Weak Q3 for Cablevision

Basic Video Customers Down 56K, Broadband Subs Down 23K

Cable operations revenue rose 5% in the third quarter at Cablevision Systems, mainly due to price increases for broadband and video services, as basic video customers fell by 56,000 and broadband subscribers, once the main growth engine for the company, dropped by 23,000.

Adjusted operating cash flow increased by 5% at its cable operations, mainly due to rate increases. That was evident by a strong jump in average monthly revenue per video customer, up $12.66 to $177.27.

Consolidated revenue – which includes its Lightpath operations – was up 3.7% to $1.6 billion in the period and AOCF rose 7% to $$71 million.

Cablevision said the decline in video and broadband customers was due in part to more stringent credit and promotional policies. On a conference call with analysts, Cablevision chief operating officer Kristin Dolan said that meant the cable operator was not marketing to customers that have a history of not paying their bills or to households with bad credit histories. While that does reduce the marketable base of potential customers, she said it will result in a more profitable sustainable customer.

The basic video losses were the largest since the fourth quarter of 2012 when the company shed 50,000 customers in aftermath of Superstorm Sandy, which caused billions of dollars of damage in Cablevision’s service territory in Long Island and the New Jersey shore.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett said Cablevision’s basic video subscriber losses are about twice those of its peers (4.2% versus 2.1%) and it lost broadband customers while its peers are growing that segment at a 5.6% annual rate.

“Faced with falling subscriber numbers, Cablevision is left with but one lever to pull to sustain growth: they are aggressively raising broadband prices,” Moffett wrote. That is a strategy that supports near –term cash flow growth, but “exacerbates the longer term vicious cycle of falling subscribers and, as scale is lost, further margin declines,” Moffett added.

Cablevision stock was down as much as 4% in early trading Thursday, but rebounded later in the day. It was trading at about $18.40 per share at noon Nov. 6, down just 15 cents (1%) per share.

Cablevision has faced fierce competition from Verizon Communications’ FiOS TV, which added about 114,000 video customers in the third quarter. Cablevision has the greatest exposure to Verizon of any other cable operator.

On the conference call, Cablevision CEO Jim Dolan wondered aloud how Verizon, which he said has gone after Cablevision customers with tremendous zeal, manages to sustain a business that he believes is bleeding money for the telco.

“Verizon, in our opinion, continues on a path of pursuing the destruction of their own capital,” Jim Dolan said. “We don’t believe that they are profitable on any level in our service area. They rabidly pursue us in an attempt to try and get customers. I think our strategy is actually working quite well because we are giving them all the customers we think are the most expensive customers and  the ones that provide the least free cash flow to us. I think you can see that in our results. As we reduce customers, still our AOCF continues to go up.”     

Cablevision has made some recent moves to tap into underserved markets in its territory – it launched an Internet Basics package during the quarter in Newark, N.J. and The Bronx, N.Y., which offers lower-income households 5 Mbps high-speed data service for $24.95 per month (plus a $4.95 monthly modem rental fee). And Dolan hinted at plans to further monetize WiFi service – Cablevision customers he claimed have access to more than 1 million WiFi hotspots – that will focus on the enhanced value WiFi brings to its broadband service.