http://blogs.forbes.com/greatspeculations/2010/07/14/comcast-and-twc-gain-10-with-better-service/
Comcast and TWC Gain 10% With Better Service
Comcast and Time Warner Cable together account for about 34% of the U.S. pay-TV market. In recent years, however, both companies have seen their subscriber bases decline.
Partly due to customer service issues, cable companies have been losing customers to satellite and fiber-optic competitors. Comcast’s pay-TV share slumped from about 24.5% in 2006 to about 21.9% in 2009. Similarly, Time Warner Cable's share eroded from 13.6% to 12.3% during same period.
On a happier note, this decline is not irreversible. We forecast a 10% upside for Comcast and Time Warner Cable if they can manage to boost their subscriber numbers back to 2006 levels. Our analysis follows below.
Why have cable providers lost customers?
1) Competition from satellite and fiber optic services
In recent years, the cable industry has lost TV market share to satellite services like Direct TV and Dish Network and to fiber-optic serices like AT&T and Verizon. All these companies have marketed their services aggressively and have lured customers away from cable operators.
In recent years, DirecTV and Dish Network have both used promotional discounting to good effect. Dish’s latest offer of free HD service is likely to attract more subscribers. In 2009, meanwhile,Verizon offered a triple-play bundle over its high bandwidth fiber-optic network for $99 per month. While these promotions tend to drive up customer acquisition costs, the increased costs have been more than offset by rising revenues over long contract periods.
2) Spotty customer service
With the emergence satellite and fiber-optic service providers, cable operators have lost their previous dominance and can no longer get away with mediocre service. Today's consumers have many TV choices and can easily switch providers if they don't like the service. Yet cable companies still trail satellite and telecom companies in customer service standards, according to an annual poll conducted by the American Customer Satisfaction Index (ACSI).
Can cable bounce back?
If Comcast and Time Warner Cable can return to their 2006 peak market share levels by end of our forecast period, their stocks could see an upside of close to 10%. You can modify the charts below to see the relationship between market share and stock value for both companies.
For this to happen, cable services need to provide better customer service, lower prices and more features. But they will still face fierce competition from satellite and telecom companies, along with emerging video platforms like Netflix and Hulu and game consoles like Nintendo's Wii and Microsoft's Xbox.
