Small MSOs Beat the Odds


Small cable operators are bucking the trend of consistent basic-subscriber losses of their larger brethren, with two small operators reporting third-quarter gains in basic customers.

Insight Communications continued its strong basic-growth pace, adding 9,300 basic customers in the third quarter. It was the fifth consecutive quarter of basic subscriber gains at the company.

At Mediacom Communications, basic subscribers rose by 3,000 in the third quarter, the first time the small market MSO has reported a third quarter rise in basic customers in six years.

Privately held Insight — it reports quarterly results because it still has some public debt — also managed to grow digital, high-speed data and phone customers in the period as well.

Insight, which has about 702,000 customers in Indiana, Kentucky and Ohio, went private in 2006 after 7 years on the public rolls. Last January, it completed a split with Comcast, which assumed control over more than 600,000 subscribers in Indiana and Illinois, in return for its 50% interest in the company.

Insight's financial results followed Mediacom Communications, another secondary market operator with about 1.3 million customers. Mediacom, which made news last year when it was embroiled in a bitter retransmission consent battle with Sinclair Broadcasting Group — it was settled last February — appears to be recovering from that war. Some analysts estimated that the retrans fight in Mediacom's largest market (Iowa represents about two-thirds of its customer base) caused the MSO to lose about 14,000 subscribers.

For the third quarter, Mediacom added 3,000 basic customers, up from a loss of 13,000 basic subscribers in the same period in 2007.

This is in marked contrast to their much larger publicly traded cable peers, all of which lost basic customers in the third quarter. For example, Comcast, the largest MSO in the country, shed 147,000 basic customers in the third quarter, followed by Time Warner Cable (which lost 31,000 basic subscribers); Cablevision Systems (which shed 19,100 basics); and Charter Communications (which lost 25,900 basic customers).

Miller Tabak media analyst David Joyce said the smaller operators are gaining basic subscribers for several reasons, perhaps the biggest one: They are not facing competition from AT&T and Verizon Communications.

Joyce said that other factors include better customer service and the recent slide by Dish Network, which has been particularly strong in secondary markets in the past. The No. 2 U.S. satellite-TV provider reported a 10,000-subscriber loss in the third quarter and lost 25,000 customers in the second quarter.

“Maybe they have finally proven that there is value in the cable triple play versus satellite,” Joyce said.

On a conference call with analysts on Nov. 7, Mediacom chief financial officer Mark Stephan pointed out that prior to this year's third quarter, the MSO hadn't added basic subscribers in the third quarter since 2002. And year to date, Mediacom has not lost any basic customers, “which is a first for us,” Stephan said.

Digital additions were also up sharply – 25,000 in the most recent period compared to 9,000 in 2007 – with high-speed Internet additions coming in slightly better at 24,000 in the most recent period versus 23,000 in 2007. Mediacom added 17,000 phone customers in the quarter, compared to 21,000 in the same period last year.

Mediacom also raised year-end guidance for the second time this year. Revenue is expected to increase 7.5% to 8% (it was 7% to 8%) and cash flow should rise between 9% and 10% (was 8.5% to 9.5%).

Mediacom's results clearly exceeded analysts' estimates, and most took notice.

“For its part, Mediacom has performed quite well during the market turbulence,” Citigroup media analyst Jason Bazinet wrote in a research note. “The DBS threat seems to have faded. The telco fiber builds are still quite low. RGU growth remains healthy. And all of this has translated into better financial results than the Street expected at the beginning of the year.”