School’s Out; Cox Subs Are Down

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Cox Communications Inc. reported strong revenue and cash-flow growth in the second quarter, but basic subscribers were down, primarily because a greater number of students make up its customer base.

Cox reported 12% revenue growth to $1.6 billion, and operating cash flow increased 16% to $616 million, mainly on strong increases in digital, high-speed-data and telephony customers. The MSO added 60,351 digital subscribers in the period. High-speed-data customers increased by 97,517, and digital-telephone customers rose by 66,265.

Basic subscribers, however, fell by about 54,000.

In a conference call with analysts, executive vice president of operations and chief operating officer Patrick Esser said the falloff was due to a larger percentage of Cox customers being college students who leave for home in the summer and disconnect their service.

“Because of our success during the back-to-school season in the third quarter of last year, seasonality was magnified this quarter because the student segment now makes up a greater percentage of our customer base than it has in years past,” he added.

Those customers are expected to return in the third quarter.

While basic customers may have fallen, Cox said its bundled package of services is still going strong. On the call, Esser said the percentage of customers taking two-product bundles rose to 29% in the second quarter, compared with 24% last year. The MSO also increased the number of customers taking three-product bundles to 10% from 7% last year.

Cox also said it is adding digital-video customers at a rate of 9,000-10,000 per month. The same rate is true for HDTV services.

Digital-video recorders, currently available in about 50% of homes, should be available to about 95% of Cox’s total footprint by the end of the year, Esser said.

“You can expect that our DVR run rates will pick up,” he said, adding that DVR and HDTV sales should see a lift during the holiday season.

Cox said its programming-cost increases were about 12% in the quarter, more than twice those of Comcast Corp., which reported a 5% programming-cost increase in the second quarter.

CEO Jim Robbins said Cox is moving toward Comcast’s level on programming-cost increases, adding that Comcast’s ability to drive programming costs down quickly because of its size (more than three times that of Cox) does not change his outlook on acquisitions.

“We’re coming down to single-digit levels, perhaps not as fast as what was announced [Wednesday by Comcast],” Robbins said. “Directionally, we’re going in the same direction. Does that change our opinion about scale? Absolutely not. What’s much more important for us is the right stuff rather than a whole bunch of stuff.”

Cox shares were up 20 cents each to $28.18 in afternoon trading Thursday before closing at $28.02 apiece.

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