Time Warner Cable (NYSE:TWC) and Disney’s (NYSE:DIS) deal to bundle ESPN broadband streams with cable seems to be suggestive of Time Warner Cable’s defensive attempt to bolster its TV Everywhere offering and cope with the trend of fragmented content viewing. Through such deals, Time Warner Cable subscribers can view linear and on-demand content from ESPN, ESPN2 and ESPNU networks online on their computers.
Time Warner Cable primarily competes with Comcast (NASDAQ:CMCSA), AT&T (NYSE:T) and Verizon (NYSE:VZ) in both the pay-TV and broadband businesses. The company also competes with satellite pay-TV providers like Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV).
We maintain a price estimate of $55.46 for Time Warner Cable, with about 37% of the company’s stock value generated by digital cable offerings.
In a prior analysis, we discussed potential concerns for Time Warner Cable surrounding the trend of cord cutting (Should Time Warner Cable Worry About Cord Cutting?). While industry executives have acknowledged the development of this trend, a recent study validates its near-term probability. A research note from JP Morgan analysts indicates that many satisfied subscribers may also be considering cutting the cord. Overall, 28% of respondents expressed interest in switching to broadband video, including 16% that are currently satisfied with their pay-TV service. 
Why Would Satisfied Customers Think of Switching?
In our prior analysis, we examined the emergence of online video platforms like Netflix, iTunes and Hulu along with the availability of antennas capable of receiving HD transmissions and their potential to provoke cord cutting (Should Time Warner Cable Worry About Cord Cutting?). The potential for cost savings might be enough to induce action from some viewers, but what about the admittedly satisfied customers?
With a lot of recent talk concerning cord cutting, we believe that the wave has started to hit the kind of customers who might not typically be thinking about their content viewing options. These customers may not have any particular complaints about their cable providers but may have just become caught up in the debate. This type of trend would definitely be cause for concern for cable companies, as satisfied viewers are the last customers they’d want to lose.
Will Time Warner Cable’s TV Everywhere offering solve this problem? The company has been losing share in the pay-TV market for quite awhile now, and our base forecasts project stability in the years ahead. Can the company leverage its TV Everywhere offerings to drive market share in the future? If Time Warner Cable can successfully regain market share at 2006 peak levels by the end of our forecast period, it could signal 13% upside to our current price estimate. However, this scenario would still leave our number below market price, as our stock value estimate of $55.46 currently stands about 18% below market price.
To see the impact of pay-TV market share on Time Warner Cable’s stock value, drag the trend line in the modifiable chart above.Notes:
- Are 1 in 4 of you really going to cut cable, switch to Web video?, cnet news, 3rd Jan 2011 [↩]