Subscriber Trends Bode Well for Cable

May 9, 2005  •  Post A Comment

For the past few quarters, cable operators have suffered the one-two punch of losing subscribers to the satellite companies and losing investors to frustration. Last week three of the industry’s largest multiple system operators offered both camps a reason to stick with them.

Time Warner Cable and Cablevision Systems both reported that they added basic cable subscribers in the first quarter ended March 31. Charter Communications, which for months has struggled to compete while being hamstrung by nearly $19 billion in debt, lost far fewer basic cable subscribers in the quarter than Wall Street analysts had expected.

Whether the results signal that the cable industry has turned a corner in terms of video subscribers, or that MSOs have figured out how to staunch satellite’s rapid growth, remains to be seen.

However, the first-quarter results show that the cable industry is very much alive and well-and ready to do battle.

Basic cable subscribers have been the subject of much discussion in the pay television universe. Relying on analog cable service, basic subs have been aggressively sought after by the satellite operators, which boast that they can offer these customers a more robust-and digital-video package for less than what subscribers pay their cable operator for the basic package.

For years the strategy has worked. Cable operators have steadily lost basic subscribers to satellite companies DirecTV and EchoStar Communications, which have posted sharp subscriber gains at cable’s expense.

The trend didn’t prevent cable operators from posting revenue gains, however. As things got more competitive in the video field, most MSOs shifted their focus to high-speed data and later to cable-based telephone service, which are high-margin businesses with very bright growth prospects. MSOs also stepped up their efforts to convert basic cable customers to digital customers, enticing them with pricing packages that featured digital cable, high-speed data and telephony.

Even so, basic cable remains MSOs’ core business, and Wall Street analysts were encouraged by Time Warner’s and Cablevision’s subscriber additions in the quarter.

Time Warner reported that it added 26,000 basic cable subscribers in the first quarter, while Cablevision said it added nearly 22,000 basic subs in the period. Charter, which one analyst predicted would lose nearly 35,000 basic subs, lost just 6,700 basic customers. (Comcast, the industry’s largest player, said last month that it lost in the first quarter 29,000 basic cable subscribers-a figure that shocked many analysts who had predicted the company would gain customers.)

Last week’s results helped Time Warner, Cablevision and Charter produce financial results that generally pleased Wall Street analysts.

Time Warner Cable, which is parent Time Warner’s largest operating unit and last month reached an agreement with Comcast to buy bankrupt cable operator Adelphia Communications, reported a 10 percent jump in revenue to $2.2 billion, fueled by a 10 percent rise in subscription revenue and a 9 percent increase in advertising revenue. Operating income climbed 10 percent to $426 million.

While the company added basic cable subscribers, the unit’s real growth driver was the high-speed data service, which added 209,000 customers in the quarter to hit a total of 4.1 million. Time Warner’s digital cable service added 103,000 customers to reach 4.9 million subscribers.

The phone service added 152,000 new customers to reach an end-of-quarter total of 372,000 subscribers. Overall, Time Warner Cable ended the quarter with 10.9 million basic cable subscribers.

A Loss, but Narrower

For its part, Cablevision posted a slightly narrower loss of $118.9 million in the first quarter, compared with red ink of nearly $120 million a year ago. Revenue jumped 6 percent to more than $1.2 billion as the company reported subscriber gains in basic cable, digital cable and high-speed data.

In addition to the basic cable additions, Cablevision added nearly 140,000 digital-cable customers, more than 88,000 high-speed data subscribers and nearly 92,000 telephony customers. Those improvements led Cablevision’s cable operation to report a 15 percent revenue gain for the quarter to $813.5 million and a 29 percent jump in operating income to $120.5 million.

At its Rainbow Media unit, which includes cable channels AMC, IFC and WE: Women’s Entertainment, revenue fell 10 percent to $200.5 million, while operating income tumbled 41 percent to $4.7 million. The company blamed the results on higher marketing and product expenses, which offset higher advertising revenue booked in the quarter.

The company’s other programming channels, which include regional sports networks, 21 high-definition channels and the MetroChannels, reported a 32 percent decline in revenue to $72.3 million and a widened operating loss of $43.1 million.

Meanwhile, Charter, which is controlled by Microsoft co-founder Paul Allen, reported a widened first-quarter loss of $352 million, compared with a year-earlier loss of $293 million, while revenue advanced 5 percent to nearly $1.3 billion.

In addition to reporting fewer subscriber losses than expected, Charter added 94,000 high-speed data customers and nearly 20,000 digital cable subscribers-both of which beat many analysts’ projections.