Cable One has largely ignored pay-TV amid a greater focus on high-margin broadband and business services, but it's not yet ready to take things to the extreme and exit the video business completely.

"It's not our intention to drop video at this time," Julie Laulis, Cable One's chair, president and CEO, said on Thursday on the company's fourth-quarter 2019 earnings call, when asked if the operator is considering dropping its own pay-TV service and instead form partnerships with one of the various OTT-TV service providers. "How we deliver that product might change in the future, but there are no plans right now to drop video outright."

But changes are underway in all corners of the US cable industry. On one extreme, a few small cable operators, including 3 Rivers and Beld Internet, have dumped pay-TV service altogether, encouraging broadband customers to seek out OTT options to fulfill their video needs.

Several others, including WideOpenWest, Frontier Communications and even Verizon, are retaining their legacy pay-TV services, but complementing them with formal partnerships with virtual multichannel programming distributors (vMVPDs) such as Philo, YouTube TV, fuboTV, Sling TV and Hulu. In yet another example, Google Fiber recently stopped selling its IPTV service in favor of agreements with fuboTV and corporate cousin YouTube TV. Meanwhile, Tier 1 US cable operators such as Comcast and Charter Communications are focusing on the most profitable parts of their pay-TV base and and not bothering with unprofitable save offers.

Cable One, meanwhile, has yet to strike a formal partnership with a vMVPD or announce a streaming-focused strategy even as its video subscriber base continues to erode. In Q4, Cable One lost 12,100 video subs, ending the period with 314,000.

Laulis said Cable One has given some thought to a video streaming offering along the lines of Xfinity Flex, a product Comcast offers for free to broadband-only customers. But she said the MSO for now is content to see how such products resonate in the market. "We're hesitant to do anything that might get us in a place like what exists for video ... where we are not in control of our destiny," she said.

Focused on broadband
Broadband remained a primary focus and strong point for Cable One, as the operator added 4,900 subs in the period. Its residential broadband average revenue per user, at $71.72, remains the highest in US cable, thanks in part to uptake of the operator's non-bundled (and pricier) standalone broadband service, the migration of customers to more expensive, faster tiers and the adoption of an unlimited data option that costs an extra $40 per month.

Laulis said more than 20% of new, sell-in customers take Cable One's unlimited data option, and that customers pick the company's $65, 200Mbit/s tier at a rate of almost two-to-one over its $45 starter tier (100 Mbit/s).

Cable One, recently rebranded as Sparklight, ended 2019 with 907,000 total customers, with 592,000 of them (65.2%) in the non-video bucket.

"The fact that Cable One is losing [video] subscribers faster than its peers isn't a bug; it's a feature," Craig Moffett, analyst with MoffettNathanson, said in a research note issued last night following Cable One's results.

The rate of video sub decline at Cable One, he added, will likely accelerate as Cable One extends its video-winnowing strategy to the sub base of Fidelity Communications. Last fall, Cable One closed the acquisition of Fidelity, a cable op that serves about 114,000 residential customers in parts of Arkansas, Illinois, Louisiana, Missouri, Oklahoma and Texas.

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Eyeing M&A opportunities
Laulis said Cable One will continue its strategy of seeking out broadband-related acquisitions and strategic investment opportunities in rural markets.

Moffett expects Cable One to remain a buyer and not a seller in the M&A matrix. "[A] sale of Cable One to another cable operator is almost unthinkable," Moffett wrote. "An inflated share price almost self-evidently discourages any potential acquirer."

Shares in Cable One were down 4.99% ($78.19) to $1,489.98 each in Friday morning trading.

For Q4 2019, the first financial period to include Fidelity Communications results, Cable One's total revenues rose 18.1%, to $318.8 million, while net income jumped 27.6%, to $53.6 million. Residential data revenues climbed 18.9%, to $150.28 million, while residential video revenues (despite a declining sub base) rose 4.6%, to $86.35 million.

US cable's "canary in a coalmine" with respect to video subscriber declines, "is still happily chirping away," Moffett explained.

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— Jeff Baumgartner, Senior Editor, Light Reading