Charter, Cablevision: We’ll Do Better

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Cablevision Systems and Charter
Communications reported modest
results for the second quarter
and promised bigger gains in
the future.

Cablevision, which has reeled
in the past several quarters as it
has struggled to find growth in
a market that has become increasingly
saturated — it leads
the industry in virtually every
penetration metric — managed
to report flat basic video-subscriber
growth in the quarter,
better than the 23,000 video customers
it lost in the same period
last year. At the same time,
high-speed data and voice additions (25,000 and 23,000,
respectively) managed to outpace analyst consensus estimates
of 19,000 HSD and 22,000 voice additions.

The flat subscriber growth, coupled with its stated
plan to keep rates stable, resulted in 0.5% revenue
growth and an adjusted operating cash flow decline of
7.2% for the period. Cablevision is putting its money
where its mouth is — cable capital expenditures rose
again in the second quarter, to $261.4 million or about
17.2% of revenue, up from $175.2 million or 11.6% of revenue
in the same period last year.


Dolan vowed back in March to right the foundering ship
with new products and a renewed commitment to customer
service, adding that the company was working
on 18 separate initiatives to help maintain and improve
the subscriber base. On a conference call with analysts
last week, Dolan unveiled one of those initiatives — a
new user interface dubbed Onyx — that should be deployed
across its 3 million subscriber Eastern footprint
by the end of the year.

Cablevision also plans to be all-digital by the end of
the year — it is currently 98.5% digital now — which
will allow for a wide rollout of its Remote Storage-DVR
network digital recorder product. At present, only about
200,000 Cablevision customers currently have access
to the RS-DVR, which will give customers whole-home
DVR functionality without having to have a physical
DVR at their residence.

Dolan said Cablevision also plans to relaunch the Optimum
brand later this month, encompassing all of the
changes the company has made.

“My hope is that with the rebranding efforts and
with some of the other new products that we’re
launching that we will be able to entice new customers
and grow the subscriber base,” Dolan said.

Cablevision isn’t the only MSO looking to build up its
base. But Charter Communications — headed by former
Cablevision chief operating officer Tom Rutledge —
has the opposite problem of its peer to the East. While
Cablevision struggles to squeeze growth out of penetration
rates that are off the charts, Charter is making
moves to reverse what is the industry’s worst video penetration
at 34%. Bother companies appear to be taking a
similar approach to their respective dilemmas — spending
more money on products and service.

Charter boosted capital expenditure guidance for the
year to between $1.5 billion and $1.7 billion.

Rutledge started several initiatives after taking the
helm officially in February, among them a focus on new
programming packaging, including beefing up HDTV offerings
and revamping its high-speed Internet product.

Charter did make some headway, trimming basic
video-subscriber losses to 72,000 in the quarter, better
than the 83,000 lost in the prior year. High-speed
data customers grew by 37,000 and voice subscribers
increased by 12,000, about in line with expectations.
Charter also added 56,000 non-video customers and
now counts about 1 million such subscribers.


While increased capex usually spells panic for cable investors,
most analysts were encouraged that Charter is
willing to raise the ante for growth.

In a research note last week, Credit Suisse media analyst
Stefan Anninger noted that investors are likely to
feel anxious because Charter’s investments will have no
near-term revenue impact. But he said that Rutledge
and his team are making the right moves.

“Investing in the future can be scary, but it’s the right
thing to do,” Anninger wrote.