Wednesday, January 4, 2012

Cable Companies, Netflix, and "The Poverty Problem."

Last year, while we were short Netflix, I started paying more attention to cable companies. They have all been bleeding subscribers - hundreds of thousands of cancellations each quarter.

I found that there was one Wall Street analyst who was actually paying attention to the impoverished consumer: Craig Moffett, an analyst at Bernstein, who wrote a report called "The Poverty Problem.":

The often-quoted average family has annual income of $62,000 a year. But the median ... is only $42,000 a year. There's 40% of America that has no discretionary income... [T]he mean for each quintile was, in ascending order, $9,956, $27,275, $45,199, $71,241 and $149,951. The big take-away from this de-averaging exercise is that the top quintile now has 15 times the after-tax income as the lowest quintile. Forty years ago, this ratio was less than 8 to 1. [...] After the necessities of food, shelter, transportation and healthcare each month, the bottom 40% of U.S. households have already exhausted all of their disposable income. There is nothing left for clothing… for debt service… for cable… or for phone.
His argument was that this income distribution is uniquely bad for subscription TV providers. Close to 90 percent of U.S. households have cable TV. Hardly any other sectors are that exposed to the bottom of the U.S. income distribution; a group that is hanging by a thread.

Of course, big U.S. multinationals don't care about this (yet) because they think that they can sell Harley Davidsons to the Chinese. But owners of fixed assets like real estate, cable TV systems, and celular phone networks certainly need to care about the effects of global wage arbitrage.


Stagflationary Mark said...

I'm a believer in the problem.

CP said...

Ah! So you are.

Part of innumeracy in this country is thinking that the median is the only relevant description of a distribution.

CP said...

Funny banking story in your post.

Imagine, paying a bank a spread to loan yourself money.

There is too much financial intermediation in this country. Instead of mortgage debt liability and ineptly managed retirement account assets, people should net those out and avoid fees on both. (And capital losses on the retirement assets!)

Stagflationary Mark said...


We do seem to be on the same page more often than not. :)

"Imagine, paying a bank a spread to loan yourself money."

As a farmer, you might do it if you thought you'd have a bad year (and therefore need the extra liquidity). As we all know, banks are unlikely to lend you money when you actually *need* it.

Just a thought.

I suspect that Corporate America is doing a similar thing right now. As a group, they are sitting on a ton of cash. They are also sitting on *tons* of debt.

Kodak no doubt wishes it had more cash and more debt right now. Can't seem to get either though. Go figure.

CP said...

I think that's because good investors are all the same, but bad investors are each bad in a unique way.

Anonymous said...

Satellite radio strikes me as something that lots of people can live without. Sirius is raising its subscription prices this year (probably by no more than 15%). We'll get to see how their current customers react to the increase. I'm not expecting a Netflix-like exodus, but only time will tell.

Also I hear from sources that they are working on a handheld device that will allow people to listen to satellite radio on the go. I thought that was a bad idea when I heard about it.

CP said...

Interesting that sirius seems to have high % of retail ownership.

CP said...

The cord cutting that this post speculated about is happening in a big way now!