Cable Television

Cable television is a system that delivers television programming to paying subscribers through physical cables, typically coaxial cable or fiber-optic cable, as opposed to over-the-air broadcast signals. For decades, the cable industry was an investor's dream, operating as a near-monopoly in many regions. Companies were granted exclusive local franchises, allowing them to build a physical network and then sell bundled packages of channels to nearly every household in their territory. This created a powerful business model with highly predictable, recurring subscription revenue, supplemented by lucrative advertising sales. The high cost of laying down physical cable created a formidable barrier to entry, giving incumbent players a deep economic moat and significant pricing power. This combination of recurring revenue and a strong competitive defense made the sector a favorite hunting ground for value investing pioneers, who saw these businesses as virtual toll roads for information and entertainment.

For a long time, the cable business was a masterclass in profitability. The core product was the “bundle”—a package of dozens, or even hundreds, of channels sold for a single monthly fee. Whether you watched all the channels or just two, you paid the same price. This model was incredibly profitable for both the cable providers (like Comcast and Charter Communications) and the content creators (like Disney or Viacom).

• Predictable Cash Cow: For investors, the beauty was in the numbers. The subscription model generated massive and stable free cash flow. Once the expensive network was built, the cost to add a new subscriber was minimal, leading to high-profit margins.
• A Buffett Favorite: Legendary investor Warren Buffett has long admired the economics of the cable business. His investment in Capital Cities/ABC in the 1980s was partly a bet on its ownership of ESPN, a channel that became a kingmaker in the cable bundle, commanding high fees from cable operators that were passed on to consumers. The predictable, utility-like nature of the business was exactly what he looked for.

The seemingly impenetrable fortress of cable began to crumble with the rise of high-speed internet, which, ironically, was often provided by the cable companies themselves. This new technology paved the way for a disruptive force: streaming services. Companies like Netflix, Amazon Prime Video, and Disney+ began offering vast libraries of on-demand content for a low monthly fee, with no long-term contracts. This led to the phenomenon of 'cord-cutting', where consumers cancel their expensive cable bundles in favor of cheaper, more flexible streaming options. The “all-or-nothing” bundle, once the source of cable's strength, became its greatest weakness. Why pay over $100 for 200 channels when you only watch five? The internet effectively smashed the cable industry's distribution monopoly, severely eroding its moat and pricing power.

Today, investing in a traditional cable company is a tale of two businesses, often housed within the same corporate entity.

• The Dying Business: The video/television side is in a state of managed decline. Companies are losing subscribers every quarter, and this trend shows no sign of reversing.
• The Surviving Business: The broadband (high-speed internet) side is a different story. The very cables that once carried TV signals are now the essential infrastructure for the modern digital economy. For many households, high-speed internet from the local cable company is the only viable option, creating a new, powerful monopoly or duopoly. This business is characterized by high demand, strong pricing power, and excellent economics.

For the modern value investor, the key question is one of valuation and transformation. The market often punishes these stocks for the decline in their legacy video business, sometimes overlooking the strength and growth of their broadband segment. The investment thesis is no longer about a static, bundled-media toll road. Instead, it’s about whether you can buy the durable, growing broadband business at a discount because it's attached to the decaying video business. An investor must carefully analyze the rate of video subscriber loss versus the growth in broadband revenue and profitability, all while assessing the company's debt levels and capital expenditures to determine if a genuine bargain exists. The old cable moat is gone, but a new, more vital one may have taken its place.