Cloud Gaming: Cable Companies Gain While Microsoft Loses

by Trefis Team
Time Warner Cable
Rate   |   votes   |   Share

Cable and telecom companies such as Time Warner Cable (NYSE:TWC), Comcast (NASDAQ:CMCSA), Verizon (NYSE:VZ) and AT&T (NYSE:T) are looking to bring cloud gaming to their subscribers’ homes, posing a challenge to the traditional gaming model of console games and PCs. [1] However, we believe that the prime intention is not to disrupt the video gaming industry, but to give subscribers an incentive to upgrade their broadband connections to faster tiers and stick to their service providers. This is especially critical for Time Warner Cable which has not been able to improve its pay-TV subscriber losses and is banking heavily on broadband growth.

See our complete analysis for Time Warner Cable

We estimate that the broadband business constitutes roughly 30% of Time Warner Cable’s value. The company has managed to grow its broadband revenues with a continued gain in subscribers as well as growth in ARPU (average revenue per user). The subscriber growth has resulted from increased demand for high speed Internet, which has prompted subscribers to drop DSL and opt for broadband.

Further, the ARPU growth is driven by a shift to higher speed broadband tiers, which are more expensive. While, so far, the consumption of video content over the Internet has been the prime driver behind this trend, cable operators are now looking at leveraging growth in the video gaming industry to drive broadband adoption.

On the flip side, this is an unfavorable development for gaming console companies such as Microsoft (NASDAQ:MSFT). Microsoft’s Xbox has sold more than 67 million consoles, so far, and commands a share of close to 50% in the overall gaming console market. [2] Therefore, the company has the most to lose among its competitors. Nevertheless, if we see the loss of Xbox in context of Microsoft as a whole, the loss will be minimal. We estimate that Xbox constitutes less than 3% of Microsoft’s value. Even this potential loss is not certain as it is not yet clear if cloud gaming will be appealing enough for the gamers to drop their consoles and upgrade their Internet.

Our price estimate for Time Warner Cable stands at $88, implying a discount of 5% to 10% to the market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

  1. Xbox Challenged as Cable Plots to Make Consoles Obsolete, Bloomberg, Sept 25 2012 []
  2. Xbox 360 Reaches 67 Million Units in Sales Worldwide, Softpedia, May 31 2012 []
Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!