Cable Operators

Small Ops Buck the Economy

5/16/2009 2:00 AM Eastern

Smaller cable operators managed to fight back customer defections amid a bleak economic environment, with Insight Communications and Mediacom Communications both adding basic subscribers in the first quarter.

At Insight it was the 15th consecutive quarter of basic-customer growth, adding 16,000 basic subscribers in the first quarter, a 5% gain over the same period last year.

Privately held Insight, which reported 5% full-year basic subscriber growth in 2007 and 2008, also added 19,900 high-speed Internet customers, 30,700 digital customers and 24,500 customers in the period.

In an interview, Insight CEO Michael Willner said there is no secret to the company's success, just hard work.

“We started on a path nearly five years ago to build a sustainable growth machine,” Willner said. “We have had some success in doing that. This was planned; it was a lot of hard, nitty-gritty work. There is nothing sexy about it; it's blocking and tackling and running the business in a very methodical way.”

Only three of the top nine cable operators, including Insight, showed basic customer gains in the first quarter; Time Warner Cable and Mediacom were the others. Willner said that the digital transition had a slight effect on growth but was not a driving force for the gains.

Mediacom, which reported its first quarter results on May 11, added 4,000 basic subscribers in the period, double the 2,000 it added during the same period last year. The Middletown, N.Y.-based operator has about 1.3 million customers, mainly in Iowa and the Midwest.

On a conference call with analysts, executive vice president of operations John Pascarelli said that the digital transition had an impact on subscriber additions, accounting for about 8% of the operator's basic customer growth in the period and is expected to continue up to the June 12 deadline for broadcast channels to convert to digital signals.

Pascarelli said that although he remains cautious, he added that during the quarter markets with about 60% of its customers had at least one broadcaster convert to digital, with 45% having at least two broadcasters convert.

“We expect to see more incremental positive results from the digital transition,” Pascarelli said.

Mediacom also reiterated its guidance to a tenfold increase in total free cash flow for the year to $1 per share. For the quarter, the company was well on its way, more than quadrupling free cash flow to $31.4 from $7.2 million in the prior year.

Even with the added benefit of the digital transition, growing basic customers in the current economic climate is a pretty impressive feat. And even some pay TV providers that have shown growth — DirecTV — have said they might have gone a little heavy on the promotional offers in light of that tough economy.

Willner said that Insight did not introduce any new, out of the ordinary promotions during the first quarter.

“We're doing the regular stuff that we always do. We have long term bundled packages that we put together that we're offering and there are no significant or material changes,” Willner said. “Why would you change it when you're successful?”

The basic customer growth helped boost revenue by 15% to $236.7 million and adjusted operating income before depreciation and amortization by 8% to $73.1 million in the period.

Basics on the Rise

Both Insight and Mediacom reported basic subscriber growth in the first quarter. Subscriber growth figures for both companies for the periods ended March 31:

Insight Mediacom
Q1 2009 Q1 2008 Q1 2009 Q1 2008
SOURCE: The companies
Basic 16,000 15,100 4,000 2,000
Digital 30,700 16,300 17,000 27,000
Internet 19,900 26,300 24,000 30,000
Phone 24,500 25,500 14,000 19,000

September
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