When Charter Communications (NASDAQ: CHTR) purchased Time Warner Cable, it became an equal player to Comcast (NASDAQ: CMCSA) in the pay-television and internet service spaces.
It was a bold move, in which Charter snapped up a company that Comcast had initially had a deal to buy before federal regulators said no. That decision created the current landscape where the two companies, along with AT&T, sit as a big three dominating pay television and internet.
But just because Comcast and Charter have a lot in common doesn't mean they're the same. Charter, aside from owning some regional sports networks, is a pure subscription play. The company makes the vast majority of its revenue from selling services, including cable, internet, and phone. Comcast, of course, offers those things as well, but it also owns NBC, cable networks including USA, MSNBC, CNBC, and E!, a film studio, and the Universal Studios theme parks.
Deciding which company is a better buy comes down to whether you believe all of the other businesses Comcast owns makes it stronger than being a pure subscription-revenue play. Charter has gone all in on cable, internet, and the other services it sells. Both strategies have merit, but one has a great deal more risk and potential upside.
The case for Charter
Both companies face cord-cutting risks, and both must deal with he possibility that new technology will someday give people more internet choices. Assuming that neither of those things will bring a major downturn quickly, Charter will sink or swim based on both its ability to hold onto customer and whether it can wring out more money from them.
Charter gained more customer relationships than it lost. That resulted in its growing Q3 revenues 7.4% to $10 billion. It was a strong quarter that shows the company can manage declining video revenue by making more money from remaining cable customers while adding broadband users.
The case for Comcast
On the cable and internet side, Comcast faces the exact same risks as its rivals, but it has greater exposure to cord-cutting. The company has a strong cable portfolio, but aside from USA, it doesn't have many stations with widespread popularity.
In fact, when you look at the final
That said, Comcast also has massive upside with its film business. It has a number of near-sure-thing billion-dollar franchises, including Jurassic Park, The Fast & the Furious, Despicable Me/Minions and the maybe-not-quite-as-big Jason Bourne movies and a reboot of The Mummy. The company also recently bought DreamWorks Animation, giving it How to Train Your Dragon and Kung Fu Panda, among other properties.
Is Charter or Comcast a better buy?
Ultimately, the cable and internet businesses make the two companies -- as long as your rate management equally -- similar buys. Ultimately, though, Comcast has the edge, because while it does have greater exposure to cord cutting, because it could lose carriage fees as the cable universe shrinks, it can leverage its franchises to mitigate that threat.
In the changing media world, content has become king and Comcast owns a ton of franchises. That may mean using a Fast & The Furious TV series to entice consumers to buy its cable package as part of a skinny bundle or leveraging its cartoon franchises to make its channels something parents can't exist without.
Comcast and Charter are both powerful cable/internet companies that show very little sign of not being able to keep revenue growing. Comcast is a better stock buy, only because going forward it has more tools to protect its subscription base because it owns so much premier content. That's why other subscription-based services have been buying (or trying to buy) media companies, and that gives Comcast the edge over Charter here.
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