Thursday, November 5, 2009

Cable Revenue Up, Basic Sub Growth Down

Cablevision recently announced third quarter results and the headline was that profits had tripled. In fact, revenue jumped 5.3%. Comcast is telling a similar story as their revenue rose 3 percent. The growth sectors are digital penetration, high speed connects, and triple play growth with wireline phone business.

But inside the numbers there may be a different story to tell. Digital cable growth, in my estimation, is due to the recapture of bandwidth as cable customers "force" consumers to upgrade to digital and take a digital box in order to watch networks that were once on the basic tier. Revenue growth is coming from these upsells as well as the profit margin attached to phone and broadband connects.

BUT, the troubling point for cable is in this one piece of information. For Cablevision, basic video subscribers fell 1.5% from a year earlier. For Comcast, a similar story; in the third quarter, they lost 132,000 basic cable subscribers. At some point, you can't keep selling more services to less customers!! As consumers begin to treat cable, high speed, and phone as a commodity and see little differentiation between competitors, the lower priced service will win. Fios and AT&T continue to gain basic subs as cable drops them. As cable basic sub loss grows, these triple play customers will also leave and revenue and profit will both decline.

And when will it get problematic; just wait till the next rate increase comes into customers' hands. That notice will be the impetus to compare rates and think about changing providers. Revenue growth may be growing now but don't lose sight of your basic cable base. You got to have them as customers first before you can upsell them!

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