Comcast: Rosy Third-Quarter Numbers

Revenues and cash flow each climbed 7% despite tighter household budgets, suggesting cable is no longer a discretionary item

By Tom Lowry

Healthy third-quarter earnings reported by Comcast (CMCSA) on Oct. 29 could be the first major indicator of how well the historically recession-proof cable-television industry will fare in the current downturn.

Of course, it is still way too early to know how far consumers will go in tightening their household budgets. But some analysts believe cable services, from TV to broadband to phone, are no longer thought of by subscribers as discretionary, even though so-called triple-play cable bills usually exceed $100 per month. Sanford Bernstein analyst Craig Moffett went so far as to write in his latest report: "Video and broadband are no more discretionary for most families than running water and electricity."

The third-quarter numbers from the nation's largest cable operator, with 24.5 million television subscribers, seemed to support Moffett's premise. On a pro forma basis, revenues rose 7% to $8.1 billion and cash flow increased 7% to $3.3 billion. The one weak spot was advertising, which decreased 10% in the quarter to $374 million, due in large part to the economy. During a conference call, Comcast Chief Executive Officer Brian Roberts said he was pleased with where Comcast is positioned in this economy, adding that the company would not need to access the capital markets in the foreseeable future. Executives said they don't believe existing customers dropping their services will be an issue; rather, the challenge will be signing up new customers.

Even well before the recent economic turmoil, Comcast, prompted by the decline in new housing starts, began offering in 2007 economy tiers of service, giving consumers increased options for TV, broadband, and phone. Those rates, in some cases, are 20% less than Comcast's other established rates. These new services, though, include fewer channels and slower broadband speeds.

Comcast Promotions

Earlier this month, Comcast began promoting another offer to lure new subscribers, many of whom it believes are still using rabbit ears on TV sets: get basic cable for $10 a year, or free for a year if you buy any other Comcast service for $24.95 a month. A Comcast spokeswoman said the company has not released any data showing how well these promotions were doing in terms of adding subscribers. In turn, Time Warner Cable (TWC), the nation's second-largest operator with 13.3 million TV subscribers, has begun offering its customers the opportunity to lock in their current rates. If we can't help you save money on your current bill, promises Time Warner Cable, we'll give you a month of free service. Time Warner Cable reports third-quarter earnings on Nov. 5.