HBO GO. I am not alone.
HBO GO is a service that comes free with the subscription and allows me to stream content to a phone, tablet, computer or streaming device like Roku or Apple TV. Since I recently got a new laptop with an HDMI slot, I connect the laptop right to the TV. Perfect picture and tons of content. Much more content than is available from On Demand and the speed of access to that content is many, many multiples faster.
I now watch HBO GO more than I do the regular channels of HBO because I have access to 263 movies and ALL of the series, not just part of one season.
This made me think of the future and how there will not be a need for cable companies down the road... and that is just fine with me. For years I have been paying a king's ransom for 38 cooking shows that I never watch or channels that have a questionable existence. Soon I will be able to stream right to my large screen TV and get to choose what I want.
Services that push content, like how Pandora pushes music will pop up on the broadcasting side of the internet to address the idea of discovery. But make no mistake about it, demand and choice will drive the majority of future viewership. I will watch the Jersey Shore whenever and where ever I want to catch up with Ronnie and Sammie and the rest of the crew.
Even if the Facebook IPO and subsequent meltdown slows some of the new ideas into the market, these push or discovery streaming companies are coming. They will also likely come to investors are much cheaper rates thanks to the IPO debacle.
While this is still years away, we can still get ready for it by protecting ourselves from the losses that are inevitably going to come. Where are the losses? Well the cable companies and the satellite providers will be most directly impacted. We saw it in newspapers before and now the cable companies are next.
In the Crosshairs
Charter Communications (CHTR - Analyst Report) passes about 12 million homes are delivers internet to 3.5 million homes. Its stock is at close to a 52 week high and is a Zacks #3 Rank (Hold), but I think its going lower. Investors are clearly looking past the fact that the company has reported 7 straight earnings losses, all of which have been well below consensus. While internet delivery is still going to be a backbone service Charter splits its internet revenue with a separate backbone provider. So the growth engine for this company will not generate the full effect for shareholders. Gains that investors may have made in this name will be the target of streaming companies.
Analysts have slowly caught on to what is happening at CHTR. In August of 2011, earnings estimates for 2012 stood at $2.41 and have since moved to a loss of $1.80 a share. Estimates for 2013 have also seen similar decapitations, moving from $4.69 to the current level of $0.48, a decrease of nearly 90%.
Dish Network (DISH - Analyst Report) is another such example or a cable TV provider that doesn't possess the full internet pipeline that is going to truly hook the consumer. Yes Dish serves nearly 14 million customers with an excellent variety of programming choices, but soon most of those choices will be available on the internet.
Analysts have already noticed the trend, and have moved estimates lower for 2012 and 2013. In August of 2011, estimates for 2012 stood at $2.91 and have since moved lower by $0.10. Over the same time period, 2013 estimates have contracted from $3.07 to $2.87.
DIRECTV (DTV - Analyst Report) is bigger than DISH, with about 20 million customers in the US, and another 12 million in Mexico and South America. Maybe the demand for internet isn't as large in South American and DTV will have a little more "lasting" power, but urban centers will thrive on the internet broadband or fiber to the home.
DTV bucks the trend of lower future estimates. To keep the consistency with the other stocks, DTV has seen estimates increase from August 2011 to the present for both 2012 and 2013. 2012 has seen an increase of $0.12 to $4.34 in expected earnings. 2013 estimates have increased $0.05 to $5.31.
I see Comcast (CMCSA), with its more than 22 million cable subscriber and 18 million internet customers as having one of the more defensible positions in the industry. Yes the ratio of internet to cable is compelling but there is the idea of the ownership of NBC and Telemundo. Those content providers will benefit from the coming switch, even if they are owned by cable companies.
Make no mistake. Streaming from the internet is the wave of the future and its coming. It won't happen in 2012 or 2013, but we will feel the first rumblings in 2014. After that, its downhill for these cable providers. That idea alone should make you want to rethink your position if you own CHTR, DISH or DTV.
Brian Bolan is an Equity Strategist
Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor
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