Cable Profitability

This graph depicts the surprising profitability of the "triple-play" of video, data and telephone currently promoted by cable systems. "ARPU" is cable-speak for Average Revenue Per User. The amounts depicted are the monthly numbers.

On closer inspection, after removing the $9 of telephone set up costs, cable generates nearly $40 per month per service of pre-tax profits. This number would indicate a higher level of profitability than is evident from the financial statements of the cable companies, which embed improvements, anticipated technologies and high-cost acquistions.

The typical subscriber generates roughly $100 per month, indicating the average of two services: one video and one other. The profits on existing systems then would average $80 per month or $960 per year. By taxing these profits at 40%, the after-tax profits are roughly $600 per year. The current market value of roughly $3000 per subscriber for Comcast and Time Warner Cable seems low, implying a P/E of 5.