Are satellite TV providers cutting into cable companies’ growth? In a research note issued today, Pali Research (reg. required) analyst Richard Greenfield says that cable giants Comcast and Time Warner Cable — which have focused their marketing on cheap, digital phone service — are losing ground to satellite giants DirecTV (DTV) and EchoStar (DISH), which are heavily advertising hi-def and sports programming. Cable, Greenfield adds, has not freed up enough bandwidth to deliver enough HD channels and has taken too hard a stance on sports programming it doesn’t own, like the NFL Network and the Big 10 Network.
As a result, he’s trimming his 2007 and 2008 subscriber and and financial targets for both Comcast (CMCSA) and Time Warner Cable (TWC). For example, some of Greenfield’s new Comcast estimates:
- 2007 earnings per share (EPS) cut 3% from 74 cents (29% increase over 2006) to 72 cents (25% increase over 2006)
- 2008 EPS cut 10% from $1.01 (37% increase over 2007) to 91 cents (26% increase over 2007)
- 2007 free cash flow cut 3.7% from $2.7 billion (2.6% increase over 2006) to $2.6 billion (1.3% decline from 2006)
- 2008 free cash flow cut 18% from $3.9 billion (43% increase over 2007) to $3.2 billion (25% increase over 2007)
How have satellite companies fared recently? During Q2, DirecTV and EchoStar’s Dish Network grew by 298,000 subscribers (net), while Comcast and Time Warner Cable collectively lost 152,000 subscribers (net). During Q1, satellite grew by 545,000 net subs, while the two cable companies added 121,000 net subs. (See detailed subscriber stats after the jump.) And don’t forget to factor in new fibre-optic, digital TV offerings from telcos Verizon (VZ) and AT&T (T), which we predict will collectively have 1 million subscribers nationwide by the end of this year, and should steal market share from both cable and satellite rivals.
Another concern: the declining U.S. housing market, which Sanford Bernstein analyst Craig Moffett thinks will further impact pay-TV providers’ growth.
Selected Satellite And Cable Subscriber Data, 4Q06-2Q07 2Q071Q074Q06DirecTVSubscribers16,31616,18815,953(NYSE: DTV)Growth (y/y)5.2%5.2%5.4% Net Adds (qtr)128235165 Growth (q/q)0.8%1.5%1.8%EchoStarSubscribers13,58513,41513,105(NASDAQ: DISH)Growth (y/y)9%9.4%8.9% Net Adds (qtr)170310350 Growth (q/q)1.3%2.4%2.7%ComcastSubscribers24,14124,23624,161(NASDAQ: CMCSA)Growth (y/y)0.4%0.4%0.3% Net Adds (qtr)(95)75110 Growth (q/q)(0.4%)0.3%0.5%Time Warner CableSubscribers13,39113,44813,402(NYSE: TWC)Growth (y/y)41.4%42.4%42.8%(incl. acquisitions)Net Adds (qtr)(57)46(23) Growth (q/q)(0.4%)0.3%(0.2%)Source: Company Earnings Releases, SAI Analysis
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