Q3 MSO Results Vary

Nov 3, 2003  •  Post A Comment

Amid an ongoing battle over sports rights fees, Comcast, the nation’s largest cable operator, reported a strong third-quarter financial performance last week, thanks to a one-time gain from the sale of QVC to Liberty Media. Cox Communications reported a larger loss as a result of paying down debt. Both multiple system operators reported gains in the sale of digital cable and high-speed Internet services.
However, Insight Communications, half-owned by Comcast, lagged, although final numbers were put off pending further discussions with the Financial Accounting Standards Board.
The results launched what is widely expected to be a strong quarter for most cable operators, as they bank on high-speed data and digital services to beat back the multifront assault they face from telephone companies on the high-speed data side and satellite operators on the video side.
The earnings calls were also an opportunity for Comcast and Cox to articulate their stances in the ongoing battle over rising programming fees. Cox CEO Jim Robbins repeated his promise to drop ESPN and Fox sports channels if they don’t back off on big increases he claims they are seeking.
“We won’t telegraph what our intents are, but the options run the gamut from what we hope will happen-that we get contracts from both vendors at current prices or with a little bit of an increase-to if we can’t get to reasonable terms, we don’t carry their programming,” Mr. Robbins said during a conference last week. “We have a good negotiation with one of these vendors, and we hope we don’t have to go to an extreme position with either of them.”
For his part, Comcast President Brian Roberts, who has taken a decidedly lower profile on the programming fee issue, said during his earnings call that the company “is making good progress” in seeking long-term contracts with reasonable price increases. Mr. Roberts defined reasonable increases as consistent with rises in the consumer price index.
Insight’s reported an 11 percent rise in third-quarter revenue to $228.4 million, driven by gains in high-speed data and digital cable subscriptions as well as basic cable increases. Insight’s numbers left at least one analyst disappointed and triggered a downgrade in its outlook from rating agency Standard & Poor’s. Indeed, S&P changed its outlook to negative, citing the progress satellite operators are making in its footprint.
Further clouding the picture for Insight, S&P said, was the company’s failure in the third quarter to fully recover from the second-quarter drop in subscribers.
Comcast, with more than 22 million subscribers, posted a massive increase in third-quarter profit, driven by a one-time gain from the sale of its 57 percent stake in home-shopping channel QVC to Liberty Media as well as robust customer additions for its digital cable and high-speed data services.
The Philadelphia-based company recorded a third-quarter profit of $3.2 billion, or $1.41 a share, vs. a year-earlier profit of $76 million, or 8 cents a share. Revenue for the period surged 165 percent to $4.5 billion.
Comcast, which has almost completed the integration of the cable systems it purchased from AT&T Broadband nearly a year ago, said it added more than 318,000 digital cable subscribers during the quarter-nearly double what it added a year ago-while it attracted more than 472,000 new customers to its high-speed Internet service, a 39 percent jump over the prior year.
Those additions helped Comcast’s cable unit record an 8 percent increase in revenue to $4.4 billion, with historic Comcast systems posting an 11 percent jump in revenue, while the old AT&T systems climbed 7 percent. Operating cash flow for the cable unit surged 35 percent to $1.6 billion.
The QVC sale to Liberty resulted in Comcast’s receiving 217.7 million shares of Liberty stock, plus $4.35 billion in cash and a $1 billion, three-year Liberty note. Comcast said it used some of the proceeds from the sale to reduce the company’s debt load by $1.7 billion in the third quarter, with plans to further reduce debt in the fourth quarter. By year-end Comcast expects its debt level to stand at $23 billion.
Meanwhile, Cox reported a widened third-quarter loss as costs associated with the company’s paying down of debt outstripped gains associated with subscriber growth.
Atlanta-based Cox posted a loss of $215.1 million, or 35 cents a share, compared with year-earlier red ink of $73.1 million, or 12 cents a share. Revenue advanced 15 percent to $1.5 billion.
Cox said its cost of services, which includes programming costs, rose 15 percent to $622.2 million for the quarter, with programming costs alone climbing 14 percent due to rate increases and customer growth.
The company said it added nearly 122,000 digital cable subscribers during the period, while more than 169,000 high-speed data customers were added. The company also boosted its telephony customer count by more than 73,000 during the quarter.