The second quarter financial reports are largely over, but the lessons from them are just beginning.
1. Consolidation: If the swings of stock prices weren’t a clear enough signal, the chatter during earnings calls should crystalize it: investors are excited about the prospect of more industry consolidation. Questions about possible M&A came up on virtually every MVPD call, and even programmers fielded queries into what it could mean for their business. “We feel that some consolidation among cable owners, if that occurs, is going to have no impact whatsoever on our business because there are so many buyers in the marketplace,” Disney chief Bob Iger said, referring to the growth of online options such as Netflix and Amazon for content. No one made any huge revelations during earnings about possible acquisitions, but that didn’t stop the market from reacting to every comment—from Cablevision CEO Jim Dolan’s “never say never” to Glenn Britt of Time Warner Cable’s rather bland, “The watchword for us is discipline.”
2. Subscriber Trends: Video sub losses continued, doing nothing to relieve concerns about cord cutting. Moffett Research noted pay TV lost 380K subscribers in 2Q. While that’s on par with last year, the scary difference is that household formation is better now than it was a year ago. “Cord cutting used to be an urban myth. It isn’t anymore. No, the numbers aren’t huge, but they are statistically significant,” analyst Craig Moffett wrote in a research note. He estimates that over the past 12 months, some 898K households have cut the cord compared to 455K a year ago. Still cord-cutting views differ wildly in the industry. “I think there is a question, not a known, about the 20-year-olds. What happens when they have families and where do they go, and to some degree what are the alternatives… if they are a different animal 10+ years from now. It’s not a 3-year issue,” 21st COO Chase Carey said during Investor Day. “I don’t think people are going to say I could spend 157 hours a month watching YouTube. You look at the importance and popularity of what we have, and I think it really is about alternatives (such as OTT distributors). They’re not going to say, ‘I’ll do without.’”
3. Programming Costs: They’re going up, up, up. Even for 800lb gorilla Comcast, which saw programming expenses rise 8.1% in 2Q. It expects full-year program expense to be up by about 10%. Cablevision reported a 9% increase in programming costs. At Charter, programming expense grew by $27mln or 5% YOY, equating to 5.7% per expanded basic sub. For the full year, it expects programming expense growth to be in the mid- to high-single digits per expanded basic customer. Interestingly, despite the CBS-Time Warner Cable fight going on—and the “statements of support” from some MVPDs—no one talked about retrans much during earnings. Guess it’s just become commonplace…

The Daily


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