Video-Subscriber Exodus Slows for Cable

Pricing, Bundling Strategies Help MSOs Chip Away at Losses

By Mike Farrell -- Multichannel News, 1/30/2012 12:01:00 AM

Cable operators hope to show improvement in basic-subscriber losses in the fourth quarter, but analysts also expect a slowdown in high-speed data and telephone customer additions that surfaced earlier last year will continue.

The four major publicly traded cable operators chipped away at basic-video customers losses in the first three quarters of 2011 — Comcast lost fewer this year (443,000 video customers in the first nine months of 2011) than last (622,000 in the same period in 2009) — a trend that is expected to continue into the fourth quarter.

A combination of smart bundling and competitive pricing helped slow the exodus from video during the year, but a sluggish economy and maturing market slowed what has been the industry’s biggest growth engines over the past several years — broadband and phone.

Time Warner Cable kicked off the fourth-quarter earnings season Jan. 26. The rest of the MSOs are expected to announce earnings throughout the next month, with Comcast reporting Feb. 15 and Cablevision Systems weighing in Feb. 28. As of press time, Charter Communications and satellite-TV providers DirecTV and Dish Network had not said when they would release fourth-quarter results, although all are expected to do so in the coming weeks.

SUB LOSSES DIP

The four major publicly traded cable operators lost a collective 987,000 basic-video customers in the first nine months of 2011, down from losses of 1.1 million basic video customers in the same period in 2010. According to four top analysts that follow the sector — Collins Stewart’s Tom Eagan, Morgan Stanley’s Ben Swinburne, Sanford Bernstein’s Craig Moffett and Miller Tabak’s David Joyce — those same cable companies will shed between 270,000 and 318,500 customers in the fourth quarter, down from the 378,000 they lost in the fourth quarter of 2010.

Eagan was encouraged by what he saw as improving housing data. Foreclosures declined 20% in December, the 14th consecutive month of year-over-year improvement, and sales of new homes rose by 315,000 in November, a 1.6% improvement from October and nearly 10% above November 2010.

“New-home sales are important to pay TV companies as the sales contribute to increases in TV/broadband homes and therefore TV/broadband subscriptions,” Eagan wrote in a recent research report.

While DirecTV impressed Wall Street in the third quarter by adding 289,000 net new subscribers in the period — far outpacing analysts’ consensus estimates — most pundits are now predicting the satellite giant will tone down customer acquisitions in favor of improved cashfl ow growth. Joyce had the lowest growth expectation, predicting just 35,000 net new customers in the period, but the other analysts expected net new customers to be in the range of 156,000 to 165,000.

The analysts are split on Dish Network — estimates range from the addition of 90,000 net new customers in the period to a loss of 60,000 customers, compared to the 156,000 subscriber Dish lost in the fourth quarter of 2010.

On the cable side, Comcast is expected to have the biggest improvement. Analysts expect the nation’s largest cable company to lose between 117,000 and 140,000 basic-video customers in the quarter, compared to a loss of 135,000 last year. Cablevision System, which lost about 35,000 basic video customers in the fourth quarter of 2010, has the widest range of expected declines — Joyce predicted a loss of just 2,000 video customers, Eagan 8,000, Swinburne 20,000 and Moffett 23,000 for the period.

Cablevision, which was dealt a blow in December when highly respected chief operating officer Tom Rutledge abruptly resigned and was later named CEO of Charter (he takes the helm officially on Feb.13), also faces increased competition from Verizon Communications’ FiOS TV.

VERIZON RISING

Last week, Verizon reported it added 194,000 FiOS TV customers in the fourth quarter — in line with analysts’ expectations — and now has about 4.2 million video customers. Cablevision had about 3.3 million subscribers as of Sept. 30.

“We expect a difficult growth environment in the near future, as Cablevision navigates an aggressive competitor in Verizon,” Swinburne wrote in a recent research report.

At the same time, the four major operators are expected to add from 391,000 to 435,000 high-speed data customers, down from the 424,000 added last year. Phone additions, which numbered about 369,00 in the fourth quarter of 2010, should range between 180,000 and 240,000 in the most recent period, according to the analysts.

Eagan expects that the major cable operators will add about 415,000 broadband customers in the fourth quarter, about 63% of total net gains, down from 83% in the third quarter of 2010. But he expects cable to maintain its 56% broadband market share for the foreseeable future.

Financial metrics for the four top operators are expected to remain stable for the period, with revenue growth in the 4% to 6% range and cash flow rising between 2% and 5%, according to the analysts.