WOW expects to lose more than half its pay-TV baseWOW expects to lose more than half its pay-TV base
And that's just fine and dandy. Amid its pursuit of a 'broadband-first' strategy, WOW, which has about 308,000 video subs, expects its pay-TV base to dip below the 100,000 mark within three years, CFO says.
February 25, 2021
WideOpenWest's pay-TV base is expected to erode below the 100,000 mark in the coming years as the competitive cable operator maintains a strategy focused on higher-margin broadband services.
"My expectation is three years out to be sub-100,000 video subs," John Rego, WOW's chief financial officer, said Wednesday on the company's Q4 2020 earnings call.
That effectively means WOW expects to shed more than 200,000 additional video subscribers – more than 60% of its current video subscriber base – during that timeframe. WOW, which lost another 19,800 video subs in Q4 2020, ended the year with 308,200.
Figure 1: WOW offers a new IPTV service, WOW!tv+, in most of its markets, but the operator hardly promotes it.
WOW, a service provider that competes with both telcos and incumbent cable operators in its footprint, has launched a new IP-based video service that uses Android TV boxes, called WOW!tv+, in almost all of its markets. However, WOW hardly promotes it. WOW is also marketing a group of virtual multichannel video programming distributors (vMVPDs) – YouTube TV, fuboTV, Philo and Sling TV – to its growing base of broadband-only subs.
A move below the 100,000 pay-TV subscriber mark fits with the strategic direction of the company and its focus on high-margin broadband.
"In my own modeling, that's shockingly, usually a very, very different looking WOW," Rego said, pointing to sub-20% gross margins on video versus 90%-plus margins on high-speed Internet. He said EBIDTA margins on the business are at 50%-plus and heading toward the high 50s.
WOW's strategy is not outlandish among small and midsized cable operators. Cable One, which reports earnings later today, has largely ignored pay-TV to instead focus on residential broadband and business services.
Larger cable operators, such as Comcast and Charter Communications, have likewise been focused on retaining profitable video subs and been increasingly comfortable letting some pay-TV customers go without trying to save them with discounted offers. Comcast, however, did alter its strategy a bit this week with the launch of its Xfinity Stream pay-TV app for Flex, a streaming/smart home platform it has tailored for its base of broadband-only subs.
WOW's focus on broadband continues to drive results. The operator added 4,900 broadband subs in Q4 2020 and a record 32,300 for the year, ending 2020 with about 814,000.
WOW ended the quarter with residential broadband penetration of 25.1%, versus 9.5% for video and 5.4% for phone.
Teresa Elder, WOW's CEO, said about 86% of customers are coming in for broadband-only, versus about 60% a year earlier. Highlighting WOW's broadband first strategy, a "significant proposition of customers who disconnect their video service … maintain their broadband service," she said.
Elder noted that WOW has also increased its minimum speed to existing broadband subs to 100 Mbit/s (downstream), and ended 2020 with more than 86% of new customers taking speeds of 200 Mbit/s or more, up from 54% in the year-ago period. WOW now offers up to 1 Gbit/s across almost 100% of its footprint, but doesn't break out the percentage of customers that take a 1-Gig service.
WOW has also moved to a self-install model, with more than 80% of high-speed Internet-only customers using the kits, up from 30% a year ago, Elder said.
WOW likes recent cable deal valuations
Rego said WOW is always on the lookout for M&A opportunities, and that the company was "excited" to see the valuations recently placed on Astound Broadband's sale to Stonepeak Infrastructure Partners, and Cable One's deal to acquire the rest of Hargray.
"Our company has a history of buying and selling markets … we're always looking at either direction," he said. "But you never know which way this is going to go. Right now, we're about broadband. We're just focused on running the business. But I do like the valuations."
— Jeff Baumgartner, Senior Editor, Light Reading
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