Is the Cable Industry Broken?

Cables, Is the Cable Industry BrokenIf you’re looking for a sign of the times for the cable industry, you may not need to look further than Comcast, the country’s largest provider of cable services. In December 2007, the Philadelphia-based behemoth lowered its revenue and cash-flow forecast for the third time in a year. Comcast now expects its cash flow to fall some 20 percent, and its stock was down more than 30 percent for the year.

In a company statement, Comcast said, an “increasingly challenging economic and competitive environment” were the reasons for the adjustment. And the company’s bad news dragged down shares of fellow cable companies Time Warner Cable and Cablevision. Each company’s stock fell some 5 percent on the days following the Comcast news.

So, where is the market heading? Well, it’s not nearly as bad as it may appear at first glance, according to Dr. Imran Shah, managing partner and co-founder of IBB Consulting Group, a boutique firm that serves the broadband industry and its service providers in the cable, mobile and media industries.

“We remain very bullish on the cable industry,” Shah says. “The cable business is a cynical business and yes, 2007 was a bad year, but that bad year came off a very healthy and prolonged period of growth. I think the industry is leveling off right now.”

Most pundits chalk up the downturn to increased competition as telecom companies such as Verizon and AT&T enter the scene with video services, but “the competition thing has been overplayed,” Shah says. Rather, he contends, it’s more a sign of the economic times. “For cable companies, the share of wallet has grown tremendously from $30 bucks a month up to now a hundred or more dollars a month,” he says. “It’s much more the impact of how consumers are choosing to spend their discretionary income.”

Dr. Imran Shah Now watch IBB Consulting Group’s Dr. Imran Shah discuss the cable industry’s future on Consulting magazine’s One-on-One, click here.

To combat that, he says, cable companies are beginning to open up new revenue streams that do not ebb and flow with consumers’ discretionary income. Those new markets include small- and medium-sized businesses where traditional cable companies can offer more cellular, Internet and back-office services. The other potential growth area is advertising.

“So, the good news in all of this is that there is a move to increase revenues but not from the consumers’ pockets anymore,” Shah says. “There’s a lot in the pipeline in terms of revenue diversification. That’s a very good thing.”

—Joseph Kornik