Cable operators can still thrive while losing basic video customers

I sneered when cable executives first began pushing Wall Street analysts a decade ago to measure the success of an MSO by counting the total number of RGUs, or revenue generating units, that a company had.

Since the industry's inception, the strength of a cable operator was determined by the number of basic cable customers it counted. But around 2000--as cable MSOs were losing video customers from aggressive marketing campaigns and discounted programming packages from DirecTV (Nasdaq: DTV), Dish Network (Nasdaq: DISH) and cable overbuilders--Comcast (Nasdaq: CMCSA), Cox Communications, Cablevision (NYSE: CVC) and other MSOs wanted Wall Street to instead focus on the total number of basic cable, digital cable, high-speed Internet and voice customers to value a cable MSO.

This is pure spin, I thought. The cable MSOs are just looking for a way to divert attention from the number of basic cable subscribers they are losing each quarter. But a decade later, as Comcast and other major cable MSOs continue to find a way to grow revenue and profits each quarter while losing basic video customers to new rivals such as AT&T's (NYSE: T) U-verse TV and Verizon's (NYSE: VZ) FiOS TV, I'm beginning to see that the total number of products a cable MSO sells to a subscriber is more important than the number of basic video customers an operator has.

Click here for details of cable subscriber numbers vs. IPTV providers

A quick look at the second-quarter performance of public cable MSOs and satellite providers shows how basic-subscriber losses aren't hurting revenue growth. Time Warner Cable (NYSE: TWC) lost 130,000 subscribers during the quarter, while growing revenue 4.4 percent to $4.94 billion. Cablevision grew revenue by 9.1 percent while losing 23,000 basic video subscribers. And Comcast grew revenue by more than 50 percent while losing a whopping 238,000 subscribers, but most of that growth was a result of its acquisition of NBCUniversal.

Most cable operators continue to bleed basic video customers. It's inevitable, when a new entrant such as FiOS TV or U-verse TV launches service in a town, some consumers will drop their cable provider. But Comcast and the other major MSOs continue to sign new high-speed Internet and voice customers, which are more profitable businesses than selling pay TV programming packages.

All of the major MSOs posted high-speed data subscriber growth during the second quarter. Comcast picked up 144,000 cable modem customers during Q2, while Time Warner Cable added 54,000, Charter (Nasdaq: CHTR) added 18,500 and Cablevision signed 5,000 Optimum Online subscribers.

We continue to see new studies each month about cord cutting, and stories about consumers dropping subscription TV service from cable or satellite providers to rely on online video delivered to computers or through over-the-top video set-tops, connected TVs and other devices to satisfy their home entertainment needs. But unless Web surfers are mooching free WiFi connections from their neighbors, they are paying a cable operator, telco or another broadband ISP a monthly subscription fee in order to access that online video content.

As long as cable MSOs continue to grow high-speed data subscribers--which positions the industry to compete in a world where consumers are watching video on multiple devices--operators will continue to thrive, even if they lose basic video customers.

TiVo (Nasdaq: TIVO) CEO Tom Rogers may have said it best during an appearance at an Advertising Week session last week in New York. "In a world of abundant video consumption, the speed of your broadband connection is everything. So I'm quite bullish on the cable industry going forward."--Steve