Not So Fast
by Mark Robichaux, Editor in Chief -- Multichannel News, 5/11/2009 2:00:00 AM
The ominous clouds of financial doom appeared to magically lift last week as cable-TV giants reported strong earnings.
Cablevision Systems' cash flow and revenue grew double digits (see page 3). Cable giant Comcast reported free cash flow of $1.4 billion in the first quarter, a 95% increase. Time Warner Cable cracked analysts' estimates for the first quarter and showed actual subscriber growth, adding 36,000 basic video customers in the period. The results lifted the entire sector. From April 27 to May 8, MSO stocks soared 24%, while programmers were up 18%.
Meanwhile, cable networks, relative to the dismal performance of broadcasters, seemed to add to the overall feeling that everything is A-OK. On a conference call with investors, News Corp. CEO Rupert Murdoch declared that “the worst is over” for the economy, while CBS and Viacom chairman Sumner Redstone also said he sees “clear signs” that the economic situation is starting to improve.
While the numbers are certainly encouraging, no one should be popping champagne corks just yet. News flash for anyone expecting increasingly better numbers: It's not over. Unemployment in the United States is at a 25-year high, with more than 3 million jobs vanished since November; double digits are likely. The nation's banks, not to mention automakers, are still months away from anything approaching “normal.” Advertising is anemic at best.
“Things just stopped getting worse,” Collins Stewart senior media analyst Thomas Eagan told me Friday. “It's unclear when things will get better across all platforms. The first quarter was better than the fourth quarter, which was one of the worst in a while, but there is slowness in March and April.”
Eagan says that cable's fundamentals are strong, that the digital migration should give cable a bump in June and that overall he's expecting slow, organic growth. Wolves are still at the door. Comcast and Cablevision both lost thousands of customers, while Verizon Communications and AT&T reported stellar first quarters for video-customer growth; Verizon gained 299,000 subscribers while AT&T added 284,000 homes.
It sure feels like we're on the other side of the economic crisis. But to sustain momentum, cable operators face the tricky challenge of balancing customer growth with revenue growth. In other words, at what point are cable's panoply of products best priced to keep an optimum number of paying customers? “It's all about balance,” said Eagan.
Balance indeed.
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