Time Warner Cable is not the only major US cable operator shedding subscribers across the board these days.
Like its bigger New York neighbor, Cablevision Systems Corp. (NYSE: CVC) reported unexpectedly poor customer acquisition results for the third quarter on Friday morning. The fifth-largest US MSO lost 37,000 video, 13,000 broadband, and 18,000 voice subscriptions over the summer -- one of its worst overall quarterly performances. This surprised financial analysts. In total, the company, which boasts the highest concentrations of double-play and triple-play subscribers in the cable business, lost 29,000 customer relationships.
Unlike Time Warner Cable Inc. (NYSE: TWC) executives, who last week attributed most of its much bigger subscriber losses to a month-long brawl with CBS Corp. (NYSE: CBS) over broadcast station retransmission fees, Cablevision blamed its losses on seasonality, a slower economy, significant price hikes for programming and broadband services, and more competition from Verizon Communications Inc. (NYSE: VZ)'s FiOS service in the New York market. It also cited a new policy of scaling back on 12-month promotional discounts for consumers who jump back and forth between service providers.
Stressing that the MSO stopped offering "repetitive promotional discounts" to customers during the third quarter, Cablevision CEO James Dolan told analysts that it will maintain that policy to keep its financial results strong, even if it means shedding more price-sensitive subscribers. Despite the customer losses, overall revenue and net income rose from a year earlier, as well as average monthly revenue per video subscriber, thanks to its recent price hikes.
"So the customer that has been bouncing from one company to another on promotional discounts has hit a dead end with us," Dolan said on the earnings call. "That will have to work itself through the system."
Analysts noted that Cablevision still met financial expectations for the quarter. But they expressed alarm over the surprisingly broad subscriber losses, which, though minor compared to those suffered by TW Cable, don't seem to portend well for the long run. (See: TW Cable Hemorrhages Subs.)
"All this simply demonstrates Cablevision's rock-and-a-hard-place position," Craig Moffett, principal and senior analyst of MoffettNathanson Research, wrote in a note to clients. "Raise prices and subscribers fall. Hold the line and margins get crushed."
When questioned by Moffett and other analysts on the call about how Cablevision plans to spur growth in the hotly contested New York market, Dolan ruled out launching products and services such as home security, which Comcast Corp. (Nasdaq: CMCSA, CMCSK), Cox Communications Inc. , Rogers Communications Inc. (Toronto: RCI), and other large North American MSOs are now rolling out. "We don't see any revolutionary new products or services on the horizon at the moment. There's no four-play, nothing that will significantly impact our customer base."
Instead, he emphasized the growing power of broadband service and the opportunity to launch higher-tier data servics. Cablevision's younger customers are "using a lot more data and a lot less video" than their older counterparts, so there's "room for higher-speed products that serve customers better and take care of all their devices in the home." For this reason, Cablevision is placing more powerful smart WiFi home routers in broadband customers' homes and focusing more on connectivity within the home.
"I think we're going to explore that," he said. "I think that product [broadband] is becoming more and more robust and has elasticity in its pricing."
— Alan Breznick, Cable/Video Practice Leader, Light Reading