Comcast: Rosy Third-Quarter Numbers

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Despite new affordable offerings, Comcast, for one, continues to jack up its monthly bills—but with a twist. Cable companies annually raise rates 3% to 4% on average, based in large part on what the industry says are escalating programming costs. But now many consumers are paying more each month to rent digital boxes to be able to receive many of the same channels they got before by simply screwing the cable wire directly into the back of their TV, consumer advocates say.

The Consumers Union claims Comcast and others are taking advantage of the confusion over the broadcasters' switch to digital television, coming this February, to be able to rent more digital boxes. Consumers typically pay $4 to $10 in rent a month per digital box per set. Joel Kelsey, a policy analyst with the Consumers Union, says his group has heard from analog Comcast subscribers in Virginia and Vermont who can no longer receive channels like E! (owned by Comcast, by the way), Animal Planet, and C-Span unless they rent digital boxes. Kelsey says Cox and Time Warner Cable subscribers have complained about the same practices. "We think consumers should have a choice in which delivery mechanism they use to receive service," says Kelsey, "and it's unclear in the current economy if consumers will put up with this." Comcast says it is providing free digital boxes as part of its switch to providing an all-digital lineup.

"Recession-Resistant"?

If history is any indicator, however, Comcast might not have to worry all that much about customers defecting. In previous bad times, people have tended to stay home more and forgo other entertainment expenditures, such as movies, concerts, and sporting events. Even though cable TV was in its infancy during the economic downturn of 1981, subscribers grew by 21% that year, according to cable research firm SNL Kagan. In 1990, amid another sluggish economy, cable subscriptions still rose more than 5%, despite new competition from satellite providers. Of course, the impact of current economic conditions is likely to be unprecedented. Cable "is typically recession-resistant," says SNL Kagan analyst Robin Flynn, "although this downturn will likely affect services like digital."

Comcast reported that basic video subscribers dropped by 147,000 in the third quarter, but that it added 417,000 subscribers to its digital service. The company said it also boosted the number of high-speed Internet subscribers by 382,000, and added another 483,000 phone customers. Comcast shares were down 6% in morning trading Oct. 29, largely on disappointment over the announcement that the company won't complete its share buyback program this year or next. Still, Comcast shares have performed better than those of its cable peers so far this year, down 28% vs. a decline of 33% for Time Warner Cable and a 42% drop for Cablevision Systems (CVC). Comcast has also outperformed the media sector, whose stocks have declined 48% in 2008, according to the Bloomberg Media Index.

Unlike during other economic slumps, cable now offers a triple-play bundle, which so far has, by some estimates, 15 million subscribers. So even if consumers are thinking about ditching cable TV to cut costs, they may think twice, since packaged along with that TV are services they might view as more essential: broadband and phone. In facing the downturn, having sticky subscribers like that may prove to be the cable industry's biggest advantage of all.

Lowry is a senior writer for BusinessWeek in New York.