Outlook: Net Gains, Sub Losses

7/18/2004 8:00 PM Eastern

Cable’s earnings season is expected to kick off next week and according to several analyst reports, investors should expect to see strong gains at cable networks and sluggish basic-subscriber growth for systems.

Cable-network owner Viacom Inc. is expected to be first out of the blocks, reporting its second-quarter earnings on July 22. According to a report by Prudential Equity Group media analyst Katherine Styponias, revenue should rise by 5% to $6.74 billion and operating income before depreciation and amortization (OIBDA) will be up 10% to $1.72 billion.

Cable networks should drive Viacom’s results in the period, according to Styponias, with revenue up 12% to $1.5 billion and OIBDA up 16.5% to $630 million.

Dragging down results will be the radio division, a recent poor performer for Viacom, which Styponias expects will report 2% revenue growth (to $562 million) and OIBDA growth of 1.8% (to $278 million).


Divesting radio is a greater possibility now that president and chief operating officer Mel Karmazin — who started as head of Infinity Broadcasting Corp., the radio conglomerate that Viacom purchased along with CBS Corp. in 2000 — is gone.

Karmazin was replaced by former MTV Networks chief Tom Freston and CBS honcho Les Moonves, who were named co-presidents of Viacom.

“Comments in previous conference calls indicated that the company may be lukewarm on the [radio] segment due to its growth limitations,” Styponias wrote. “It seems the company may be interested in divesting some of its poorer performing stations and we look for more insight on these intentions.”

Styponias believes the cable networks within MTVN will drive the bulk of Viacom’s growth. She noted that Nick at Nite was the No. 4-rated cable network, with an average of 1.84 million viewers during the period.

Time Warner Inc. will be the first cable MSO to report second-quarter earnings, on July 28, and Styponias expects revenue to rise 5% to $10.46 billion and OIBDA to rise 22% to $2.52 billion, largely on the strength of its cable systems and cable networks.

Time Warner Cable is expected to be one of the few MSOs to show a basic subscriber gain in the period — traditionally a slow period, as college students return home and snowbirds leave for their summer residences.

According to Styponias, Time Warner Cable should report a gain of 16,000 basic customers, as well as 112,000 additional digital subscribers (up from 67,000 additions in the second quarter last year). Residential high-speed Internet customers should increase by 137,000 in the period, down from 171,000 adds last year, but that was expected as penetration rates for the service increase. Time Warner currently has about 30% subscriber penetration for data and 40% penetration for digital.

Telephony adds should stand at about 19,000 customers.


Time Warner’s cable networks should continue their strong performance. Collectively, revenue at the networks group is expected to rise 10% to $2.37 billion and OIBDA should be up by 60% to $575 million, mainly due to a $178 million write down related to two sports teams — the National Hockey League’s Atlanta Thrashers and the National Basketball Association’s Atlanta Hawks — in the second quarter of 2003. Without the write-downs, Styponias expects OIBDA growth of 7% in the period.

Analysts were basically split on basic subscriber growth for the rest of the MSO sector.

Soleil Securities analyst Laura Martin expects Comcast Corp. to report strong revenue and cash-flow growth despite basic-subscriber losses.

Martin estimates Comcast will shed 26,000 subscribers in the second quarter (compared to 2,000 basic losses in 2003) and expects slower growth in digital and high-speed data additions.

Martin estimated that digital subscriber additions will be 196,000, down about 1% from last year, with high-speed data additions down 5% to 332,000. Revenue should rise 9% and cash flow should be up 22% in the period, Martin estimated.

Merrill Lynch & Co. media analyst Jessica Reif Cohen also predicted basic-customer losses for Comcast (15,000) and differed slightly from Martin on revenue and cash-flow growth estimates (9.5% and 17%, respectively).

She also predicted that digital adds (145,000) and high-speed Internet adds (302,000) would be lower.

Stifel, Nicolaus & Co. cable analyst Ted Henderson and Styponias were more optimistic. Both estimated that Comcast would report basic-subscriber additions of about 2,000 customers.


At Cox Communications Inc., Martin expects the same trends to take place, although basic subscriber losses should be heavier.

Martin estimated that Cox would lose 68,000 basic customers in the second quarter — 79% greater than the 38,000 basic customers Cox lost in the same period last year.

High-speed Internet additions should be down by 11% to 100,000 in the quarter and digital subscriber additions should lag last year by about 12% to 61,000.

Martin estimated revenue growth in the quarter will be 11.5% and cash-flow growth will be 12.7%, slightly ahead of last year.

Henderson also predicted basic subscriber losses at Cox, but at about half what Martin estimated (19,000) for the quarter.

Henderson estimated Cox would report 55,000 digital additions and 80,000 high-speed Internet additions, below Martin’s estimates.

Mediacom Communications Corp., which has struggled with satellite competition over the past few quarters, is expected to lose the most basic subscribers. Reif Cohen estimates Mediacom will drop 25,000 customers in the period, while Henderson predicts 13,000 basic customers lost.

2Q Estimated Subscriber Adds (Losses)
(In Thousands)
Cohen Styponias Martin Henderson
Source: Individual analyst reports
N/R: Not yet rated
Time Warner CableN/R16/112/1370/110/140N/R

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