Comcast Sub Losses Fall for Fifth Straight Quarter

MSO Sheds Only 17,000 Basic-Video Customers in Q4

By Mike Farrell -- Multichannel News, 2/20/2012 12:01:00 AM

Comcast’s fifth consecutive quarter of basic-customer improvement sparked talk on a largely taboo topic in the cable sector in recent years — positive video-customer growth.

Comcast blew analysts’ predictions out of the water in the fourth quarter, losing a mere 17,000 customers in the period — well outpacing consensus estimates of losses of 120,000 customers and soundly beating the 135,000 video customers it shed in the year-ago quarter. It was the MSO’s best basic-customer performance in almost five years.

“A return to positive videosubscriber growth — unthinkable in consensus numbers as recently as six months ago — is now not only plausible, but arguably likely,” Sanford Bernstein cable and satellite analyst Craig Moffett wrote in a research note. “That’s a huge change.”

If Comcast were to cross the line into positive videosubscriber territory this year, it wouldn’t be the first major MSO to do so — Cablevision Systems did it for three years straight in 2004, 2005 and 2006. And smaller MSOs like Insight Communications and Suddenlink Communications have reported strings of positive growth in the past few years. But since 2002, the cable industry overall has lost nearly 8 million basic-video customers. A positive showing from Comcast would make it the largest MSO to do so in about a decade.

That, according to Moffett, could go a long way toward bettering investor sentiment for the entire pay TV sector, which has been battered in recent years by competitive threats from telcos, satellite companies and online content.

“The psychological importance of videosubscriber strength, not just for cable but indeed for the whole pay TV sector, cannot be overstated,” Moffett wrote. “The fear of cord cutting is fading, and with it, so is the core bear argument.”

SHARE-PRICE SURGE

The strong performance — for the full year, the cable division shed 460,000 basic customers, a 40% improvement over 2010 — helped push Comcast shares to a new 52- week high of $29.05 (a 6.6% increase) on Feb. 15, and the stock finished the day at $28.52 each, up 4.7%.

It also had a positive effect on other stocks in the sector. Charter Communications rose 3.7% ($2.20 each) to $62.22; Time Warner Cable was up 1.2% (91 cents) to $76.83; and Cablevision Systems increased 2.2% (32 cents) to $14.87 on Feb. 15. Fueling Moffett’s optimism are signals of improvement in the housing industry. Housing starts in January were at a seasonally adjusted annual rate of 699,000, a 1.5% increase from December, according to the U.S. Census Bureau.

Moffett estimated in a research report that a 1% swing in new housing formation — in line with historical norms — would translate into an incremental increase of 1 million new subscribers for the pay TV industry. Since cable typically gets about 70% of pay TV gross additions, and Comcast represents about 40% of the cable industry, that could mean 300,000 homes added.

“A net swing of [about] 300K video subscribers could easily make the difference between positive and negative sub growth at Comcast in 2013 (or, dare we now hope, in 2012 instead?),” Moffett wrote.

On a conference call with analysts, Comcast Cable division president Neil Smit said housing improvements had little to do with subscriber performance. He credited it to superior product offerings, strong execution by its field operations team and a slowdown in the rollout of telco video service. He estimated that telcos rolled out video to 1.1 million new homes in the Comcast footprint in 2011, versus 2.5 million homes in 2010.

Smit stressed that he did not expect positive video-customer growth in the first quarter, but said that losses should continue to decline.

ANALYSTS GUSH

“This is a surprise,” Miller Tabak media analyst David Joyce said of Comcast’s subscriber performance. He added that Comcast has helped its cause by rolling out new products and services. “It helps that they have been innovating and offering a lot for customers and trying to get a lot of on-demand content available to them.”

Comcast also added 363,000 high-speed data customers and 146,000 telephony customers in the period.

Revenue at the cable operations was up 4.7% to $9.5 billion, and operating cash flow increased 6.4% to $3.9 billion.

At its NBC Universal programming division, cable networks revenue increased 5.3% to $2.2 billion, and adjusted operating cash fl ow rose 16.2% to $930 million. Overall at NBCU revenue rose 1% to $5.7 billion and adjusted OCF was down 3.9% to $1.1 billion.