No Fairy Tale: CVC's Slowing Growth Prompts Concern

The overall Cablevision narrative continues to be told by a pair of key storylines: the financials from its dominant cable segment and the Dolan family’s privatization bid. Yet while both remained positive as the MSO reported 2Q results, ebbing growth emerged as a troubling 3rd thread. Cable TV net rev rose 13% (highlighted by 168K new digital, HSD and phone adds; flat basic growth; and a 10% rev increase at Rainbow), but diminished operating guidance gave many analysts pause. Sanford Bernstein’s Craig Moffett said CVC’s slowing growth was expected, "but not quite so quickly." Oppenheimer went further, calling the MSO’s results "arguably the worst in the company’s recent history, and the worst among major cable operators." COO Tom Rutledge said the lowered guidance can be attributed, in part, to "very high penetration" in video (68% overall, 81% digital) and growth slowdown in all- digital NYC, although he admitted having no explanation for lower sequential broadband growth. It’s clear, however, that management had noticed some disturbing trends during 2Q, as a "strategy change" was enacted in early July when CVC began marketing to existing customers a triple-play bundle that was previously available to only new subs. The MSO also downplayed a material effect on results from Verizon, even as Rutledge disclosed an increase in marketing spending "so that our position in the marketplace is not drowned out" by the telco’s estimated $80-$100mln annual in-market broadcast ad spend. Rutledge said Verizon owns 750K active passings in CVC’s footprint and has built out 1mln. Some good news, according to Moffett, is that "Cablevision is holding its own" against Verizon, which should hearten the cable industry "inasmuch as Cablevision’s overlap… is already larger than will be the case at Comcast and Time Warner Cable, even by 2012." Also a boon, many agree, is the Dolan’s offer of $36.36/share, which CEO Jim Dolan said is still on the table despite widespread financing concerns stemming from a weak US credit market. A special shareholder’s meeting to discuss the deal will occur this fall. CVC shares closed at $34, up 1%.