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How will they do it? Volume, volume, volume.

That, in a nutshell, sums up the outlook for growth in the cable TV industry, as discussed in a recent report by Merrill Lynch analyst Jessica Reif Cohen.

Forget about price increases or household additions driving cable revenue over the next few years, says Cohen. Instead, focus on the increased penetration of advanced services in cable households.

And whether you're a cable bull or cable bear, Cohen's prism serves as a useful one for looking at the promise and risk of investing in operators such as


(CMCSA) - Get Comcast Corporation Class A Report







. Shares in all three have risen at least 20% this year as Wall Street has bought into the notion that a capital-intensive industry will soon be generating increasing returns from its massive capital investment.

Even so, says Cohen, the cable industry isn't what it used to be.

Traditionally, cable's revenue growth came from two separate sources: household growth -- with homes subscribing to cable zooming from 15 million to 66 million between 1980 and 1995 -- and subscription rate increases.

But over the past few years, points out Cohen, cable household growth has slowed or stalled to just over the 1% annual new-household formation rate. Any further household growth would come in a near-zero-sum game with satellite TV operators fighting for the same customers.

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And while basic cable programming revenue has risen faster than inflation over the past few years, that trend has been accompanied by operators adding channels at an even faster rate. After inflation, the per-channel prices for basic cable have actually fallen over the past five years, according to Cohen's reading of the relevant Federal Communications Commission data.

So where will cable growth come from now?

From adoption of new services enabled by cable's broadband, two-way infrastructure, says Cohen: high-speed data, which accounts for nearly half of cable's recent revenue growth, along with HDTV, video-on-demand and cable telephony. "The key elements of cable's growth story are rising penetration rates in broadband Internet, cable telephony and digital television's video-on-demand, HDTV and DVR

digital video recorders," writes Cohen.

Those products will drive average annual revenue growth of between 9% and 11% through 2008, forecasts Cohen.

And that growth won't necessarily be hurt by pricing declines, suggests Cohen. In fact, she's forecasting that average monthly prices for high-speed data will drop from the range of $40 to $45 today to $30 to $35 in 2008. But that decline will be more than offset by the continuing stream of narrowband subscribers upgrading to broadband, she says. Pricing in Internet-based telephony, also known as VoIP, will fall as well, she says.

Yet while the pathway to higher revenue growth is clear, so are the risks. In the area of high-speed data, cable operators compete with telcos such as


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, though there's little or no evidence yet that price-cutting by telcos has encroached on cable modem growth.

On the television side, the competition with satellite promises to get only more intense, as Rupert Murdoch's

News Corporation

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edges closer to obtaining a controlling stake in

Hughes Electronics


, the parent company of DirecTV, the nation's largest satellite operator.

Murdoch, who has been itching to get into the satellite business in the U.S. for more than a decade, has been a no-holds-barred competitor in newspapers, television programming and other media, so there's little doubt that News Corp.'s role in DirecTV would raise the stakes.

Cohen theorizes that the biggest impact from satellite will be on rising subscriber acquisition and retention costs, expressed as expense outlays for promotion and marketing. Cohen already sees this in satellite operators' offer of free DVRs and elimination of DVR subscription fees for premium customers.