Back to top
Read MoreHide Full Article

Shares of Time Warner Inc. (TWX - Free Report) are up about 2.7% on Wednesday following the company’s second-quarter earnings announcement. With earnings coming in at $1.29 per share, beating the Zacks Consensus Estimate of $1.16, Time Warner is yet another example of how cable companies are surviving in today’s industry.

Going Through Changes

Across the board, we are seeing the cable industry shift its focus to original content and online video streaming. The advent of online streaming services like Netflix (NFLX - Free Report) has completely changed the pay-TV landscape, and companies are being forced to make major changes.

For example, Time Warner saw revenues from its Home Box Office (HBO) segment grow by 2% year-over-year, with subscription revenues growing by 6%. While HBO does license content from third parties, its original shows like Game of Thrones have become cultural sensations. HBO also recently launched HBO Now, an over-the-top video service that allows users to stream HBO shows online without a cable subscription.

Time Warner also recently entered the video streaming market by purchasing a 10% stake in Hulu. The Hulu deal also includes a package of shows from TNT, Cartoon Network, CNN, and TBS that will stream on the service. Several other media conglomerates have also carved their own slice of Hulu, and its other corporate owners include 21st Century Fox (FOXA - Free Report) , Comcast (CMCSA - Free Report) , and Disney (DIS - Free Report) .

Another major move that highlights this new phenomenon is Verizon’s (VZ - Free Report) $4.83 billion takeover of Yahoo’s core business. While it is still unclear exactly what Verizon will do with the struggling search engine, the obvious prize in the deal is Yahoo’s own content, including Yahoo Finance, The Vertical, and Tumblr.

Cable companies are struggling to get users to tune in to traditional television, so they are trying to recover their market share by going after the content that people are actually accessing.

Gotta Get With Netflix

The leader of the so-called “Cord Cutting Revolution” has been Netflix, the video streaming service with over 80 million subscribers worldwide. Another trend we have seen in the cable industry is a desire to partner with Netflix, despite its service being the root cause of the traditional TV subscription problems.

One of the first big moves in this area was the news that Netflix will become the exclusive streamer of Disney movies come September of this year.  In a similar move, Netflix partnered up with The CW, a television channel and joint venture between CBS (CBS - Free Report) and Warner Brothers. Netflix will become the exclusive streamer of all past seasons of the network’s shows in the U.S.

The most surprising deal has to be from Comcast, a long-time bitter rival of Netflix. Last month, both companies announced an agreement that will allow the video streaming giant to be accessible on Comcast’s X1 platform.

This partnership is perhaps the biggest sign that the cable industry has seen the writing on the wall, simply because of the two parties involved. Netflix and Comcast have had very public clashes on the topic of net neutrality, and Netflix CEO Reed Hastings has openly accused the cable giant of throttling connections to his service. This move is so good for both businesses that these differences were put aside to make the agreement.

Bottom Line

Traditional TV subscriptions are down, and content licensing is becoming increasingly expensive. This has resulted in a monumental shift in the cable industry that has seen media conglomerates focus their attention on original content creation and online video streaming. With all of the recent moves in the sector, consumers should now be used to the new normal.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 DaysClick to get this free report >>

More from Zacks Stocks in the News

You May Like