Why can’t I watch CBS on my TV?

Blog post #404

Starting this past Saturday, my home TVs show the following message when my wife or I try to watch CBS:

Due to a fee dispute between CBS and ATT, CBS decided Friday night to discontinue providing their content to ATT’s TV services. We get our television service from ATT’s satellite service, DirecTV.

This is certainly not the most important or pressing issue to me right now, but my curiosity drove me to research the issue. There are a number of interesting points and lessons to be learned, as I delved into this matter.

The major dispute is how much ATT should pay CBS each month, per subscriber, for their content. Currently, and since 2012, CBS receives $2 per subscriber, per month from ATT. CBS wants to increase the fee from $2 to $3 per subscriber, per month.***

As the two sides could not reach an agreement, CBS took the action of withdrawing their television feed to ATT’s 6.5 million customers in many large metropolitan cities, including metro Detroit, LA, NY and San Francisco who have U-Verse landline cable TV or DirecTV.

I reviewed my cable bill. We pay over $100 per month for cable TV, without any extra premium channels. And then ATT/DirecTV charges another $7 per month for each TV that is used. That is all pure profit, after the minor cost of the cable box.

The lesson from my shockingly large cable bill is that these two companies should be doing everything they can to keep me happy, not upset me…. and potentially cause me to consider doing what my kids and so many others are doing, which is to cut the cable cord and get the TV channels/networks we want in another, cheaper manner.

Then I read this week that ATT lost almost 1 million pay TV customers in the last 3 months alone.**** That is a lot of customers and a lot of money. This industry is undergoing major change, and has been for years. I’m not sure these companies are effectively dealing with the rapidly changing environment they face.

So what are the financial lessons from this?

Change. Business and technological evolution have caused incredible change in certain industries, which are difficult to predict and anticipate.

If you go back 10 or 15 years, would you have thought that TV and cell/telephone phone providers would be profitable and great stocks to own? Likely most of us would have said yes.

You would have thought 10-15 years ago that everyone would have both a home phone and a cell phone, so the revenues and profits would be terrific going forward. Cell phone services were growing rapidly. The iPhone had just been introduced.

Except something which was NOT anticipated 15 or 20 years ago happened…..most of us stopped having home phones, or highly profitable landlines. This has had a major impact on the stocks of the companies in this industry.

A decade or two ago, who could have envisioned that millions of people would be watching TV without cable service? On their phones and other small devices? Netflix was something that existed as a mail order or drop off service. Dial up Internet was slow. You couldn’t download a movie or TV show via the Internet, at least not very quickly. Of course, all this has changed quite dramatically.

Let’s look at a few stocks in these related industries and see how they have performed over the long term, as compared to other large US stocks (as measured by the S&P 500 Index).

These are the average annual returns over the past 5, 10 and 15 years:*

5 Years
10 Years
15 Years
S&P 500**

What you see is that over the past 5, 10 and 15 years, all of these companies have vastly underperformed over every time period, other than CBS over the 10 year period. ATT, which is in the phone and cable/internet business (and just recently became a content provider as well); CBS, which is a content provider; Verizon, which is a phone and cable/internet provider; and Dish, which is a satellite TV provider, all have been lackluster performers compared to other large US-based companies.

Our firm’s objective is to provide advice to you to help you reach your financial goals, through understanding your goals, assets, income, time frame and level of risk that you can handle. Then we develop a financial portfolio and make investment recommendations for you.

What we don’t do is try to pick individual stock winners, and the stocks above are an excellent example of why we do not try to play the stock picking game. It is very hard. As we discussed last week, What does our crystal ball show?, we cannot accurately and consistently predict the future….and neither can anyone else.

Instead of the companies above, let’s say you had purchased Comcast stock many years ago. How would that have worked out? As you can see below, Comcast has outperformed the benchmark over each time period and far outperformed the other companies discussed.*

5 Years
10 Years
15 Years
S&P 500**

How could someone have known 15 years ago that Comcast stock would do so much better than ATT, CBS, Verizon or Dish?

Going forward, do you know whether Comcast will continue to be the best or most successful stock of these companies? As we have all heard and read….past performance is no guarantee of future results.

This is why we focus on structuring your portfolio based on what financial and academic data indicates will provide you with the best expected future returns over the long term, not based on what we or other financial analysts think may do best in the future.

  • We cannot know which asset class, industry or geographic region will do best in the future, so we recommend having exposure to all of them by being broadly globally diversified.
  • We don’t think the US will always outperform other countries in the world. Historically, the US has had years of outperforming other countries, and then there are other periods where investing Internationally has outperformed US based portfolios. Thus, we invest globally, to have exposure to both.
  • Over the very long term, we know that value stocks have outperformed growth company stocks. Similarly, we know that over the very long term, small company stocks have outperformed large company stocks.
  • However, we know that during some periods (which can be for many years) these “premiums” do not appear, and growth stocks outperform value stocks, and large stocks outperform small company stocks.
  • During these time periods, like in down markets, is when investors are tested and challenged to remain disciplined and adhere to the Investment Policy and portfolio allocation that is designed for many years, not just 6 months or 1-3 years.

Our goal is to provide you with excellent financial guidance. We want to be available and for you to talk with us when you have financial questions or issues in your life. We want to help you, and members of your family, including future generations, plan and make good financial decisions.

We want to structure financial portfolios that you are comfortable with and which provide good financial returns over the long term, so that you can stick with them through volatility and change.

We know change will happen. We want to help you deal effectively with future changes, with the markets, economic swings, tax matters, as well as technology.

What we don’t plan to do is cut off your service. We will not be your CBS, and pull the plug over $1 per month. In fact, our office did not have electricity for a few days this week, due to storms that hit the Detroit area over the weekend. With planning, technology and providers we work with, we were fully functional working remotely from our houses. And I was not distracted by any CBS televisions shows!


Morningstar.com as of 7/24/19

**S&P 500 Index represented by Vanguard 500 Index fund, VFINX, per Morningstar as of 7/24/19. Does include deduction of the mutual fund management fee. Does not include deduction of any advisory fees.

***“CBS is Blacked Out for 6.5 Million AT&T Customers. Here’s Why” NY Times by Edmund Lee, 07/20/2019

****“Cord-Cutting Hits AT&T Again While Wireless, Media” WSJ by Drew Fitzgerald, 07/24/2019

Note: As the portfolios that we recommend are broadly diversified, the stocks discussed above may be held in one or more of the mutual funds that we may recommend.

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