Despite the ongoing threat from cord-cutters and cord-sharers, Moody’s Investors Service said it believes the top five cable distributors will still manage to squeeze profits out of the business, with cash flow expected to rise an average of 4% in 2016.
Broadband growth and a rebound in video customers should fuel increases in revenue in the mid-4% range during the period for Comcast, Charter, Time Warner Cable, Cox Communications and Cablevision Systems, according to Moody’s.
Moody’s added that while the threat from subscription video on demand services like Netflix is real, they see SVOD as more of a complement to rather than a replacement for pay TV. Moody’s added that the ratio of pay TV subscriber losses to Netflix subscriber gains reached its peak of 0.2 times in 2011 and fell to 0.1 times in 2015.
“Given this history, we expect the risk of substitution to remain limited and may in fact decline if the gap between the SVOD value proposition and cable pay TV shrinks,” Moody’s wrote.
But Moody’s stopped short of upgrading the sector as a whole, adding that the over-the-top threat, changing consumption patterns and an increasingly hostile regulatory environment continue to weigh on the sector.
“These are all important factors that balance the equation and are likely to temper an otherwise more bullish outlook tied solely to reaching a single growth target,” Moody’s wrote.
