Cablevision 'Guides' Street Downward on Digital Subs

Cablevision Systems Corp. "guided" analysts on its fourth-quarter 2001 and year-end 2002 results last Monday, saying it would miss 2001 digital-cable subscriber targets by more than 50 percent.

In a statement, Cablevision said it would end the year with 17,200 digital-cable subscribers — far below its previous target of 40,000 to 50,000 customers. The Bethpage, N.Y.-based MSO said it held off on accelerating its digital rollout in the fourth quarter "to further enhance the product's performance to ensure a positive customer experience."

Cablevision's ambitious digital product rollout — called iO: Interactive Optimum — has been plagued with technical glitches since it was first introduced in Long Island in September. Most of the problems have centered on pixelation and "box freeze" issues resulting from software glitches in its new Sony Corp. digital set-tops.

Cablevision has said it is rectifying the problems by remotely downloading new software into the units.

Most analysts expected the operator to finish the year with about 30,000 digital subscribers.

The shortfall seemed to affect Cablevision's stock, which fell $1.70, to $42.40, on Jan. 28. The stock was up 25 cents on Jan. 29, to $42.65, but fell again on Jan. 30, to close at $42.30.

While the digital numbers were below his expectations, Banc of America Securities LLC cable analyst Doug Shapiro said he isn't overly concerned.

"None of our growth [estimates] in 2002 are predicated on digital," Shapiro said, adding that most of the company's short-term growth is tied to high-speed-data customers.

Cablevision exceeded estimates for high-speed-data growth, and expects to end the year with 507,000 customers. Most analysts expected 490,000 cable-modem customers at year-end.

"The data numbers were quite good," Shapiro said, adding that Cablevision's data penetration is about 17 percent, compared to 10 percent or below for other large MSOs.

Digital is not expected to make an impact on results until 2003, Shapiro said.

"You really need for digital to be ramping by the end of the year in order to propel growth into '03, but it's not necessary this year," he said.

Cablevision said it would make the digital service available to about 2 million homes and count between 125,000 and 150,000 digital subscribers by year-end. However, Shapiro said that if the set-top glitches are corrected — which he expects to occur — the number could be much higher.

"The precedent is that once an operator becomes comfortable with the technology, they can go extremely quickly," Shapiro said. "My guess is that Cablevision is trying to set the bar low, but there's a possibility that if things are ramping up it could be a materially higher number."

The company added that capital expenditures for 2002 would be reduced to about $1.3 billion from the previously forecast $1.5 billion to $1.7 billion. The company said it would invest about $140 million on its direct-broadcast satellite venture, a 50-50 partnership with Loral Space & Communications Ltd. A personal-communications services venture — Northcoast Communications — would receive about $75 million this year.

Cablevision reiterated its 2001 guidance of 10 percent to 12 percent cash-flow growth in cable for the fourth quarter. For 2002, Cablevision predicted revenue growth of 10 percent to 12 percent for the year, with cash flow rising 15 percent, in line with analyst estimates.

Cablevision said it expects basic-cable subscriber growth to fall between 0.5 percent and 1 percent.

High-speed-data service should be available to 3.6 million homes; the company expects to have between 700,000 and 725,000 cable-modem customers.

"Our core businesses continue to perform well and we have taken additional steps to ensure that we are well-positioned for this year and beyond," said Cablevision president and CEO James Dolan in a prepared statement. "After a thorough, strategic review of our business, we are entering this year with an ambitious plan and a highly capable team that can help propel us to strong operating results."

Cablevision is slated to release full fourth-quarter and year-end 2001 results on Feb. 14.