Comcast And Time Warner Will Never Admit This Grim Logic Of Subscriber Losses Is Driving Their Merger

The Comcast / Time Warner Cable merger is not a surprise when you see what's happening with subscriber numbers in the TV business.

These charts tell the story - and the give the depressing underlying logic to the deal.

First, traditional cable TV is dying. Dying slowly, but nonetheless dying.

By 2018, 1 in 5 Americans will simply no longer be watching traditional TV, according to Forrester, a research group:

Here is what that death looks like in terms of TV subscriptions being lost across all the major companies in the business.

Note that the business as a whole is no longer able to add new subscribers most quarters. People are leaving. (We're grateful to One Touch Intelligence for this data.)

The TV business has been taken by surprise by this trend. For example, Upon delivering his Q3 numbers, Tom Rutledge, CEO of Charter Communications (another cable TV firm), told Wall Street analysts he was "surprised" that 1.3 million of his 5.5 million customers don't want TV - just broadband internet. "Our broadband-only growth has been greater than I thought it would be," he said.

Now here is what that same data looks like at Time Warner and Comcast, specifically:

The key to this chart is that ALL the points on it are negative - the companies are only losing subscribers on a quarterly basis. But Comcast's trends are better than Time Warner's. Comcast seems to be reducing its losses as time goes by. Time Warner, by contrast, is a disaster area. Time Warner has lost internet subscribers as well as TV subscribers. Customers are bailing out of this sinking ship.

So clearly, Comcast sees a weakness in Time Warner's business - making it ripe for acquisition.

Viewers are going online for video.

Where are those viewers going? To stream video on-demand, over the internet, from services like YouTube, Hulu, Roku, Aereo, Netflix, and illegal pirate streams. People just don't want to pay cable companies for TV any more, so they're buying connected/internet TVs, according to Business Insider Intelligence:

But why would Comcast want to acquire Time Warner's ailing business? Why not just compete against it? Especially as, for regulatory/competition reasons, the combined entity will have to give up 3 million more subs.

It's all about managed decline. Look at the top chart from Forrester again. It shows TV watchers in decline, but in a slow decline. This is a business that will be around for years, even if it won't be a happy business to be in. There will still be plenty of money to be made managing those margins on the way down.

Comcast is clearly better at managing the decline of its subscribers - note how its subs losses are much narrower than Time Warner's. That's likely because Comcast has gone all out to provide internet-like TV to its users. Comcast customers don't just get TV, they get broadband internet, an extensive on-demand menu of individual shows and movies, a large catalogue of free old movies, and an Xfinity mobile app that allows you to watch all the TV you want on your phone or tablet.

Comcast is probably thinking that if it can capture as many customers as it can from other companies - by regular competition or by acquisition - it can prolong the decline of TV much longer than if those customers are left in the hands, and ultimately lost by, less competent companies like Time Warner.

Hence the deal.