Cablevision Profits Up, Basic Subs and Outlook Down

Cablevision reported 2nd quarter earnings with net revenue growth of 12% (to $1.6 billion) over 2nd quarter ’06 and 13% net revenue growth (to $1.14 million) at its cable operations.

Despite reporting higher profits, the company revised its full-year outlook downward slightly, projecting flat basic video subscriber growth, from 1%-2% growth previously, and lowering its total revenue growth to 11% from its previous guidance of 2007 revenue growth in the mid-teens. The company also trimmed its growth estimates on total subscriber gains and operating cash flow.

The company added 168,000 revenue generating units (RGUs, or the number of individual products sold to subscribers) in the 2nd quarter, up 1.8% over 1st quarter and 12.1% (999,000) over 2nd quarter 2006. One highlight: HD subscribers were up 78%.

Revenue per subscriber jumped 11% from a year ago to $121.01/month, marking the company’s 17th consecutive quarter of year-over-year double-digit RPS growth.

On June 30, 43% of its customers were triple-play subscribers — a group that traditionally churns 9% less than the operator’s one- or two-product customers, although the company declined to break out churn figures.

Its 2nd quarter cable results by segment:

• Cablevision ended the quarter with 3.14 million basic video customers. Cablevision described its basic video count as "essentially flat," down 348 basic video subscribers in the 2nd quarter over the previous quarter but up 38,000 (1.2%) from June 30, 2006. The company took less of a 2nd quarter basic video hit than at Comcast, Time Warner Cable, Charter and Mediacom, which reported bigger quarterly basic sub losses due to end-of-school-year disconnects and the weaker housing market.

• Digital cable subscribers to Cablevision’s iO: Interactive Optimum service increased 1.6% (39,000) from the previous quarter and 279,000 or 12.3% from 2nd quarter 2006. Digital video stood at 81.3% penetration on June 30. There were 809,000 HD video subscribers on June 30, an increase of 78% in the previous 12 months.

• Optimum Online high-speed data customers increased 50,000 or 2.4% from the previous quarter and 277,000 or 14.6% from 2nd quarter ’06. HSD penetration was 47% of homes passed on June 30, and 69% penetration of video customers. Cablevision research indicates that more than 50% of new HSD subscribers are former DSL customers.

• Optimum Voice digital telephone customers increased 81,000 or 6.1% from the previous quarter and 412,000 or 41.7% from 2nd quarter ’06. Cablevision’s voice penetration exceeded 30% on June 30.

• Lightpath, Cablevision’s business services subsidiary, saw net revenues decrease 3.5% in the quarter to $51.5 million, attributed to "reduced intrasegment revenue, partially offset by the growth in Ethernet data services." The first cable operator to join the Metro Ethernet Forum, Cablevision reported that the number of Ethernet services sold by Lightpath increased 20% in Q2 over the previous quarter, with 22% more buildings lit since last year, for a 103% increase in Ethernet revenue in the 2nd quarter.

Cablevision revised its full-year outlook to flat basic video subscriber growth, from 1%-2% growth previously, and trimmed its growth estimates on total subscriber gains, revenue and operating cash flow.

During the first six months of this year, the company generated free cash flow of $94.5 million. Capital expenditures in that period were $284 million for the cable operations and $333 for the entire company.

On this morning’s 2nd quarter earnings callwith analysts, COO Tom Rutledge highlighted a marketing tweak hoped to keep Verizon’s inroads at bay: offering its $89 triple-play bundle to all its customers, not just new sign-ups, a sell-in that will impact its 3rd quarter results. "We will see how it works out," Rutledge commented. "But we are beginning to see some increase in volume as a result of the triple play to our existing customer base."

Rutledge added: "our triple play strategy up till now has been to sell-in acquisitions and the average revenue that customers are coming on at is $117, and they step up at the end of the one-year period to approximately $143 average revenue per customer."

He confirmed that Cablevision has increased its marketing spend to counter Verizon, which "has activated 750,000 passings (homes passed) inside of our footprint of 4.8 million passings … They had built a little over 1 million passings in total and are only authorized to serve video currently in 750,000 of those. They are going to get franchises for the rest of their plan, we’re sure at some point, although they have been slow in getting them. We’ve been facing this overbuild for now two years in video and three years in total."

Rutledge estimated that Verizon is spending between $80 million and $100 million a year "just on broadcast" ads to target those 750,000 Cablevision homes. "So we have upped our marketing spending so that our position in the marketplace is not drowned out by that kind of marketing."

Company executives declined to comment on the merger between the Dolan family and Cablevision that was announced May 2, promising that more will be revealed after a special shareholders meeting this fall to hash out the terms of the merger.