Cablevision Still Not Sweating FiOS

The down economy contributed to slower growth in the second quarter for Cablevision Systems Corp. (NYSE: CVC), but the MSO continued to add subscribers in most service categories in the face of competition from Verizon Communications Inc. (NYSE: VZ) FiOS.

FiOS started to encroach on Cablevision's turf in early 2005, but Cablevision has managed to add 108,000 video subscribers since then, according to Sanford C. Bernstein & Co. Inc. analyst Craig Moffett. Over that period, Cablevision has also signed up 1.5 million high-speed data subscribers and 1.6 million voice customers, he outlined in a note issued this morning.

Although Cablevision has done a better job against FiOS than some of its MSO colleagues, it hasn't been able to maintain the same rate of subscription growth in the non-basic service categories. Here's how they stacked up year-over-year:

Table 1: Subcriber Adds
Q208 Q209 Difference
Digital Video 120,000 56,000 -64,000
Digital Voice 81,000 37,600 -43,400
High-Speed Internet 52,000 17,900 -34,100
Source: Cablevision Systems Corp. data

Cablevision ended the quarter with a digital penetration rate of 94 percent, but lost 8,700 basic video customers in the second quarter, versus adding 7,000 of those in the year-ago period.

Subscriber gain from the broadcast digital transition was "less impactful than we thought it would be," Cablevision COO Tom Rutledge said on this morning's conference call.

Elsewhere, Cablevision added 104,000 HDTV customers, giving it a total of 1.7 million, and a penetration rate of 54 percent.

The growth Cablevision did manage in the quarter helped revenues for its cable unit rise 4.6 percent to $1.29 billion, with operating income up 13.7 percent to $323.5 million. Aided by service bundles, cable-related revenue per subscriber increased by $3.14 (2.3%), to $139.69 year-over-year.

Company-wide, Cablevision had revenues of $1.87 billion, up 9.8 percent.

Giving WiFi a voice?
Cablevision offered a small update on its WiFi rollout, noting that customers have accessed the platform 3 million times since its launch last fall. (See Cablevision Plays WiFi Card .)

The MSO offers WiFi for free to its high-speed cable modem subscribers, and still views its value as a retention and customer satisfaction tool, rather than a revenue driver. But putting a voice application on top of that wireless network "is inevitable," Rutledge said.

Verizon's recent WiFi product that counters Cablevision's is just a "me-too product," he said. (See Verizon Tries Hotspots Again.) "What we do they tend to do."

RS-DVR update
But what Verizon (and any other telco or cable MSO for that matter) isn't doing -- yet -- is launching a Remote Storage-DVR (RS-DVR). Cablevision has previously said it will offer such a product in the summer, but officials gave no updates on the earnings call. (See Summer Debut for Cablevision Network DVR.)

They did confirm that Cablevision will introduce an RS-DVR in a "scalable way for our own purposes" (translation: not to all customers at once), and that it is discussing the RS-DVR product and advertising opportunities with programmers now that Cablevision's approach appears to be clear of any further legal entanglements. (See Supremes Stand Clear of RS-DVR Case.)

"We believe in copyrights. We think that digital rights management is our responsibility and, ultimately, the value we provide to customers is based in rights structures," Rutledge said.

Spinning MSG
Cablevision also confirmed that its board has approved the spinoff of Madison Square Garden, a division that includes the arena itself, Radio Music Hall, Fuse network, the New York Knicks, the New York Rangers, the New York Liberty, and other media and live events-related assets. (See Cablevision Board OKs MSG Spinoff .)

Cablevision, which hopes the move will help investors value the company's cable and MSG businesses separately, said that the MSO is not considering an outright sale of MSG or any other units of Cablevision at this time.

— Jeff Baumgartner, Site Editor, Cable Digital News

marcusthompson 12/5/2012 | 3:59:35 PM
re: Cablevision Still Not Sweating FiOS

In response to the 'me-too' statement, I definitely do not believe the two wi-fi products are equal. From what I know (which is admittedly minimal), Verizon partnered with Boingo hotpot. Boingo is national, specializing in airports, malls and trainstations across the country. Cablevision's wi-fi product by contrast will only be local; therefore I think Verizon's wi-fi offers a little more. Just wanted to clarify that point. Also, let's be real - Cablevision is sweating FiOs.

Jeff Baumgartner 12/5/2012 | 3:59:34 PM
re: Cablevision Still Not Sweating FiOS

That's a good point...there are some national/local differences to consider on the WiFi side. I think it will behoove Cablevision (and other MSOs) to do more Wifi (Comcast and others are doing some, too) in addition to the wimax/4g stuff so they can put together a more comprehensive, shared strategy since we can assume that Cablevision subs do in fact leave the Cablevision footprint once in a while.

But Cablevision's comments on this did get the attn of Verizon. They start off in a blog post with a "pulleeeze!" reaction to Cablevision's "me-too" comment and then spells out some of the national/local differences you pointed out.






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