The two biggest cable operators released third quarter results Oct. 26, and depending how sensitive cable’s panic meter is, it’s time for operators to either get nervous or get nervy.
I vote for the latter.
True, Comcast lost 125,000 video subscribers in Q3, its worst quarter in three years (when it lost 144,000 video customers in Q2 2014) and broadband additions at 214,000 were down from the 330,000 addition in Q3 2016. The same held true for Charter, which lost 104,000 video subscribers – more than twice the 47,000 lost in Q3 2016 – while broadband additions were 249,000, behind the 350,000 additions of the prior year.
Some of those losses were the results of severe weather that devastated Houston, Texas and western Florida – but the impact wasn’t as heavy on subscriber results as it could have been. Comcast said it would have lost about 105,000 video customer minus the storms' impact and Charter chairman and CEO Tom Rutledge said the weather had a marginal influence on its results.
Another interesting note: of those Charter losses, 76,000 of them came from former Time Warner Cable systems. And every one of those TWC losses were in its lowest video tier, meaning they were most likely promotional customers rolling off heavy discounts. To date, according to MoffettNathanson principal and senior analyst Craig Moffett, TWC has given back “more than all” of the video gains it reported just prior to the closing of the merger.
Couple the Comcast and Charter losses with video subscriber deficits at Verizon (-18,000) and AT&T (-385,000) and the pay TV business is on track to lose about 1 million subscribers in the third quarter, more than three times the 326,000 it lost in the same period last year, according to UBS media and telecom analyst John Hodulik.
Not that the cable CEOs were trying to sweep the whole video sub-loss thing under the rug. Both Comcast’s chairman and CEO Brian Roberts and Charter’s Rutledge acknowledged the impact of all of the latest horrors affecting pay TV – cord-cutting, cord-shaving, cord-nevering and skinny bundles. But the difference was that they say they expected it. And better yet, they seem to believe they are prepared to fight back.
The proof of that will, as they say in the culinary world, come out in the pudding. But at least for now, cable seems to have near total dominance over one very important aspect of the new TV paradigm – broadband.
Roberts said it as much in his prepared remarks during Comcast’s third quarter conference call with analysts, stating that broadband is the “epicenter” of its relationship with the customer and the source of most of its profitability. A quick look at the numbers proves that out.
Between 2015 and 2016, according to its own financial statements, Comcast has added about 2.8 million high-speed internet customers (1.4 million in 2015, 1.4 million in 2016), while revenue has risen 9%. Video revenue during that period was up about 4.2%. On the subscriber front, after gaining 161,000 video customers in 2016 (its first full-year surplus in a decade), Comcast has lost 117,000 video customers so far this year.
Operators have been beefing up fiber networks and raising data speeds for years in anticipation of those shifting viewership trends – at Comcast alone, data speeds have increased 17 times in the past 16 years. Charter has rejiggered its pricing and packaging, increased minimum data speeds to 60 Mbps and is on the way to making their network all digital. Both operators have launched 1 Gigabit per second service and Roberts wondered aloud on his Q3 earnings call if 25 Mbps won’t be the “new DSL,” nice to have but not fast enough to do anything you really want to do.
And speed doesn’t just mean the hardwire connection to the home. Both Comcast and Charter are investing in boosting WiFi connectivity, offering streaming services and testing lighter video packages to appease customers that want those options.
“We’ve anticipated this shift that’s coming,” Roberts said on the earnings call.
That means offering broadband only to customers – at a higher price than the bundled service – as well as offering connectivity to services like Netflix and YouTube that enhance the experience for customers. While there is always the opportunity to upsell to bigger video packages, and Roberts was quick to note that subscribers to Comcast video have more choices than ever. But he also noted that Comcast's understands that there is more content out there for people to enjoy riding on cable broadband.
Rutledge said on Charter’s earnings call that there are 200 million WiFi devices connected to Charter’s physical broadband infrastructure. He added that a mix of licensed and WiFi spectrum, which he has joking called “6G,” offers the opportunity for new products, new services and can help create a path toward new offerings that don’t exist today – like Virtual Reality – that take advantage of a high-capacity, low-latency networks.
“Markets move around,” Rutledge said. “Competitive pressures change. We still think we have a superior infrastructure compared to our competitors.”