Although pay-TV profit margins are up and leading all media and entertainment sectors, investment analyst Craig Moffett is advising clients to be wary of operator stock right now.
In his latest subscription-based report, U.S. Cable and Satellite: The Wall of Worry, Moffett says the dominant growth of cable broadband could actually turn into a "double-edged sword," with FCC Chairman Tom Wheeler signaling upcoming regulation to spur competition in the Internet-services industry.
Meanwhile, after declaring in early August that cord-cutting had "slowed to a crawl," Moffett predicted a resurgent trend of consumers ditching pay-TV services in favor of over-the-top programming options.
Sure, all is well right now, he conceded. Video-subscriber losses for cable companies dropped to 2.7 percent in the second quarter, Moffett noted, their lowest since 2010, with gains made by telecom operators AT&T and Verizon slowing to 12.3 percent. Meanwhile, cable companies produced 95 percent of the subscriber growth for Internet services in Q2.
But this "benign backdrop" is undermined by serious fundamental problems, the analyst adds.
Wheeler, Moffett notes, is "unambiguously establishing the fact base for potential regulatory moves down the road, a message that he hammered home in plain language in his remarks at the CTIA Show in Las Vegas last week."
Meanwhile, after delivering a series of "head fakes," Moffett says, soon-to-launch over-the-top services, such as the one being currently prepped by Sony, will soon deliver meaningful competition to the pay-TV sector. Sony recently signed a deal to include programming from Viacom.
"None of these OTT initiatives are entirely new," the analyst writes. "But there is a key difference between this and previous OTT scares; this time, the content providers are participating."
- read this MoffettNathanson report (subscription only)
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