TCA Cable TV Inc. has been a quiet cable success story, and
its CableTime ad-sales operation has been an equally quiet enterprise within the MSO.
But both the Tyler, Texas-based MSO and CableTime stepped
into the spotlight last month, when Cox Communications Inc. cut a deal to buy TCA.
One of the key contributors to TCA's rosy profit picture
has been CableTime, as analysts at Hoak, Breedlove, Wesneski & Co. and SG Cowen
Securities Corp. have long pointed out.
Cox chief financial officer Jimmy Hayes described CableTime
-- TCA's turnkey cable advertising-insertion operation within its VPI Communications Inc.
subsidiary -- as "a hidden jewel."
And Cox president James Robbins called TCA "the best
of the classic cable-system operators" in primarily nonurban markets.
TCA chairman Fred Nichols labeled CableTime as "the
fastest growth area of our company" for the past five or six years, adding that it
has "tremendous upside" potential, with projected annual cash-flow growth of 15
percent or more.
Nichols estimated that CableTime represented 10 percent of
TCA's cash flow in fiscal-year 1998, or $20 million of the MSO's $200 million. That's up
from just over 9 percent in 1997, and that figure is likely to reach 11 percent this year,
CableTime president Darrell Campbell noted in a phone interview.
Hoak, Breedlove analyst Murray Arenson estimated TCA's ad
sales at roughly 17 percent of its revenue in 1998 and 18 percent in 1999.
But Arenson's dollar estimates for its ad-sales performance
this year and last proved to be on the low side, Campbell pointed out. Instead of $65
million in fiscal 1998, ad revenues hit $70 million, he said, adding that TCA's latest
1999 estimate is nearly $90 million.
Arenson said he recently revised his own projections from
$81 million to $87 million.
All things considered, CableTime executive vice president
of sales David Gest observed, "I guess it's not a hidden gem anymore."
CableTime -- the self-described "largest third-party
ad-insertion business" in the cable field -- now represents 75 smaller MSOs with 512
systems reaching 3.4 million subscribers across 30 states, Campbell said.
Prior to some recent consolidations, CableTime inserted on
82 MSOs, he added.
CableTime operates 500 headends, he said, adding, "I
don't think anyone else does."
When asked which other regional reps would be considered
competitors, he cited Love Communications in Mississippi and Total Reach in Florida.
Interestingly, CableTime's total of 3.4 million subscribers
is nearly as many subscribers as Cox had prior to its two latest acquisitions, when it had
3.8 million. By year's end -- when Cox's deals to buy TCA and Media General Inc.'s cable
operations close -- Cox's count will grow beyond 5 million subscribers, Hayes said.
TCA's own 74 systems have 883,000 subscribers, chiefly in
Texas, Louisiana and Arkansas. Last year, the MSO attracted notice with a joint-venture
deal with Tele-Communications Inc. (now AT&T Broadband & Internet Services) that
added 150,000 subscribers in Texas and Louisiana to its existing clusters reaching
CableTime reported on its Web site that it upgraded its
digital ad-insertion equipment at 100 systems in 1998, with another 100 due by the end of
this year and with complete conversion by the end of 2000.
Such upgrades "streamline operations and reduce costs
by allowing digital delivery of commercials via satellite," the company said.
Although some analysts have expressed concern that
CableTime's fortunes could turn if its client systems sought representation elsewhere or
took sales in-house, others pointed out that it boasts considerable strength in repeat
business and the ability to sell commercial avails more efficiently than small systems
could on their own.
NOT AN EASY SELL
Since its represented systems average 6,000 subscribers --
ranging from 4,000 on the low end to 60,000 on the high end -- Campbell indicated that
it's not that easy to sell that inventory. "There's no great demand to sell ads
there, especially without clusters," he said.
Despite that lack of demand, CableTime has been enjoying
"a phenomenal year so far," Gest said. Campbell added, "I don't see any
erosion in sales."
Using SeaChange International Inc. digital ad-insertion
equipment, CableTime inserts on an average of 12 networks across its markets, ranging from
eight networks on the low end to 26 on the high end.
CableTime has been notching strong spending growth from
various traditional cable categories, such as automotive, retail and health care, Gest
In its 260,000-subscriber Wilkes-Barre/Scranton, Pa.,
system, for example, CableTime persuaded an auto dealership to spend four times as much as
it had previously spent with the system, Gest said.
Besides "getting a bigger share of budgets" from
these clients, he added, the rep has done well with breaking new accounts and categories.
Due to the size of its systems, CableTime "had to do business with smaller
advertisers," Gest said, but it's also been landing bigger ones.
One success story cited by Campbell and Gest was Nutritec,
a sports-nutrition retailer that inserts on several cable-sports networks and on MTV:
CableTime, which also helped to produce its commercials, is
now working with Nutritec on a future women-skewed schedule on Lifetime Television and
Looking ahead to the new era, when TCA will be part of a
top-five MSO, Robbins said, "We see all sorts of opportunities and synergies"
between CableTime and Cox's CableRep ad-sales division.
Robbins, who spoke to reporters after announcing the TCA
acquisition, didn't spell out those opportunities. But Campbell said, "[Cox] hasn't
looked at the small markets outside of clusters."
WEB SYNERGIES POSSIBLE
Moreover, he anticipated "Internet
opportunities," since both MSOs sell ads on local Web sites.
Prior to the National Show, where he spoke at a local
ad-sales session, Campbell said CableTime has "Web sites that are making money"
through ad sales, including couponing.
Arenson also anticipated some prospects for combinations of
CableTime's smaller operators and CableRep's larger ones.
SG Cowen analyst Gary Farber recently projected that
"over the next few years, we expect CableTime to deliver consistent double-digit [15
percent] EBITDA [earnings before interest, taxes, depreciation and amortization]
That growth, he wrote, would be fueled by "greater
demand for advertising-insertion services by cable-system operators," and also by
cable's ongoing audience gains at broadcast's expense.
Moreover, Farber added, "There is a potentially
untapped market of 5 million cable customers" that could utilize CableTime's sales