Cable Keeps Crankin’ In Q2

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Cable operators kept up
the earnings momentum in the
second quarter last week, with
two high-profile MSOs reporting
strong results.

Cablevision Systems continued
to impress in the second quarter,
reporting a gain in basic customers
while reporting cable cashflow growth at nearly double the
rate of its peers.

Revenue at the cable operations
rose 6% to $1.4 billion and
adjusted operating cash flow rose
12% to $620.6 million, twice the
second-quarter growth rate for
larger peers Time Warner Cable
(up 6%) and Comcast (up 5.4%).
Cablevision also managed to increase
basic subscribers by 2,900
(Time Warner Cable and Comcast
each lost basic customers
in the seasonally weak quarter),
while continuing to add highspeed
data (27,000), digital cable
(21,000) and digital phone customers
(25,000).

FIOS RESISTANCE

Cablevision’s performance is all
the more impressive considering
that the MSO has the highest
exposure to the most-aggressive
telco video offering — Verizon
Communications’ FiOS. Verizon
FiOS passes about 1.8 million
homes in Cablevision territory,
or about 40% of its total footprint.

Cablevision seems to be running
circles around Verizon’s
FiOS,” wrote Pivotal Research
Group principal and media &
communications analyst Jeff Wlodarczak
in a research note.

Company-wide, revenue was
up 5.8% to $1.8 billion and AOCF
rose 9% to $677.6 million.

On a call with analysts, chief
operating officer Tom Rutledge
also unveiled new product initiatives
that should contribute to
continued strong performance.

Rutledge said that Cablevision
is moving forward with its remote
server DVR product and should
begin rolling it out to its entire
footprint by the end of the year.
Cablevision also is working on its
own version of TV Everywhere,
which would enable customers to
access the full suite of TV products
on any device that can receive TV
content inside their homes. Rutledge
said that means customers
will be able to watch TV on their
iPads, smart phones and PCs inside
their residences.

While the product seems similar
to the TV Everywhere initiative
being touted by Comcast and Time
Warner, Rutledge said the main
diff erence is in content rights.

Rutledge did not say when they
plan to release the product, but
added that a PC-to-TV application
will see daylight in the fourth
quarter.

Rutledge also said that previously
announced tests for a voice
service that would travel over the
Wi-Fi network are moving forward.
But he added that the company
has nothing to announce.

While Time Warner Cable
didn’t have quite the same quarter
as Cablevision, the nation’s
second largest MSO continued to
hold its own.

Although basic subscriber
losses were up in the period —
to 111,000, from a loss of 57,000
in the second quarter last year —
advanced-services growth continued
at a healthy pace.

Time Warner Cable added
96,000 residential high-speed Internet
customers and 75,000 digital
phone customers, in line with
analysts’ consensus estimates.

Revenue at the second-largest
cable operator rose 5.8%, to $4.7
billion in the period, and adjusted
operating income before depreciation
and amortization (a
measure of cash flow) increased
6%, to $1.8 billion.

But it was the broadband
growth that impressed Sanford
Bernstein cable and satellite analyst
Craig Moffett, who wrote in a
research report that Time Warner
Cable’s performance is further
evidence that cable is winning
the broadband wars.

Moffett noted that in the first
six months of the year, Time Warner
Cable and Comcast have added
834,000 high-speed Internet
customers, while the four largest
telephone companies (AT&T, Verizon,
Qwest and CenturyLink)
have added a combined 427,000
broadband customers. And in the
second quarter, the four telcos collectively
lost 28,000 subscribers.

PROGRAMMERS GAIN

“For one quarter, at least, cable
got all of the market’s broadband
growth,” Moffett wrote.
“And then some.”

While cable operators seemed
to bask in the glow of strong
broadband growth, a handful of
programmers reported results
that appeared to signal an end to
the prolonged advertising slump.
Discovery Communications, CBS,
News Corp., Viacom and Time
Warner Inc. all reported strong ad
gains, with News Corp.’s Fox local
stations showing a 29% increase
in ad sales in the quarter.

While in past quarters companies
with cable networks were
able to soften the sharp decline
in broadcast ad sales, this quarter
the gains were across the board —
Viacom reported a 4% domestic
ad sales gain; Discovery’s U.S. ad
sales were up 13%; Time Warner
ad sales increased 14%; and CBS
showed a 9% uptick in ad sales.

At Viacom, the normally effervescent
chairman Sumner Redstone
could barely contain his enthusiasm
on a call with analysts.

“Consumers are returning to
the marketplace, marketers are
beginning to spend again to grow
revenues and capture share, and
Viacom, Viacom, with the leading
entertainment brands, strong audience
connections, is now and
will continue to benefit from the
upswing in confidence and the
upswing in spending” Redstone
said on the call.

Jon Lafayette contributed to this
report.

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