Confidence in Cable Bundle Builds

Robust Q3 Results Cast Doubt on Cord-Cutting’s Impact
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Cable operators made the case for the bundle in the third quarter.

In reporting their best basic-video subscriber performance in nearly a decade, U.S. MSOs cast some serious doubt on the actual impact of cord-cutters — young consumers who’ve dropped their pay TV subscription for a broadband connection — and of online content.

Comcast started things off, reporting a Q3 loss of 48,000 video customers, nearly half of what it shed in the same period last year and its best Q3 performance in nine years. Up next was Time Warner Cable, which reported a loss of 7,000 basic-video customers in the period (its best Q3 since 2006); and Charter Communications, which tallied a gain of 12,000 basic-video customers for its first positive growth since Q4 2014.

Not all cable operators have reported their third-quarter numbers yet — Cablevision Systems is scheduled to release results Nov. 3, with other smaller operators following suit in the coming weeks. But Comcast, TWC and Charter represent about 70% of all U.S. cable-TV homes.

So far, the numbers are in sharp contrast to the second quarter, when sector-wide declines sent stocks into a tailspin over fears that cord-cutters were taking a bigger bite out of pay TV companies than originally expected. While there are still some question marks left, cable has more than held its own.

Collectively, the three largest cable operators shed 43,000 basic-video customers in the third quarter, about one-third of the 121,000 they lost in the second quarter.

“Clearly, 2Q ’15 was not a negative inflection point for the industry,” Evercore ISI Group media analysts Vijay Jayant and David Joyce wrote in a research note.

MoffettNathanson principal and senior analyst Craig Moffett went further out on a limb: “It’s time to change the narrative about cord-cutting.”

It’s not that analysts believe cord-cutting has gone away, just that it is taking customers from sources other than cable. And Moffett said he believes cable’s video resurgence is due to a combination of its better content offerings and its longstanding broadband dominance — high-speed Internet additions at the three top cable operators were all ahead of the prior year, while AT&T lost 100,000 U-verse Internet customers, and Verizon Communications’s FiOS Internet additions were down.

“Cable’s two-way architecture and Comcast’s best-in-class user interface and VOD libraries are emerging as genuine sources of competitive advantage,” Moffett wrote in a research note.

Charter CEO Tom Rutledge had a simpler answer. “Our competitors continue to aggressively promote products at low price points,” he said on Charter’s Q3 earnings call. “We think, fundamentally, we have better products than they do.”

So far, cable has resisted playing the price-cutting game. And though promotions like the $90 triple play have brought in customers, operators are careful to lessen the shock once those promotions expire.

On TWC’s earnings call, chief operating officer Dinni Jain said the company made a concerted effort not to repeat past mistakes. Promotional customers are now told up front that prices will rise after the 12-month promo period expires, and those increases are now about $20 per month, compared to the muchstiffer hikes of the past.

“I think a combination of that transparency on the front end coupled with really working hard to nail the customer experience through the life of that first 12 months will give us a much better churn profile,” Jain said.

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