Analyst: Still Upside in Cable
By: TMike Farrell, Multichannel News
New York -- Despite declining subscribers, a sluggish economy and an anemic housing market, Bank of America Merrill Lynch first vice president and managing director Jessica Reif Cohen is still bullish on the cable sector, fueled by strong growth in new services and a laser-like focus on higher-end customers.
Reif Cohen, interviewed by Multichannel News editor-in-chief Mark Robichaux at the Multichannel News/B&C OnScreen Media Summit here, said that although cable has lost basic subscribers over the years, it has more than made up for it in higher margin customers who take more products.
The influential media analyst pointed to Comcast's recent third quarter results, adding that while basic subscriber losses were heavier than expected -- 275,000 vs. the analyst consensus of 189,000 in losses -- there was a strong uptick in high-speed Internet and phone customers.
"You're seeing a difference with the haves and have-nots," Reif Cohen said, noting that the amount of subscribers taking faster and more expensive high-speed data packages industry wide outnumber those taking lower-priced packages by a margin of 2 to 1.
Comcast isn't the only one seeing that kind of growth on the higher margin products. Reif Cohen also singled out Cablevision Systems, which not only has the highest high-speed Internet penetration in the cable sector, it has a higher telephone market share in its service territory than the incumbent telephone company, Verizon Communications.
For the future, Reif Cohen was bullish on the potential interactive advertising has for the sector, noting an earlier speaker's comment -- Group M CEO Irwin Gotlieb -- that several years ago, about 75% of advertising dollars went to paid media, today it is about 30%, with the rest going to segments like direct marketing.
"So much money has moved away," Reif Cohen said. "There is a lot of potential for it to shift back."
Reif Cohen also was bullish on Comcast's pending joint venture with NBC Universal, adding that the recent decision to place chief operating officer Steve Burke as head of that venture once it closes sometime before the end of the year a near stroke of genius.
"If there is anyone that is uniquely suited for running an entertainment conglomerate, it is Steve Burke," Reif Cohen said.
Time Warner Cable, DirecTV, Discovery Communications and News Corp. were among other top picks for the analyst: Time Warner because of its strong balance sheet and efforts to return cash to shareholders (she anticipates a $2 billion share buyback program in the near future) and DirecTV, Discovery and News for their international opportunities.
Reif Cohen said that DirecTV has a huge pay TV opportunity in Latin America -- about 30 million new homes are expected to be created over the next few years. That also bodes well for cable networks like Discovery and News Corp., which have a strong library of non-fiction programming that translates well in international markets.