Cord cutting doesn't spell doom for cable companies
Fear over the loss of cable-TV subscribers has mounted, and large cable companies are anticipating the changes.
In the most obvious example of this shakeup, Comcast announced that it would begin to provide a standalone streaming service.
But for the major cable companies' profits, it probably won't matter all that much.
Sure, it's going to drastically cut down the amount of revenue from video customers, said Deutsche Bank analysts in a note Monday, but developments in technology and customers' need for broadband and high-speed data will more than make up for the video decreases.
The big four cable companies- Comcast, Time Warner, Charter, Cablevision - made $20.05 per month on video subscribers last year, with a profit margin of 25.5%, according to Deutsche Bank's analysis.
Deutsche Bank
This year, that's expected to decline to $19.08, with a 23.5% margin, and, by 2020, the expectation is for a monthly profit of just $8.70 per subscriber, at a 9% margin.
The biggest reason for this is a massive increase in programming fees. The total monthly cost to bring video service to a customer is expected to rise from $58.45 in 2014 to $87.80 in 2020. Of that $29.35 jump, over 99% of it comes from programming costs.
From 2014 to 2020, the report says that programming costs will go up $29.15 per customer, from $39 to $68.15. While revenue will also rise, by about 3.5% per year, it won't hold a candle to the explosion in cost.
While shrinking video margins are a concern, Deutsche Bank still expects increases in profits over the next five years. "Not surprisingly, the analysis reveals that high speed data, business services, and advertising (to a much lesser extent) are driving gross profit pool growth, while voice and video profit pools are declining," the report said.
Deutsche Bank
This growth will be sustained primarily from the increase in profit in high-speed data transfer:"There are exceptions, namely if the subscriber moves to a higher broadband tier in order to accommodate more video streaming, and, of course, price increases on the broadband subscriber base also help to offset the loss of profit on the video side."
Video profits for the big four companies are expected to slide from $19 billion last year to $12 billion in 2020.
On the other hand, high-speed data is expected to increase from $21 billion to $35 billion.
The note also gives reasons why the companies should not simply abandon the video business yet: