Cable Operators Are Absorbing Broadcast TV’s Collapse, Cablevision Executive Says
Cable operators are “absorbing the [price of the] collapse of the broadcast industry business model,” through retransmission consent fees, Cablevision Chief Operating Officer Tom Rutledge said during the company’s Q3 earnings teleconference. He was asked whether Cablevision could move its businesses away from relying on increasingly expensive programming contracts. Retransmission consent payments to broadcasters, largely a fact of life since 2008, have caused a large step-up in Cablevision’s programming costs, he said. Over time, the rate of programming cost increases should moderate, he said.
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Cablevision still hopes the FCC will change the retransmission consent rules, Rutledge said. “We are seeking regulatory changes that would make this less impactful to our business model and we continue to pursue that,” he said. He described the FCC’s process, which so far has produced a notice of proposed rulemaking, as “ongoing.” The current pay-TV distribution model is still a good one, Rutledge said after he was asked if Cablevision would seek to offer more a la carte programming. “It’s very attractive to content companies to sell to 100 million homes,” he said. “I don’t expect the business model we currently have is about to collapse."
Despite pressure from the economy and the housing sector on the cable business, there are still several growth opportunities for Cablevision, Rutledge said. For one, it can sell more triple-play bundles of video, voice and broadband service to existing customers who don’t already buy it, he said. And Cablevision can take even more share away from DBS video providers in the market, he said. Plus there is the opportunity to sell more telecom services to companies operating in Cablevision’s footprint and sell more local advertising, he said: “It’s a cyclically challenging time, but the ultimate drivers are still in the business."
The company lost about 19,000 video customers during the quarter, finishing with 3.26 million. It added 17,000 broadband customers and 38,000 voice lines, it said. Quarterly revenue gained 8 percent from a year earlier to $1.66 billion. Net income fell 64 percent from a year earlier to $39.3 million on higher investment losses, depreciation and amortization as well as lower operating cash flow. The results were “a mixed bag,” Sanford Bernstein analyst Craig Moffett wrote in a note to investors. Analysts expected higher earnings, and anomalies during the quarter such as the effects of Hurricane Irene and Verizon’s worker strike, make it difficult to read much into Cablevision’s quarterly subscriber metrics. Investors appeared to draw their own conclusions, as its stock fell 13 percent on more than three times its average trading volume.
Cablevision isn’t prepared to borrow money to fund increased stock buybacks, CFO Gregg Seibert said during the call. Cablevision’s debt-to-earnings ratio is already toward the high end of the range it’s comfortable with, he said. It’s authorized to buy back up to another $200 million of its stock and will opportunistically make repurchase, Seibert said. “But one thing we're not prepared to do is ramp up leverage to buy back additional stock,” he said.