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Good cable picture

Companies adding Net subs fast, keeping costs down

NEW YORK — Cable operators should have plenty to crow about as the big MSOs report their third-quarter earnings this week.

They got off easy in the recent Government Accounting Office report on cable pricing, they’re adding high-speed Internet subscribers faster than their telco rivals, and their capital expenditure demands are finally falling to the point that profits are in hand.

But the horizon is still murky, with no end in sight to battles over program cost hikes, increasing competition from DBS operators armed with integrated digital video recorders and local channel provision and expected price wars with high-speed DSL providers.

The testy topic of sports program costs and affiliate fee hikes will certainly be top of the agenda for Cox Communications, which kicks off cable earnings reports today followed by Insight on Wednesday and industry giant Comcast on Thursday. Cablevision reports later in November.

High-stakes battle

Cox is ESPN’s sixth-largest distributor with 6.3 million subscribers, and it certainly has a strong hand in the negotiations. But Cox’s public threats to either drop ESPN or relegate it to a pay tier unless Disney accepts only inflationary price increases (compared to its historical 20% hikes) could put the cabler in a potentially precarious situation.

A Deutsche Bank-commissioned survey of video customers found that ESPN is crucial to their service — so much so that the bank reckons Cox could lose between 500,000 and 1.2 million subs if it were to drop ESPN in a power play with the Disney-owned cable net. That would equate to a loss of up to $380 million in EBITDA earnings.

The Deutsche Bank survey revealed that a surprisingly large number of customers (24%) would switch providers (presumably to satellite) if ESPN were to become unavailable on their current service provider. Also, as many as 22% said they’d be prepared to pay $2-$15 per month for ESPN. Among respondents, 65% considered ESPN “very important” or “somewhat important.”

Bullish about Cox

Fortunately, investors still view Cox as one of the best-run cable shops around thanks to its robust triple play bundling strategy of voice, data and video along with falling capital expenditure demands and good customer service reputation.

Company is expected to report quarterly digital subs up at least 70,000 in the three months to Sept. 30 and double-digit operating profit growth.

As for industry titan Comcast, investors will be listening closely for updates on how its premium VOD, DVR and high-definition services are selling, along with an update on its own voice service rollout. Comcast is widely expected to report flat basic cable sub adds, around 250,000 new digital subs and as many as 400,000 new high-speed subs for the quarter.

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