Merrill Lynch: Cable rollouts sliding in Q4

Mon, 12/17/2001 - 7:00pm
Anne Kerven

Maybe it hasn't been hammered home yet, but now it's a little closer: The industry isn't exactly enduring the best of times. A new study says the pace of digital cable rollouts will fall next year, compared with 2001.

A cable TV Q4 preview from Merrill Lynch says 2002's pace of rollouts will fall about 15 percent below 2001 levels. Numbers-wise, that means the industry will add 10,900 digital subscribers per week versus 13,000 in 2001.

Merrill Lynch cites a high penetration rate — about 24 percent now and expected to rise to 29 percent by the end of next year — for the fall-off.

The firm says VOD could rescue the situation, but not until operators "launch market-wide marketing campaigns to advertise the product. Today, VOD introductions have been mainly soft launches on a node-by-node basis, with no marketing," ML says.

Cablevision is the only operator who won't see a slowing in rollouts, the study says, since it just launched digital service.

While cable EBITDA should grow 12 percent, the number is down compared with the company's estimate of 13 percent, thanks to a weak advertising market and analog discounts.

Calendar year 2002 EBITDA will run about 12 percent to 13 percent for cable operators, as well, "but (will be) very back-end loaded," the study says. By company, Cablevision EBITDA growth will reach 14.5 percent, compared with 2001's 7.5 percent. EBITDA at AOL Time Warner Cable will grow 12 percent, although TWC's launch fees in 2001 made comparisons "extremely difficult," ML says. Charter Communications, Cox Communications and Comcast Corp. will see 13 percent EBITDA growth.

On the dubious upside, forecasters don't expect a high-speed data rollout slowdown — but don't expect much of an acceleration, either. "We estimate the industry will add on average 8,300 data subs a week in Q4, up only 6 percent versus 7,900 in Q3, and 5 percent versus 8,000 in Q4 2000," it says.

Recent events may or may not affect the growth. AtHome's impact on major cable operators could drag down the pace in first quarter 2002 by 10 percent, compared with Q4, it says. But "Vivendi's investment in EchoStar alone is unlikely to change the landscape," meaning any programming used by EchoStar also will be offered to cable operators. On the other hand, EchoStar's potential merger with DirecTV "could be a formidable competitor to cable."

ML says the outlook will improve dramatically in the second half of next year "with (the) AtHome transition behind, VOD deployments underway and easy advertising comparisons."


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