Comcast kicked off the third-quarter
earnings season on a mixed note last week, but that
didn’t seem to damper the enthusiasm of several analysts
that follow the sector, who saw the No. 1 U.S. MSO
results as further proof that higher-margin customers
are driving the business.
Comcast lost about 275,000 basic subscribers in the period,
well above analyst consensus estimates of losses of
around 189,000 customers. But while basic video continued
its decline — Comcast has lost about 622,000 basic-
video customers this year
— revenue and operating
cash-f low growth remained
strong (up 7.3% and 7.6%, respectively).
In a conference call with
analysts, Comcast cable president
Neil Smit said that about
40% of the video losses were
from lower-end customers,
particularly those who signed
on to one-year promotional
deals during the digital transition
in early 2009 and rolled
off those promotions in the
second and third quarters.
While not releasing any details,
Comcast said that video
trends have been improving
month to month, and that is
continuing into October.
Smit added that the customer
growth is not coming
through heavy promotional
offerings, but rather from more
effective marketing. Marketing
spend in the third quarter was
up 17%, he noted, and the extra
outlay appears to be paying off .
“We were more active in
the marketplace,” Smit said
on the conference call. “We weren’t overly discounting.”
MINDING ITS BUSINESS
In a research note last week, Sanford Bernstein
cable and satellite analyst Craig Moffett noted
that while most of Wall Street’s attention is focused
on the pending NBC Universal joint venture,
Comcast continues to prove that it is first
and foremost a cable company.
“And third-quarter results suggest that’s not a
bad place to be,” Moffett wrote.
Comcast’s results seemed to bolster Bank of
America Merrill Lynch media analyst Jessica Reif
Cohen’s bullish outlook for the entire sector. At last
week’s Multichannel News/Broadcasting & Cable
OnScreen Media Summit in New York,
Reif Cohen said that the trend toward
higher-margin customers is rippling
through the whole industry.
“You’re seeing a difference with the
haves and have-nots,” Reif Cohen said,
noting that the amount of subscribers
taking faster and more expensive highspeed
data packages industry-wide
outnumber those taking lower-priced
packages by a margin of 2 to 1.
That seemed to prove out in the Comcast
results — high-speed additions
were down from last year, 249,000 vs.
361,000 in third-quarter 2009 — but
average revenue per customer was up
about 4.9%, signaling that more customers
were taking higher-tier packages.
That trend is even showing itself in
the video segment, where ARPU rose 5.2% to
$70.51 in the period. While some of that may
be due to rate increases, programming costs
and other factors, customers taking highertier
digital packages, digital video recorders
and HDTV also likely played a role.
“To be sure, programming costs are rising,”
Moffett wrote. “But they are not rising as fast
as video ARPU. As a result, Comcast posted a
3.8% gain in gross profit dollars per video subscriber,
their best result in two years.”
While Comcast continues to squeeze profi t from the
video business, it is also developing and launching new
services and rebranding its offerings under the Xfinity
XFINITY AND BEYOND
Comcast has rolled out DOCSIS 3.0 ultra-high-speed
data service in about 80% of its footprint and about 65%
of its markets are all-digital. Roberts pointed to the
MSO’s relaunch of XFinity TV, its TV Everywhere initiative,
which gives customers access to about 150,000
entertainment choices, including about 11,000 movies
and its plans to offer applications on Apple’s iPhones and
iPads and Google’s Android tablets in the future.
Comcast also is moving forward with interactive advertising
initiatives — its Canoe Ventures partnership with
other MSOs has rolled out interactive applications to about
10 million homes across the country and is expanding.
Reif Cohen was especially bullish on the potential opportunity
for interactive advertising, adding that it could
be a $14 billion business over the next five years.