Cable Operators

Small Ops Turning to Broadband

11/14/2011 12:01 AM Eastern

New York — As a sluggish economy, stiff competition
and anemic housing formation continue to lead to basicvideo
customer losses, small cable operators are increasingly
turning to broadband to drive growth, panelists said
at the SNL Kagan Cable MSO Summit last week.

Cable companies have lost a collective 8 million basicvideo
subscribers since 2001 and the trend is expected to
continue for the next
several years. SNL Kagan
estimates that cable
customers will fall
below 53 million in
2021, down from 58.9
million in 2011.

But while basic video
customers have
been leaving for other
providers or over-thetop
services — or are
just avoiding a video
service all together
— some smaller-market
MSOs have managed
to mitigate some
of the pain by switching
their focus to higher
margin high-speed
data service.

At Cable One, a unit
of The Washington
Post Co. with about
627,000 video customers
in 19 states, basicv
ideo losses were
about 9,400 in the third quarter. CEO Tom Might said on
the panel that his company has been concentrating on
broadband for years. In 2011, about 16.5% of its customers
were high-speed-data-only, up from about 11.9% in 2009.

“The industry is realizing it can’t hang its hat for the long
term on the video product,” Might said.

The rise of non-video customers is a relatively new phenomenon
in cable. For many years, panel moderator and
Citigroup media analyst Jason Bazinet said, data-only
customer growth for the major operators was flat. In
the past six quarters, though, it has grown significantly.
Among publicly traded operators, Charter Communications
leads the non-video charge with about 15% (730,000)
of total customers only buying data or voice service in the
third quarter.

NewWave Communications CEO James Gleason took it
a step further. NewWave has about 80,000 customers in Illinois,
Indiana, Missouri and Arkansas. Last week, it completed
the sale of about 70,000 customers in Kentucky and
West Tennessee to Time Warner Cable for $260 million.

“We’ve made a major switch from a marketing perspective,”
Gleason said. “Instead of being labeled the
cable company, we’re trying to be labeled the Internet
company.”

While New Wave hasn’t given up on video, instead of
initially trying to sell a programming package and layer
other services around that product, it now leads with highspeed
data when trying to sell to new customers.

Dialing down video also has cost-savings implications.
Might said that Cable
One stopped adding
new channels in
1997 — it currently
carries only about 40
channels, compared
to more than 80 for
other operators. But
despite that channel
deficit, Might
claimed that Cable
One has a higher
customer-satisfaction
rating than any other
publicly traded MSO.

And its programming
cost savings —
he said Cable One has
lower content costs
per subscriber than
Comcast, which, with
22.4 million customers,
is more than 30
times its size — can be
passed on to the consumer. Cable One offers a $75 tripleplay
bundle ($25 for voice, video and data at 50 Megabits
per second) that grows to about $105 after the first year.
Some larger cable operators offer a triple-play promotion
that starts at $99 per month.

“Customers really don’t care about the second 40 channels,”
Might said.
On the subject of rising retransmission-consent fees,
Bazinet wondered why cable operators haven’t just offered
to install antennas on customer
homes and let them get broadcast
channels over the air, thus avoiding
having to pay retrans. Gleason
said that if the cost of those channels
continues to rise at its current
pace, NewWave may be forced to do
just that.

“Usually unfettered greed does
not go unpunished,” Gleason said.
“That’s what’s going on right now.”

November

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