Cable giants’ results show cord-cutting continues

Canada's two biggest cable companies on Thursday reported losses of more than 100,000 television subscribers each over the last year. Roger Communications Inc.'s earnings release showed that it had 2.04 million TV subscribers at the end of the third quarter on Sept. 30, down 111,000 from a year earlier. Shaw Communications Inc.'s results for its fourth fiscal quarter, ended Aug. 31, showed a decline of 105,560 TV subscribers over the previous 12 months, giving it a total of 2.84 million households. There was a drop of 82,618 cable-TV subscribers for Shaw during the last year, putting its cable base at 1.96 million at the end of its fourth quarter, and 22,942 fewer satellite subscribers for 880,623 at quarter's end. Rogers added 51,000 Internet subscribers over the year for a total of two million, and its home-phone base over that time grew by 9,000 to 1.16 million. Its cable-TV revenue was down four per cent from a year earlier to $433 million, and phone revenue fell six per cent to $118 million. Internet revenue increased six per cent to $311 million, while revenue from all cable operations combined was down one per cent to $864 million. The company said TV revenue was down due to the decline in subscribers and “the impact of promotional and retention pricing activity associated with heightened pay TV competition.” On the wireless side, Rogers' postpaid subscriber base in the third quarter was up 91,000 from a year earlier to 8.13 million, and its prepaid subscriber numbers fell by 92,000 to 1.37 million. Operating revenue for the wireless segment was up two per cent for the year $1.88 billion. During the conference call, Rogers CEO Guy Laurence said the company was moving from a focus on customer volume to a focus on value, and that it continues “to see progress in both wireless and cable.” “While in wireless, our churn is slightly higher year-on-year. We know … that these are predominantly lower-value customers , and so this does not cause me concern,” he said. “We are not going to see big changes in the financial metrics overnight as we go through this process, but I am confident you will see us moving in the right direction over coming quarters.” Anthony Staffieri, chief financial officer at Rogers, said during the conference call: “If you were to look at the product split between the Internet and video today, our gross margin on Internet is close to 100 per cent because we don’t have the content cost that we see in video. So more of our gross margin in the cable business today comes from Internet, and that continues to grow at a faster pace than we’re seeing the video part of the business decline.” Rogers’ media segment reported operating revenue of $440 million for the quarter, same as in the third quarter of last year. Overall operating revenues were $3.25 billion, up one per cent from the same quarter last year, though profits dropped to $332 million from $464 million. Analysts said Thursday that Rogers' results were weaker than expected. Dvai Ghose of Canaccord Genuity said in a research note that that while “we saw some positives in this release, overall it was disappointing, especially in terms of wireless churn and cable and media margins.” “On the positive side, management continues to deliver gradual improvements in ARPU trends as expected. However, churn was much higher than expected and may take a long time to fix,” he said. “What was more disappointing was the cable and media results, albeit that media was negatively impacted by NHL startup costs.” Shaw's Internet subscriber total was up 39,895 for the year to 1.93 million. Of those, 392,387 were not TV subscribers, a number that was up 71,663, or 22.3 per cent, from a year earlier. "We love those customers," Shaw chief operating officer Jay Mehr said during the conference call Thursday about standalone Internet customers. "They're very profitable and they're a big part of the future of our company. ... We think of our business as a network and content-experience company, and we're going to work hard to deepen our relationship with those customers." He said Shomi, an OTT service it is launching with Rogers next month that will initially be available to TV and Internet customers of both companies, is an example of what Shaw is doing for its Internet customers who don't get TV service. Shaw reported cable revenue of $837 million, up 2.3 per cent from a year earlier. It said this increased because of growth and price increases in business services, offsetting the decline in TV subscribers. Its satellite revenue was up 0.5 per cent to $220 million, and also benefited from price hikes to offset subscriber losses, the company said in its release. Shaw's overall revenue in the fourth quarter was $1.26 billion, up 1.4 per cent from a year earlier. Net income was $192 million, up from $117 million a year before. Drew McReynolds, a telecom analyst with RBC Dominion Securities, said in a research note that the results were "slightly below our expectations." He said financial results in the cable segment were less than anticipated though subscriber numbers were as forecast. McReynolds added revenue from media operations, which was down marginally to $231 million, was better than expected. Shaw said there was less advertising revenue for its TV stations, though subscriber revenue saw gains. Ghose, in a separate research note dealing with Shaw's earnings, said its media results were "surprisingly strong," though Shaw's overall revenue was "slightly below" expectations. Ghose said financial figures and subscriber numbers for Shaw's cable division were worse than he expected, as he anticipated a gain of about 15,000 Internet subscribers during the quarter, compared to the 11,983 that were tallied. Shaw reported 1.38 million home-phone subscribers, a gain of 15,374 for the year or 1,114 for the quarter. Ghose said he had forecast 2,000 more phone customers for Shaw during the quarter, which a year earlier had seen gains of 4,722 for the quarter and 52,416 for the year. Rogers also said Thursday that it will purchase Hamilton-based Source Cable Ltd. for about $160 million. “The Source Cable subscriber footprint is situated adjacent to existing Rogers cable systems and should enable numerous synergies,” it said in the press release announcing its third quarter results. Rogers added that it expects the transaction to close before the end of this year. — With reporting and editing by Anja Karadeglija at akarad@thewirereport.ca and Derek Abma at dabma@thewirereport.ca

Cable giants’ results show cord-cutting continues

Broadcast | October 23, 2014

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