UBS: We Still Love Cable, Buy Comcast And Charter

In a report published Tuesday, UBS analyst John Hodulik commented that traditional video subscriptions will continue to decline as new Over-the-Top Content (OTT) options proliferate.

According to Hodulik, the first wave of OTT video services were merely complements to a traditional pay TV subscription. However, new offerings from DISH Network Corp (NASDAQ: DISH) and Sony Corp (NYSE: SNE) are positioned as replacements and have brought "cord-cutting" threats back in to the picture.

The analyst continued that video losses will remain an issue for lower-income and single-person households but the amount and quality of programming provided through the traditional bundle, combined with the superior performance delivery (i.e no buffering) will help justify the premium paid for traditional TV compared to new OTT offers.

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Hodulik also noted that major cable and telecom providers offer bundled discounts on broadband at $10 to $20 a month, representing a key factor when looking at the benefits gained from an OTT service. The analyst added that when including a lost discount, the cost of "cobbling together" an OTT service could add up quickly.

"We believe these factors suggest the OTT threat will remain contained over the next three to five years," Hodulik wrote. "Beyond this timeframe, the contribution to cable OCF from video will fall to less than 15 percent, helping to insulate the industry."

With that said, Hodulik concluded that he remains bullish on cable and expects regulators to approve pending cable M&A deals which represents the most important near-term catalyst for the sector.

UBS remains positive on the industry, and has buy ratings on Comcast Corporation (NASDAQ: CMCSA) and Charter Communications, Inc. (NASDAQ: CHTR).