Cable Operators

Video-Subscriber Exodus Slows for Cable

1/30/2012 12:01 AM Eastern

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.

September