DTV Transition Could Catalyze Cable
"The digital TV transition could represent a once-in-a generation catalyst for cable stocks," writes Sanford C. Bernstein & Co. Inc. analyst Craig Moffett in a newly issued report.
That's a steep upgrade from what the banking firm said in February, a year ahead of the official transition. Then, it issued a self-admittedly "simplistic" assumption that 10 percent of about 14 million homes that still rely on over-the-air video signals could make the leap to cable to ensure that they aren't staring at dead TV screens come Feb. 17, 2009.
That would be "enough to push cable operators back into positive basic video subscriber growth territory in late 2008 and early 2009," Moffett notes.
Over-the-air viewers would make the switch because most operators, per Federal Communications Commission (FCC) rules, will deliver analog and digital feeds of "must carry" stations following the transition. MSOs going "all-digital" have to give subscribers the set-top boxes to convert the digital signals to analog. (See FCC OKs Dual TV Carriage Rules.)
Now, though, Moffett thinks that 10 percent forecast was conservative -- which could make 2009 cable's best year for basic video subscriber growth in more than a decade.
Some of that optimism stems from a recent study by Centris suggesting that many TV homes won't be able to receive "adequate DTV service" by simply installing those government-subsidized digital-to-analog converter boxes.
Centris found that many customers, thanks to coverage gaps, may have to purchase new antennas if they expect to continue receiving the five major broadcast networks: ABC, CBS, Fox, NBC, and PBS. According to Centris, 78 percent of over-the-air homes use indoor set-top antennas. To make matters worse, a healthy cut of homes that employ rooftop antennas still may run into reception problems in markets like Philadelphia and St. Louis. (See DTV Transition’s ‘Major Glitch’.)
Cable's bundling advantage
Among these groups, Moffett believes cable operators hold a unique position among their competitors because MSOs can offer simple "broadcast basic" tiers for about $12 per month, and throw in a discounted phone service.
"Their [cable's] offer of 'give us your phone service and we'll solve your video problem for free' would appear to be the right offer at the right time," Moffett suggests, noting that satellite operators and the telcos (at least the telcos that offer video) probably won't find these "low-value subscribers sufficiently appealing" to warrant the expenses necessary to hook them up.
"But with the addition of voice service, customers at this price point can be highly profitable for cable operators," he adds. If those customers upgrade to a higher level of video service or take the operator's broadband offering, "the value contribution would be dramatically higher still."
But Moffett warns that the true financial impact the transition will have on cable won't be felt, or known, until sometime after February 2009, since consumers won't really be able to determine the quality of their OTA reception until after they've purchased boxes and/or installed new antennas, and until after local broadcasters have flipped the digital switch.
— Jeff Baumgartner, Site Editor, Cable Digital News
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