Finance

Spring Forecast: Cable Subs in Bloom

Analysts foresee a Q1 of broadband, video gains for MSOs 4/25/2016 8:00 AM Eastern
TakeAway

Cable operators are expected to see big gains in video and broadband subscribers during the typically strong first quarter.

As cable’s earnings season kicks off this week with Comcast reporting first-quarter results on Wednesday (April 27), analysts think tallies for the typically strong period will see big broadband and video subscriber gains for operators.

 

Cable operators have turned the corner on basic- video subscriber losses in the past several quarters, with Charter Communications and Time Warner Cable reporting their first basic-video customer gains in nearly a decade last year. In this year’s first quarter — typically a strong season for multichannel-TV subscriptions — the Big Three are expected to show video growth, while all four publicly traded cable operators (including Cablevision Systems) are expected to show gains in broadband customers.

 

Morgan Stanley media analyst Ben Swinburne said overall pay TV net additions should be down 50%, but that’s mainly due to satellite-TV subscriber losses and declining growth at the telcos. Cable operators, he said in a research note, should see gains via the likes of Comcast, Charter Communications and Time Warner Cable.

 

‘BIG 3’ GAINS IN SIGHT

Evercore ISI Group media analysts Vijay Jayant and David Joyce also predicted that Comcast, Charter and TWC would post video-subscriber gains, but said the overall pay TV video losses would be more moderate: about 80,000 in the period, compared to a loss of 60,000 in 2015.

 

Jayant and Joyce in a note said Q1 2015 was the first time pay TV showed a loss of video subscribers in the first quarter, which is typically strong despite being prime rate-increase time. The trend toward overall losses is expected to continue, the analysts said, while cable companies for the most part are expected to show gains.

 

Swinburne expects Comcast to gain 35,000 video customers while Charter and TWC should add 1,000 and 29,000 respectively.

 

Cablevision, which has struggled with aggressive discounting by Verizon Communications in its footprint, is expected to shed 23,000 video customers, according to Swinburne.

 

Jayant and Joyce believe Cablevision will shed about 15,000 video customers in the quarter, followed by gains at Comcast (40,000), Charter (15,000) and TWC (20,000). The analysts see most of the video losses being weathered by smaller operators, with Cable One expected to lose 22,000 video customers in the period, Suddenlink Communications — purchased by Altice in December — down about 10,000 video customers and “other” operators losing a collective 100,000 video customers.

 

Jayant and Joyce believe Charter will get more aggressive after its $78.7 billion deal to acquire Time Warner Cable is approved, after which he predicts the company will unleash “an arsenal of marketing campaigns.”

 

Already during Q1, Charter has continued its strategy of targeting satellite-TV subscribers and was giving away a free DVR to new tripleplay subscribers, the analysts said in their report.

 

On the broadband side, growth is expected to slow because of sluggish telco additions, but cable should continue to exert its dominance in the space.

 

Overall, Swinburne predicts 775,000 broadband additions, down slightly from last year as AT&T’s U-verse Internet loses 5,000 subscribers and Verizon’s Fios Internet gains 6,000, down from 41,000 in Q1 2015.

 

Swinburne predicted cable would grab 95% of total broadband additions in the period. Leading the charge will be Comcast (373,000), Charter (123,000), and TWC (227,000).

 

On the telco side, broadband additions are should continue to slide, with AT&T shedding 5,000 customers, compared to an addition of 94,000 in 2015.

 

Verizon, which released first-quarter results last Thursday morning, surprised many analysts on the broadband front, reporting 98,000 Fios Internet additions in the period, below the 133,000 additions of last year but still above the 6,000 that Swinburne predicted. Fios TV adds were about even with last year at 36,000, compared to 35,000 in 2015.

 

On the satellite side, AT&T’s DirecTV unit is expected to report 170,000 net new video subscribers in the quarter, fueled by its parent’s efforts to migrate U-verse TV customers over to the satellite platform. Earlier this month, AT&T debuted a satellite, broadband and wireline phone triple play for $90 per month that could drive additional growth.

 

CABLE’S BROADBAND HEFT

At Evercore ISI Group, Jayant and Joyce estimated that broadband additions will grow by 1.1 million customers in the first quarter, with cable accounting for more than 1 million of those adds. Telcos, the two analysts estimate, will account for about 50,000 broadband additions.

 

At Dish Network, which reported its results April 20, net new subscriber losses were 23,000 in the period, but that includes subscriber gains from its Sling TV over-the-top product. Moffett-Nathanson media analyst Craig Moffett estimated that Dish lost about 158,000 legacy satellite TV customers in the period, its worst first quarter ever.

 

Sling TV, Dish’s over-the-top service, grew by about 135,000 subscribers, though. Sling TV, by Moffett’s reckoning, has about 658,000 video subscribers, in line with estimates. Swinburne estimated legacy satellite losses could be in the 110,000 to 160,000 range.

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