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DTV Transition Could Catalyze Cable

The February 2009 digital TV transition could give cable's basic video growth a shot in the arm and help to sustain a rally operators have enjoyed in the early portion of this year.

"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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spelurker 12/5/2012 | 3:38:14 PM
re: DTV Transition Could Catalyze Cable Are MSO's actually offering deals like this?

In my area, people are paying ~$100/mo for triple play with large channel counts but few premium channels. (Charter, Comcast & VZ)
I can't recall the last time I heard of offers for either basic video or voice for under $30, let alone both.
Jeff Baumgartner 12/5/2012 | 3:38:13 PM
re: DTV Transition Could Catalyze Cable I'll have to do some checking around, but I haven't seen anything like that advertised yet. Then again, they may not want to advertise it too much...just like some operators offer "lite" broadband services only as a save tactic. We may get more details on the video side once operators like Comcast go "mostly digital" and offer a small, "lifeline" video tier
paolo.franzoi 12/5/2012 | 3:38:12 PM
re: DTV Transition Could Catalyze Cable
Jeff,

This is going to be a bit harsh. Please take it as constructive criticism.

So, why post an article based on the claims of an analyst when the basics of those claims are challenged that you "will have to do some checking"? It just seems like there should have been a bit more diligence before posting this, even if the suppositions of the analyst turn out to be 100% correct.

seven
Jeff Baumgartner 12/5/2012 | 3:38:12 PM
re: DTV Transition Could Catalyze Cable Seven, no problems. I can handle some harshness. Perhaps I could rely less on the analyst's opinion here or applied it as suggested pricing (from his end) since operators are still mulling how they will price these lifeline tiers and determing how many channels they will end up offering.
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