Cable Focuses on Internet while Satellite TV Grows

Reuters

 

U.S. cable television companies wooed home Internet users from rivals in the second quarter, helping offset a trend that has seen their television customers flee to top satellite player DirecTV Group.

Time Warner Cable Inc and Cablevision Systems Corp reported on Thursday, like Comcast Corp last week, that they successfully added Internet subscribers in what is now a key focus for companies that were originally built on the back of cable TV programming.

Time Warner Cable Chief Executive Glenn Britt said on a conference call that successfully marketing Internet access is as important, if not more so, as selling bundles of TV shows.

"Broadband is still growing nicely and becoming a more important part of people's every day lives and we're seeing tangible evidence the consumers are willing to pay more for the speed and reliability," Britt said.

Time Warner Cable added 85,000 broadband subscribers during the quarter, while Cablevision added 27,000. Comcast, the No.1 U.S. cable company added 118,000.

With rising programming costs in their video businesses, cable companies see broadband, with its relatively fixed costs, as a more profitable business to grow.

Cablevision for instance said it plans to offer more video applications to customers who use Internet-enabled devices at home and free Wi-Fi connections to its customers around major spots in its local area.

"Broadband is increasingly important for cable companies," said Collins Stewart analyst Thomas Eagan. "It has become the strategic focus, with TV following."

The top two cable companies both lost video subscribers during the quarter: Comcast lost 265,000, while Time Warner Cable lost 111,000. Cablevision which has been competing aggressively with Verizon Communications in its New York area managed to buck that trend in the quarter by adding 2,900.

DirecTV Group added 100,000 U.S. subscribers, beating the forecasts of most analysts, some of which had worried the company might lose customers due to the slow economy and competition from cable and newcomers to the pay-TV market like Verizon's FiOS and AT&T Inc's U-Verse.

"For years, questions have swirled about DirecTV's ability to sustain subscriber growth in the U.S. Not to worry. Today's results suggest that subscriber growth is just fine, thank you," said Bernstein Research analyst Craig Moffett in a client note.

PROFITS

Both Time Warner Cable and Cablevision posted financial results ahead or in line with expectations.

Time Warner Cable's net income rose to 95 cents a share, beating average Wall Street forecasts for 93 cents. While its revenue rose 5.8 percent to $4.73 billion, ahead of average forecasts of $4.68 billion, according to Thomson Reuters.

"Overall they struck a good balance between customer and financial growth," said Eagan of Collins Stewart.

Cablevision's net income was 20 cents a share sharply missing an average Wall Street forecast of 40 cents, mainly due to the one-time loss on extinguishment of debt. Bernstein Research said excluding that loss, Cablevision's profit was in line with consensus.

Revenue rose 5.8 percent to $1.802 billion ahead a forecast of $1.769 billion, according to Thomson Reuters.

Bernstein's Moffett said Cablevision's second quarter had shown "almost no discernible weak points".

DirecTV, which also added 415,000 subscribers in Latin America, posted an adjusted profit of 60 cents a share, in line with expectations. Its revenue rose 12 percent to $5.85 billion.

Shares in Time Warner Cable and Cablevision have risen more than 40 percent and 30 percent respectively since the start of the year as investors have bet that cable will be a leader in future communications thanks to its broadband strength.

DirecTV, Cablevision Sales Rise as People Watch Television to Save Money

Bloomberg

DirecTV, Cablevision Systems Corp. and Time Warner Cable Inc. reported second-quarter sales that beat analysts’ estimates, signaling consumers are continuing to spend on pay-TV programming as the economic recovery sputters.

Each company added subscribers in the period ended in June and customers spent more on premium services such as high- definition set-top boxes and digital-video recorders.

Consumers may be putting more value on their time at home and curbing restaurant and cinema visits, benefiting the pay-TV providers, said Tom Eagan, an analyst at Collins Stewart LLC in New York. More Americans than projected filed applications for unemployment insurance last week, indicating firings remain elevated as the U.S. economic growth moderates.

“Cable and satellite has been relatively recession proof,” Eagan said. “Household spending is holding up because people in general see cable and satellite-TV being a relatively good deal versus other forms of entertainment.”

Time Warner Cable, the second-largest U.S. cable-television company, boosted sales 5.8 percent to $4.73 billion, beating the $4.68 billion analysts projected. DirecTV’s sales rose 12 percent to $5.85 billion, exceeding analysts’ $5.73 billion estimate. Cablevision’s sales rose 5.8 percent to $1.8 billion, compared with the $1.77 billion average projection.

DirecTV added $1, or 2.6 percent, to $38.90 at 2:23 p.m. New York time in Nasdaq Stock Market trading. Cablevision fell 2 cents to $27.52 on the New York Stock Exchange, and Time Warner Cable dropped 21 cents to $58.81. Contrary to analysts’ predictions, Time Warner Cable didn’t announce a stock buyback.

DVRs, Pay-Per-View

Cablevision, which competes against Verizon Communications Inc. for New York area TV, phone and Web subscribers, won 75,900 new customers last quarter, led by high-speed Internet users. Customers subscribing to more products helped the Bethpage, New York-based company boost the average monthly revenue per video customer 6.8 percent to $149.12.

“We’re holding up quite well and managing to continue to win back customers from our competitors,” Cablevision Chief Operating Officer Tom Rutledge said on a conference call today. He estimates that 40 percent of Cablevision’s customers who have left to try Verizon’s FiOS product return.

DirecTV’s average revenue per user gained 5.7 percent to $87.90, as the company equipped U.S. customers with advanced and expensive features, such as multiroom DVRs and pay-per-view movies. The El Segundo, California-based company gained a net 100,000 customers in the U.S. and 415,000 in Latin America, helped by World Cup soccer matches shown in high definition.

Premium Movies

“For the first time in several years, our year-over-year buy rates increased for premium movie channels,” said DirecTV’s Chief Financial Officer Patrick Doyle on the company’s conference call. “In addition to premiums, we also saw a solid year-over-year growth in pay-per-view movies.”

To maintain that growth, DirecTV plans to introduce more premium products by the end of the year. Those include an enhanced cinema selection, and an NFL Sunday Ticket “to go” service that will provide live video streams from games to mobile devices like the iPad or a computer for an extra $50.

Time Warner Cable, based in New York, added 110,000 new subscribers. Its subscription revenue rose 5.1 percent to $4.52 billion as more users selected higher-end services like digital video recorders and the company raised prices.

Weakness Ahead?

Still, a cooling economy means employers will resist taking on more staff, raising the risk consumer spending will weaken enough to impact pay-TV providers, too. Time Warner Cable said the sluggish economy limited its second-quarter subscriber gains, and said it saw such weakness continue into July.

“If you look at the key indicators in the economy, things like vacancy rates and unemployment rates - we’re still at exceptionally high levels,” Rob Marcus, Time Warner Cable’s chief financial officer, said on a conference call. “It shouldn’t be terribly surprising that we continue to see weakness in subscriber net adds.”

Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington.

Weak housing starts have also affected subscriber growth numbers. Builders broke ground on fewest new homes in eight months in June after the expiration of a U.S. government tax incentive caused sales to slump.

“The market for housing is still terribly soft,” Cablevision’s Rutledge said. “There is virtually no construction of housing going on in our footprint and occupancy rates are still low. So you don’t have any of the wind at our back.”

Growth in the U.S. economy slowed to 2.4 percent in the second quarter from 3.7 percent pace of expansion in the first quarter. The world’s largest economy is recovering after shrinking 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009.

DirecTV Suing Dish Network for Ads Saying it's Cheaper

USA Today

Satellite TV provider DirecTV is suing its rival, Dish Network, for running an advertisement saying that Dish delivers the same programs for less money.

The TV commercial shows three TV sets broadcasting the same programs, with Dish(DISH) costing $39.99 a month, DirecTV (DTV)costing $63.99 and cable TV at $63.83.

DirecTV's lawsuit, filed Thursday in U.S. District Court in New York, accuses Dish of "blatantly false and misleading advertising." DirecTV said the subscription plan used in the commercial offers more than 140 channels while Dish Network's cheaper plan has fewer than 100 channels.

Dish said it stands by its claim. Dish launched its "Why Pay More" ad campaign last summer and since has been reversing a decline in subscribers.

During the Jan. 31 Grammy Awards, Dish unveiled a 30-second TV commercial that said customers are paying more for TV at DirecTV because the company used expensive celebrity endorsements. Dish said it has pulled the ad after getting complaints from some celebrities.

Behind Dish's recent ad campaign is advertising industry veteran Ira Bahr, Dish's chief marketing officer who joined the company in February 2009. He has said that so far, Dish's direct comparisons to DirecTV have been working.

Dish lost 94,000 net subscribers in the first quarter of 2009 and added 26,000 in the second quarter, its first increase in five quarters. By the third quarter, it gained 241,000.

Comcast CEO Says Law Protects Rivals in NBC Deal

AP

Existing law would prevent Comcast Corp. from denying satellite TV providers and other rivals access to NBC Universal programming on reasonable terms once the cable TV operator takes control of the media company, Comcast's chief executive said Wednesday.

Satellite companies such as DirecTV Inc. and smaller cable companies fear that if regulators approve Comcast's plan to acquire a majority stake in NBC Universal, Comcast would be able to drive up prices for - or even withhold - popular national and local programming, including NBC television broadcasts.

At a conference Wednesday on Internet and telecommunications policy, Comcast CEO Brian Roberts said program access rules established by a 1992 cable law would prohibit the company from abusing its control over NBC Universal to discriminate against competing subscription TV services.

Roberts also said the combination does not raise traditional media consolidation fears because NBC Universal is a media company while Comcast is primarily a content distributor.

Comcast has already offered a handful of pledges in hopes of convincing regulators that the deal wouldn't hurt rivals and consumers. Those include a promise to extend existing program access rules to the local NBC and Telemundo stations it would acquire in the deal.

Those rules, which are enforced by the Federal Communications Commission, require cable companies to make their channels available to rivals on equal terms. But Comcast said they do not automatically apply to local broadcast programming, making its offer to extend the rules significant.

Many rivals, however, say that bringing a complaint to the FCC is slow and costly and that the commission doesn't enforce the rules aggressively.

Comcast is currently seeking regulatory approval to acquire a 51 percent interest in NBC Universal from General Electric Co. The deal must be approved by the Justice Department and the FCC.

Comcast, the nation's largest cable TV operator, has nearly 24 million cable customers and nearly 16 million broadband subscribers. It also owns some cable channels, including E! Entertainment and the Golf Channel.

NBC Universal would give Comcast the NBC and Telemundo broadcast networks; 26 local TV stations; popular cable channels such as CNBC, Bravo and Oxygen; the Universal Pictures movie studio and theme parks; and a stake in Hulu, which distributes TV programming online.

On Monday, Comcast filed paperwork with the Justice Department to comply with the Hart-Scott-Rodino Act, an antitrust law governing mergers and alliances. And on Thursday, it will file a public interest statement with the FCC, which must approve the transfer of NBC's broadcast licenses.

Those filings are intended to give regulators a detailed understanding of the proposed transaction, including a full picture of the assets to be combined and the markets in which the companies operate. The paperwork will also offer a proposed framework for reviewing the merger, including an analysis of similar merger reviews in the past.

John Malone Deals Himself Out At DirecTV

from Business Week

Sometimes even a wheeler-dealer like John Malone outsmarts himself. That’s seems to be the situation at DirectTV. (DTV), where the razor sharp media baron seems to have dealt himself out of installing his own choice as CEO of the satellite TV giant despite once owning 57% of the company’s stock. Instead, he controls 24% of the company’s votes, but seems to have been bottled up by a very independent DirecTV board.

Those are the details that are emerging from a recent SEC filing by DirecTV. The satellite company clearly wanted to stop Malone, who buys and sells companies faster than most people change socks, from exerting too much control over the company. So in what has to have been a wing ding of negotiations, the DirecTV board swapped the DirecTV stake that Malone’s Liberty Media (LMDIA) once held for shares in DirecTV that Liberty will distribute to its shareholders. In addition, DirecTV took a $2 billion loan off Liberty’s hands that it used to buy those shares in the first place, but took Liberty’s 65% stake in the Game Show network and three Fox Sports regional networks. Malone got super-voting shares that are capped at 24% of the company’s voting shares.

What motivated DirecTV’s board to do the deal? They were angling for “the elimination of a single shareholder …with the ability to veto change of control provisions,” the company said in its SEC filing. More important, the board wanted to “reduce the level of influence that Malone could exert,” they added. Anyone need more of a roadmap than that?


Why’d Malone do the deal? Mostly for tax reasons, which seem to drive much of what the media baron does. The stock-for-stock swap allows him to avoid a ton of taxes on the appreciation in DirecTV’s stock in 2006. DirecTV sweetened the deal by giving Liberty shareholders a 5.6% premium on top of that tax-free treatment. DirecTV’s shareholders will vote on the transaction on Nov. 12.

But in doing the deal Malone seems to have also dealt himself out of a potentially richer prize. He tried for months – and seems to have given up – the idea of installing his top lieutenant, Liberty CEO Greg Maffei, as DirecTV’s CEO. Maffei is a sharp operator, and a great dealmaker, and more than likely Malone would have wanted him to begin peddling DirecTV to AT&T (T) or some other buyer. I'm figuring the board wanted to keep Malone's imagination in check.

Instead, the DirecTV board, which has eight independent members (Malone is the company’s chairman and Maffei is a board members,) blocked Maffei, who now tells folks he is no longer interested. In August, the board created a search committee, which Malone heads. But the board has clearly no intention of allowing him to railroad them into taking his choice as CEO. “They gave him what he wanted with the stock swap,” says one source close to the dealmaker.” “And that’s about all they intend to give him.”

More than likely DirecTV will name its CEO sometime in late November or early December. The candidates include Bruce Churchill, who heads DirecTV’s Latin American unit, and Cablevision president Tom Rutledge. The search committee was created after DirecTV CEO Chase Carey’s resignation in June to become News Corp(NWS)president and chief operating officer. Larry Hunter, the satellite opeator’s excecutive vice-president for legal, human resources and administration, has been serving as interim CEO since Carey’s departure.