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Sub Losses Whack Cable Firms

11/09/2007 7:00 PM Eastern

Cable stocks, already reeling after disappointing results from industry leader Comcast last month, continued a downward spiral last week after other publicly traded cable companies reported across-the-board basic subscriber losses in the third quarter.

Comcast reported earnings on Oct. 25 and its 65,000 basic-customer losses sent the market into a tailspin — Comcast lost 11% of its stock price on Oct. 25, falling $2.57 to close at $21.28 and driving down four of the five publicly traded operators — which had yet to report quarterly earnings — to 52-week lows.

Time Warner Cable reported on Nov. 7 and, despite expectations that basic-subscriber losses would rise, surprised an increasingly skeptical market, reporting it lost 83,000 basic subscribers in the period.

Spreading the Pain
Since Comcast reported 65,000 basic-subscriber losses on Oct. 25, cable stocks have taken some lumps:
3Q Basic Sub Losses 11/8 Stock Price Year-To-Date % Change
*Time Warner cable began trading on March 1
SOURCE: Nasdaq Web site, company reports and
Time Warner Cable 83,000 $25.82 -33.7%*
Comcast 65,000 $19.82 -30.3%
Charter 40,000 $1.11 -63.6%
Cablevision 16,000 $26.45 -7.6%

Then Cablevision Systems reported basic-customer losses of 16,000 in the period (better than some analysts expected) and Charter Communications said it lost 40,000 basic subscribers in the period, bring its total losses for the year to nearly 53,000 basic customers.

Despite healthy financial growth — Cablevision reported 9% revenue and 15.6% adjusted operating cash-flow growth, while Charter reported 11.2% revenue and 10.6% cash-flow growth in the period — investors appeared to focus on the bad news.

Both Cablevision and Charter fell to new 52-week lows on Nov. 8 and helped drive other stocks in the sector to another week of new lows.

The pain continued last Friday. Comcast, Time Warner Inc. and Time Warner Cable all hit their second 52-week lows in as many days. Comcast dipped to $19.36 in early trading, beating its earlier low-water mark of $19.52.

At Time Warner Inc., the new low point was $17.21 (besting its previous low of $17.60). TWC fell as low as $25.33 early last Friday (below its previous low of $26.30).

“Cable sentiment is truly horrible,” wrote Sanford Bernstein cable and satellite analyst Craig Moffett in a research note.

Reasons for the basic subscriber declines vary, with each cable operator blaming competitive pressures, seasonality creeping into the third quarter, a sluggish economy and a troubled new housing market. (See Spotlight, page 14.)

At TWC, troubles with integrating systems acquired last year form Comcast and Adelphia Communications led to most of the subscriber defections. About 66,000 of the 83,000 basic customer losses were in Los Angeles and Dallas, two markets picked up from Comcast and Adelphia Communications.

TWC said it is making progress there — telephony service, recently introduced in both areas, is beginning to resonate with customers — and plant rebuilds are nearly complete.

But the marketing push by telcos and satellite to attract subscribers away from TWC in those markets also inadvertently affected Charter’s basic-subscriber rolls.

In a teleconference with analysts last Thursday, Charter CEO Neil Smit said his company’s systems near Los Angeles and Dallas make up just 8% of its total footprint, but accounted for 25% of the basic customer losses in the third quarter.

Most analysts had expected increased basic subscriber losses at Cablevision because the third quarter is typically a seasonally weak period, as the operator serves resort communities in Long Island, N.Y., and the New Jersey shore.

But investors appeared to focus on the growing competitive threat from Verizon Communications, despite Cablevision’s claims that the impact has been minimal.

Cablevision managed to show strong growth in telephony customer additions (91,000) and high-speed Internet services (52,000 additions). Cablevision also added 35,000 digital video customers, bringing its industry-leading digital penetration to 83% of basic subscribers.

September