New York-MSOs must continue to deploy new services and focus on modernizing plant if they are to stave off the growing competitive threat from direct-broadcast satellite providers and overbuilders, a panel of cable operators said.
Comcast Corp., for one, is aggressively rolling out digital service, cable unit president Steve Burke said at the Kagan Broadband Cable Technology & Finance conference here late last month. The MSO presently has about 1 million digital cable customers, and Burke predicted that in the next 10 years, it would have 10 to 20 new service offerings available to customers.
"If you're doing your job right, the subscriber base will grow," Burke said. "We're growing our subscriber base 1 to 2 percent in the face of very aggressive marketing spending by satellite providers."
In markets where Comcast has a digital offering, Burke said, "We're winning [over DBS] 80 to 90 percent of the time."
In addition to retaining customers and attracting new ones, digital cable also generates considerable cash flow, according to Burke. He estimated that Comcast-which currently has about 15 percent digital penetration-generates about $100 per year in cash flow for each digital customer. That translates into $100 million in cash flow per year from the digital product alone.
"That's an example of how you can take your infrastructure, build plant and leverage new business," Burke said.
And that's the tip of the iceberg, in terms of the new revenue and cash flow possible from simply deploying digital set-top boxes, he said. New services like video-on-demand, electronic mail, instant messaging and telephony are only a few of the new product lines that can be offered through a fully digital plant.
"If you fast-forward to [the year] 2010, well-run cable companies will have 10, 15 or 20 new product lines that feed off the digital set-top," Burke said. "The first generation [digital boxes], even the boxes we have in the field, can handle [video-on-demand]. It all really feeds off the digital box."
Charter Communications Inc. chief operating officer Dave Barford said Charter had about 500,000 digital subscribers and was adding about 100,000 new ones per month.
Adelphia Communications Corp. chief financial officer Tim Rigas predicted his company would not see a good deal of revenue from new services until the second or third quarter of next year.
"Probably by year-end, we'll have a run-rate of 100,000 digital units out per month," Rigas said. "A more robust video platform and [television commerce] should allow us to have substantial revenue of $5 to $7 per unit [per month] for the next several years." Adelphia has about 800,000 digital subscribers at present.
Mediacom Communications Corp. chairman Rocco Commisso said his company hasn't rolled out digital service to the extent of some larger MSOs, but it still is important to his business.
Mediacom began offering digital service in some markets in June and has 25,000 digital subscribers. Digital penetration is about 8 percent overall, he said.
Commisso also lamented the depressed state of cable stocks and Wall Street's infatuation with overbuilders.
Wall Street doesn't value cable stocks at the multiples they deserve and penalizes them for cash-flow growth that does not exceed 13 percent, said Commisso. But at the same time, capital is pouring into overbuilders that have yet to build their networks or offer service.
"I would urge the financial community to reconsider all these brand new schemes that have been put together by management teams that have nothing to lose," Commisso said. "All these equity players backing overbuilders will be the first ones to run away, because they are the last ones that want to lose any money."