Tag Archives: Cable One

What if Nobody Wants to Sell Video?

television-sony-en-casa-de-mis-padresSome of the largest cable companies in the country have begun to de-emphasize cable TV as a product and it makes me wonder if smaller companies should consider the same strategy. It’s been clear to everybody in the industry that margins on cable have dropped, so the question that every cable provider should ask is how hard should you work to maintain cable customers or introduce any new innovations in your cable products?

The largest company that is downplaying cable TV is Cable ONE. Earlier this year Cable ONE’s CEO James Dolan told investors that cable had accounted for 64% of his profits in 2005, but by 2018 he expects that to drop to under 30 percent. Like many other cable companies, the lost margins on cable have been replaced by sales of broadband products.

Cable ONE has gone farther than most cable companies in de-emphasizing cable. For example, they and Suddenlink decided to drop the Viacom suite of cable networks when the programmer asked for a giant rate increase last year. This decision has cost these companies cable subscribers, and Cable One lost over 100,000 cable customers in the year after the decision, but the companies see this as a good long-term strategy.

If you are a small ISP and offer cable then your situation has to be a lot direr than Cable ONE’s. I have one small client who dropped their cable offering altogether earlier this year and they were surprised to find out how positively it affected them. They went from having a room full of busy customer service reps to having almost no inbound calls. It turns out that cable drove almost all of the inquiries and complaints to the company.

This tells me that it’s likely that offering cable is costing a small company a lot more than they realize. By the time you factor in the true amount of customer service time and truck rolls that are associated with the cable product it’s very likely that for small companies cable is completely under water.

The cable companies still have one major advantage that gives them a lot of flexibility. In the majority of the markets in the US the cable companies have no real competition with their data products and they have captured the lion’s share of the market. The latest statistics I’ve seen show that less than 10% of the homes in the country have access to fiber, and a lot of that is Verizon FiOS which is no longer expanding. In most markets the cable companies are still competing against DSL – a battle they have largely won.

For a while the telcos were rapidly expanding broadband products based upon paired-copper DSL, like AT&T U-verse, and were capturing a lot of data customers. But a lot of homes are starting to find that a data pipe that delivers around 40 Mbps of data, and which must be shared between cable and data products, is not fast enough for them. This might be the primary reason that AT&T bought DirecTV, to take pressure off their huge embedded base of U-verse customers by moving cable back to the satellites.

There is a lot of press about the growth in fiber-to-the-home. CenturyLink says they will pass 700,000 homes with fiber by the end of the year. AT&T is announcing new markets almost weekly for their new fiber product. And Google is steadily but slowly building fiber to new cities. But even if all of this fiber activity raises the national fiber passings to 20% of homes the cable companies will still be in the driver’s seat in most markets.

The larger cable companies are being proactive in order to preserve their large market broadband penetration rates. They have almost all announced that they are embracing DOCSIS 3.1 and will be significantly increasing data speeds in markets ahead of any fiber builds. Until now fiber roll-outs have had great success when entering markets where they are selling gigabit fiber against a 15 – 30 Mbps cable product. But fiber’s success is not going to be so automatic if cable companies can counter gigabit fiber with a lower-priced 250 Mbps or faster data product.

To come back around to my original point, it’s clear that data is becoming everything for cable companies. Analysts have been wondering for a few years how the large cable packages might eventually unravel. There has been a lot of speculation that cord-cutters and OTT programming will chip away at the business. But the death of the traditional cable packages might instead come when the cable companies all stop caring about cable TV. At that point they will have regained the balance of power against the programmers.

How’s Cable Doing?

Cord cuttingWith all of the talk of cord cutting, cord-shaving and the general demise of the cable industry I thought it would be useful to take a snapshot of the cable industry at the end of the third quarter of 2014 to see how the industry is doing. Here are some key facts for a numbers of major cable providers:

Comcast. For the quarter they lost 81,000 TV subscribers compared to losing 127,000 in the 3rd quarter of 2013. Meanwhile they gained 315,000 data customers compared to 297,000 customer a year before. Overall profits were up 4% over the year before. Comcast now has 22.4 million video customers and 21.6 million data customers.

Time Warner Cable. The company lost 184,000 cable subscribers in the third quarter compared to 122,000 in the previous year. But the company did add 92,000 residential data customers for the quarter. Earnings were up 3.6%, driven by cable rate increases and growth in the business services group. The company saw a 9.6% increase in programming costs, driven by a bad deal they made for the programming rights to the LA Dodgers.

Charter Communications. Charter lost 22,000 video customers for the quarter compared to 27,000 a year earlier. They saw data customers increase by 68,000 compared to 46,000 a year ago. Overall profits were up 8% driven by rate increases and data customer gains. Charter finished the quarter with 4.15 million cable customers.

CableVision. The company saw significant loss of 56,000 cable customers, Profits for the company dropped to $71.5 million for the quarter down from $294.6 million a year earlier.

Cable One. The company lost 14,000 video subs and ended with 476,000 at the end of the quarter. The company has not renewed programming from Viacom starting in April of this year

Suddenlink. The company added 2,200 video customers for the quarter compared to a loss the previous year of 3.200 subs even though they have dropped Viacom programming. Revenues increased by 6.6% compared to a year ago.

AT&T. U-verse added 216,000 cable customers for the quarter and added 601,000 data customers. The company now has more than 6 million video customers and 12 million data customers. U-verse profits were up 23.8% compared to a year earlier.

Verizon. The company added 114,000 new video customers and 162,000 new data customers for the quarter. The company now has 5.5 million video customers and 6.5 million data customers.

DirectTV. The company saw a decrease of 28,000 customers for the quarter while revenues grew by 6% due to rate increases. The average satellite bill is up to $107.27 per customer per month.

Netflix. Netflix added 1 milllion US subscribers and 2 million international subscribers for the quarter. They now have 37 million US customers and almost 16 million international ones. But these growth rates were less than their predictions and their stock tumbled 25% on the news.

Amazon Prime. The company does not report number of customers. But their earnings release says they gained significant customers even while increasing their annual fee from $79 to $99.

What does all of this mean? As can be seen by looking at all of the major players who make quarterly releases (companies like Cox do not), one can see that total video subs are down by maybe a net of 100,000 for the quarter. But cord cutting is growing when you consider that the industry used to routinely grow by 250,000 customers per quarter for now households being built. So it looks like cord cutting is growing by perhaps 1.5 million per year.

Within these numbers one can’t see the effects of cord shaving. It’s been widely reported that customers are downsizing their cable package as a way to save money. None of these companies report on their mix of types of customers.

Netflix and Amazon Prime continue to grow significantly along with other on-line content providers. It’s been reported that over half of the households in the country pay for at least one of the on-line services and many others watch free content available at Hulu and other sites.

One thing that is obvious is that broadband is still growing for all of the service providers. In fact, Comcast and other traditional cable providers are starting to refer to themselves more as ISPs than as cable companies.

The Story of the Numbers

I ran across some interesting statistics from the Leichtman Research Group. They track a lot of basic industry statistics and the ones I found most interesting are summaries showing the number of cable and data customers at all of the largest carriers in the industry. Consider the following table that I have created from their statistics:

Data Customers 2013 2012 2011
Comcast 20,662,000 19,366,000 18,143,000
Time Warner 11,606,000 11,395,000 10,909,000
Charter 4,640,000 4,269,000 3,946,000
Cablevision 2,740,000 2,723,000 2,633,000
Suddenlink 1,059,500 1,002,100 948,700
MediaCom 965,000 915,000 851,000
Cable One 472,631 459,235 451,082
Major Cable 42,145,131 40,129,335 37,881,782
AT&T 16,425,000 16,390,000 16,427,000
Verizon 9,015,000 8,795,000 8,670,000
CenturyLink 5,991,000 5,851,000 5,659,000
Frontier 1,836,000 1,724,000 1,702,000
Windstream 1,170,900 1,214,500 1,207,800
FairPoint 329,766 324,977 312,745
Cincinatti Bell 268,400 259,400 257,300
Major Telco 35,036,066 34,558,877 34,235,845
Major Carriers 77,181,197 74,688,212 72,117,627
Cable Customers 2013 2012 2011
Comcast 21,690,000 21,995,000 22,331,000
Time Warner 11,393,000 12,218,000 12,743,000
Charter 4,342,000 4,158,000 4,314,000
Cablevision 2,813,000 3,197,000 3,250,000
Suddenlink 1,177,400 1,211,200 1,249,000
Mediaom 945,000 1,000,000 1,069,000
Cable One 538,894 593,615 621,423
Major Cable 42,899,294 44,372,815 45,577,423
DirecTV 20,253,000 20,084,000 19,885,000
Dish 14,057,000 14,056,000 13,967,000
DBS 34,310,000 34,140,000 33,852,000
AT&T 5,460,000 4,536,000 3,983,000
Verizon 5,262,000 4,726,000 3,981,000
Major Telco 10,722,000 9,262,000 7,964,000
Major Carriers 87,931,294 87,775,815 87,394,423

This table only looks at the major carriers, but in this country that is almost everybody. For example, missing from the table of cable customers are all of the other providers, who altogether only have 7% of the total cable market.

There are some interesting things to notice about these statistics:

  • The number of high-speed data customers continues to grow and the major providers added 2.5 million more customers in both 2012 and 2013.
  • The major cable companies either have or soon will have more data customers than cable customers. This explains why they now view themselves as ISPs who happen to sell cable.
  • The cable companies lost 2.7 million cable customers from 2011 to 2013. This may have more to do with service and competition than anything else since AT&T and Verizon picked up 2.7 million cable customers during that same time period.
  • The Comcast / Time Warner proposed merger is gigantic since those two firms are two of the top three data providers today and two of the top four cable providers.
  • As much effort as the satellite companies expend in advertising they are barely growing. Dish Networks, for example added a net 1,000 customers in 2013.
  • A few companies are really bleeding cable customers and Cablevision and Cable One both lost 14% of their cable subscribers over a two year period. Even Time Warner lost 11%.
  • As well as AT&T and Verizon have done in cable, together they have only grown to be 12% of the cable market.
  • The fastest growing ISPs over the two-year period are Charter (17%), Comcast (13%) and MediaCom (13%).