Stiff competition from direct-broadcast satellite spurred
greater-than-expected subscriber losses at Mediacom Communications Corp. in the
second quarter, forcing the Middletown, N.Y.-based MSO to revise its revenue and
cash-flow guidance downward for the year.
Mediacom lost about 24,000 subscribers in the second quarter (compared with a
decline of 15,000 customers in the second quarter of last year), mainly due to
aggressive discounting and increased local-to-local offerings by DBS
Adding to the decline was the implementation of annual rate increases and the
traditional subscriber losses as college students and other transients leave
home for summer residences.
Investors appeared spooked by the declines, driving Mediacom stock down 14%, or $1.24 per share, to $7.61 each Wednesday.
In a conference call with analysts Wednesday, Mediacom chairman Rocco
Commisso said the DBS promotions stepped up late in the second quarter and
continued through July, prompting the MSO to revise its revenue and
cash-flow-growth numbers for the full year.
Mediacom said 2003 revenue growth would be between 8.5%-9% (instead of the
previously forecast 10%-11%) and operating-cash-flow growth for the year would
be between 8%-9% (instead of 11.3%-12.3%). Basic-subscriber guidance was lowered
from flat to a 1%-2% decline.
Mediacom has in part combated the aggressive marketing tactics of its DBS
rivals with short-term pricing promotions, offering discounts for one or two
months. While the hope is that Mediacom will transition those promotional
customers to full-paying customers over time, the MSO is taking no chances.
"How are we responding? Our natural instinct is to lead with the bundle and
emphasize the superiority and availability of our value-added offering,"
Commisso said. He added that Mediacom is also spending additional marketing
dollars to get that message out, but he believes most of the DBS promotions are
"irrational and unsustainable."
Commisso also plans to battle DBS by offering a three-product bundle of
video, voice and data. He said Mediacom should launch a
voice-over-Internet-protocol telephony service by June of next year.
The company will also continue a dish-buy-back program it launched in the
second quarter, offering a $25-per-month credit for 16 months. It has won back
about 3,000 customers so far.
Mediacom is also hopeful that the subscriber declines will not last long. On
the conference call, senior vice president of marketing and consumer services
John Pascarelli said that in the past, DBS providers have eased off on
aggressive promotional campaigns after about three to five months.
"It is an initial blitz, and then it tends to come back and run normal with
the rest of the marketplace," Pascarelli said.
Pascarelli added that the aggressiveness appears to come from individual
satellite dealers rather than a nationwide marketing push by the two largest DBS
operators, DirecTV Inc. and EchoStar Communications Corp.’s Dish Network.
Despite the basic losses, Mediacom had strong growth in digital and
high-speed-data customers -- up 11,000 and 20,000 subscribers, respectively, in
Revenue rose 9.3% to $252.2 million and operating cash flow was up 9.2% to
$104.7 million, in line with most analysts’ expectations.