Can Cable Still Cash In on DTV?

It's going to be a while before the industry knows if U.S. cable MSOs got any significant lift from today's digital broadcast TV transition. (See DTV Transition Eve: 2.2M Still Unprepared.)

"Any boost from these potential subscribers is not likely to be seen until 3Q 2009," writes Sanford C. Bernstein & Co. Inc. analyst Craig Moffett in a recent report, noting that MSOs may be able to comment on what impact was felt by July or August. About a year ago, Moffett said cable could reel in 10 percent of the roughly 14 million homes that still relied on OTA TV. (See DTV Transition Could Catalyze Cable.)

Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) posted modest basic-subscriber gains in the first quarter, helped in part by new customers that previously relied on free, over-the-air (OTA) TV and were anticipating the original DTV transition date of Feb. 17. (Most of the full-power TV stations are flipping over today.)

Although TWC and Comcast reported lifts in the first quarter, they have indicated that the DTV addition trend has not continued into the second quarter. So, "whatever boost there was to be had, it came in Q1, and it's now old news," Moffett noted.

And there's another wrinkle. Analyst Tom Eagan of Collins Stewart plc believes surging home foreclosure rates could wipe away any basic-subscriber gains that cable operators will gather from the transition. Comcast could lose 165,000 basic subscribers in the second quarter, and TWC could lose 35,000, he writes in a recent report.

Second-quarter results are expected to be weak for operators, including those two, anyway, due in part to consumer spending patterns.

The real test
There's still a chance cable could wring more subscribers from the transition, though.

Although most OTA TV homes prepared themselves (save for about 2.2 million homes at last check) by installing digital-to-analog converter boxes, today is when they find out if their antennas are up to snuff.

"What these statistics ignore… is that antenna problems, rather than converter box uptake and general 'preparedness,' are likely to be the more significant determinant of the number of households that will end up turning to cable as a result of the DTV transition," Moffett writes.

Centris , for example, has already produced studies suggesting that significant gaps in OTA coverage and obstructions (natural and man-made) could leave as many as half of all OTA homes in some key markets without a viewable digital TV signal unless they spring for expensive directional rooftop antennas. (See DTV Transition’s ‘Major Glitch’.)

MSOs have been eager to take advantage should OTA TV consumers find themselves caught in those gaps. Comcast Corp. (Nasdaq: CMCSA, CMCSK), for example, has a "rapid response team," which promises to do same-day installation through June 21, and offers basic cable service (about 20 channels) that's free for a year if customers also sign up for voice or Internet service (or $10 a month by itself). (See Comcast Extends DTV 'Rapid Response' Tilt.)

— Jeff Baumgartner, Site Editor, Cable Digital News