3 Takeaways from MSO 3Q Earnings

Cable operators wrapped up reporting their third quarter financials this week. Buried in the numbers and analyst calls were some signs of what’s ahead for the industry—good and bad.

• Housing formation has a long way. Housing starts are huge for MVPDs because they’re such a sub growth driver. Wall Street got excited as starts surged 15% in September to the highest level in four years. That’s got to signal some big gains for cable operators, right? Eh, not really. Comcast Cable pres/CEO Neil Smit described housing as neither a “headwind nor a tailwind,” with “slight” improvements in some markets, but nothing unusual. Comcast CFO Michael Angelakis expanded on housing at an investor conference on Wed. “The peak, where we are today, at least what’s being reported, is about a third of where the peak was in terms of housing formation,” he said. “I still think that what we’re reading in the newspaper is a bit of a disconnect in terms of what we’re feeling from housing formation.” Normalized housing levels will eventually yield a larger pool of potential customers. But for now, 3Q subscriber growth was essentially indistinguishable from zero for the second year, said Bernstein Research.

• Sandy’s impact will be felt. Cablevision will likely see the biggest impact from Sandy, with some homes in its footprint completely gone. In 2011, Cablevision had roughly $16 million in impact from Hurricane Irene. CFO Gregg Seibert said this storm would have a “substantially larger impact.” Most of it should be recognized in 4Q. Verizon also had said it expects FiOS uptake to be slower than expected next quarter because of Sandy. Time Warner Cable also expects potential impact from Sandy, but CFO Irene Esteves said the company doesn’t expect it to be significant. Comcast said any monetary impact will be minimal—most likely in the form of some additional OpEx and CapEx in 4Q and 1Q.

• Business services continues to be seen as a real driver. The business services segment contributed more than half of Time Warner Cable’s 3Q organic revenue growth. As cable gets its foot in the commercial door, look for it to try nudge that door wide open. Nearly 60% of TWC’s business customers are single play (usually broadband). The MSO wants to upsell those customers, with cloud-based services, making the pitch easier. Charter’s business services grew revenue by more than 20% YOY for the sixth consecutive quarter. During its earnings call, Comcast identified business services as a priority, noting it has been growing at a clip of 34%. Small business makes up about 85% of its commercial service revenue, with the mid-sized market accounting for the other 15%. On the WiFi front, Comcast is establishing small business hotspots.