Moody’s: Key Cable Ratio Stable, But at Risk

Broadband growth strong at 4.8%, but video losses accelerate
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Accelerated Q2 video customer losses at the two largest cable operators -- Comcast and Charter -- could drive a key industry metric -- the Video Replacement Rate -- lower, despite solid high-speed data service growth, according to credit rating agency Moody’s Investors Service.

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Charter and Comcast each had greater than expected video customer losses in Q2 -- residential video subscriber declines doubled at Charter to 150,000 in the period while Comcast’s video losses rose from 140,000 in the prior year to 224,000 in Q2. Even with those losses, Moody’s Video Replacement Rate, a ratio that tracks how distributors replace lost video customers with broadband customers, remained stable at 3.0 times. According to Moody’s, broadband subscriber growth of 4.8% in the period -- even with Q4 2018 -- sufficiently offset a 2.4% decline-- up from 2% in Q4 -- in video customers.

Related: Moody's Says Broadband Subs Replacing Video at Slower Pace

But that could change as cable operators switch focus toward broadband at the expense of less profitable video customers.

In a research note, Moody’s senior vice president Jason Cuomo wrote that VRR was highest for the larger cable companies -- Charter (5.3 times) and Comcast (3.4 times) while smaller companies Cable One (0.6 times) and WideOpenWest (0.8 times) had lower ratios.

There was an even split between companies that showed declines and increases in their VRRs, although the average decline (0.40 times) was greater than the average increase (0.15 times). Moody’s attributed that gap to companies that have reduced their efforts to retain video business, including eliminating promotional offerings and other retention tactics that are no longer effective.

“Over the next 12-18 months, we expect subscriber growth rates to remain in line with recent experience, with broadband subscribers growing 4%-5%, while video subscribers will decline 2%-3%,” wrote Cuomo, the lead author of the report. “Supporting broadband growth is rising market share in the commercial market driven by very competitive high-speed data networks, a rise in penetration rates in residential, and gains from expansion of the footprint (edge-outs). Video losses continue to be driven by the weak take rates in the younger population, and cord cutting by those switching to over-the-top streaming offerings.”

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