Two Tales of Two Cablers’ Red Ink

Aug 15, 2004  •  Post A Comment

Multiple system operators Cablevision Systems and Charter Communications might share the distinction of being the only major cable companies to report second-quarter losses, but the stories behind their respective red ink stand in stark contrast to each other.

What the two companies have in common is that both booked sizable one-time charges during the three-month period ending June 30 that hurt the companies’ bottom lines. Charter, which has around 6.5 million subscribers, recorded an $85 million charge for the company’s settlement of a series of class-action shareholder lawsuits related to investigations into how Charter counted subscribers. Meanwhile, Cablevision, with 3 million subscribers, took a hit because of an $81.5 million operating loss at its fledgling satellite service Rainbow DBS, which incurred huge start-up costs last quarter but is slated to be spun off later this year.

The fundamentals behind each company paint very different futures.

The second quarter is traditionally a weak period for cable operators, as college students and snowbirds disconnect their service during the summer. The industry also contended with a reinvigorated satellite industry, which aggressively went after cable customers during the quarter and posted strong gains in subscribers at cable’s expense.

Charter was particularly hard hit, losing nearly 59,000 basic cable subscribers and 7,000 digital cable subs. Those losses, coupled with the one-time charge, led the cable operator to lose $416 million, or $1.39 a share, in the second quarter, compared with red ink of $38 million, or 13 cents a share, a year ago. Revenue rose 6 percent to $1.24 billion, driven largely by 58,000 new high-speed data customers added in the period.

“Competition from [direct broadcast satellite], which now is being strengthened by [Regional Bell Operating Co.] distribution, is putting increasing pressure on the basic subscriber line that is likely to continue for the foreseeable future,” said Lara Warner, a cable analyst at Credit Suisse First Boston, commenting on Charter’s results.

By contrast, Cablevision managed to defy the odds by booking stronger-than-expected subscriber gains in its basic and digital cable services, which led the company to raise its guidance for the full year. In the June quarter, Cablevision added 110,000 digital cable subscribers and 7,500 basic subs, as well as 50,000 high-speed data customers and 45,000 cable-based phone customers.

Because of that one-time charge, Cablevision swung to a second-quarter loss of $187.1 million, or 65 cents a share, compared with a year-earlier profit of $158.3 million, or 54 cents a share.

Revenue soared 25 percent to $1.2 billion, driven by gains at the company’s core cable business and affiliate and advertising revenue increases at the company’s programming unit Rainbow Media.

Alan Bezoza, an analyst at Friedman Billings Ramsey, said the results “reflect solid execution of [Cablevision’s] cable operations’ business plan against a backdrop of growing competition.”