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Cable modem/CMTS

Cablevision Hits the Wall

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

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albreznick 11/14/2013 | 5:54:56 PM
Re: New revenue opportunities Good questions, Dennis. Wish we knew the answers to them. I suspect there are more cord-cutters, and fewer ping-pongers, than Dolan wants to admit. But it would be great to see some real numbers on that. 
Phil_Britt 11/13/2013 | 11:42:24 AM
Lost subscribers As prices goes up and what little there is of service continues to dwindle, the large cable operators are close to playing a game of chicken with subscribers -- seeing just how far they (the cable operators) can push subscribers before they jump ship, cutting the cord.

 

Many have cut the cord already, or are only hanging on because there is some programming they are interested in (e.g., sports) that would get nearly as expensive if considered along with the cost of other non-cable offerings.
mendyk 11/11/2013 | 3:50:55 PM
Re: New revenue opportunities This is not information that can be gleaned from quarterly reports, but I wonder if network operators are using big data/analytics to figure out what's going on. We can guess that at least some of the erosion is due to ping-pongers who churn to special (usually loss-leading) offers, but we don't know how much erosion this accounts for. How many are true cord-cutters? And why are analysts routinely surprised by financial reports?
albreznick 11/11/2013 | 3:39:11 PM
Re: New revenue opportunities Well, Dennis, it's not that analysts expected Cablevision to show sub gains. But they didn't expect the video sub losses to be as high as they were. And they didn't expect Cablevision to shed broadband and voice subs as well. That's a really bad sign, especially on the BB side because that's the new core service for everybody. So they expected it to be a bad quarter, just not this bad. Same as with TWC a week earlier. 
albreznick 11/11/2013 | 3:36:00 PM
Re: New revenue opportunities Now wouldn't that be construed as collusion? Sounds a bit blatant to me, even for these two companies.
MordyK 11/11/2013 | 3:20:21 PM
Re: New revenue opportunities Plus all the new startups providing unique products means that no one size fits all solution will ever work for home security.
mendyk 11/11/2013 | 12:51:41 PM
Re: New revenue opportunities Yes, the point is there are entrenched incumbents in a finite market. As much as I'm loathe to agree with James Dolan, I will be very surprised if home security turns into a thriving business for cable operators.
brookseven 11/11/2013 | 12:10:53 PM
Re: New revenue opportunities Dennis,

I would argue that Home Security is a big market and that there are already lots of players in the business.  At least one report I saw showed Home Security was a $17B business.  

But I think your point is, "Why does anyone see Home Security as a Greenfield opportunity?"  To that I have no answer.

 

seven

 
mendyk 11/11/2013 | 10:32:14 AM
Re: New revenue opportunities How can "financial analysts" be surprised when a company sheds some customers because of price increases in a competitive market? The idea that all metrics (customer count, ARPU, margins) can grow simultaneously and in perpetuity may be the biggest problem here. And anyone who's buying into the idea that home security is a huge opportunity should reset the thought process.
KBode 11/11/2013 | 9:29:42 AM
Re: New revenue opportunities It leaves one wondering when Cablevision will turn toward metered broadband pricing to fix its woes? I assume the primary reason they haven't yet is Verizon FiOS being uncapped, though I wonder if we'll see a day where in unison they announce metered intentions...
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