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News Analysis
Comcast Struggles to Explain Video Sub Decline 
By Swanni

Washington, D.C. (May 2, 2013) - In October 2008, Multichannel News' Ted Hearn reported that Comcast had 25.1 million video subscribers, or 25.7 percent of the entire pay TV audience.

That was so long ago that Hearn has left trade journalism and is now the vice president of communications for the American Cable Association. And Comcast now has just 21.9 million video subs, a distressing decline of 3.2 million in four years plus. Not only that, Comcast has yet to enjoy a financial quarter of video sub gains since Mr. Hearn put his pen to paper in 2008.

The cable operator has worked hard to stem the tide, reporting in the fourth quarter of 2012 that it lost just 7,000 video subscribers, its best result in years. So industry observers yesterday were anxious to hear how Comcast did when it released its 2013 first quarter report.

Well, the nation's largest cable operator lost an additional 60,000 video subs, which marked an end to decreasing losses because it lost just 37,000 video customers in the first quarter of 2012.

Comcast executives yesterday seemed a bit embarrassed when they faced questions from Wall Street analysts on why the losses continue. In fact, they might have been so embarrassed that they offered what appeared in this reporter's view to be a most illogical and confusing explanation.

Company CFO Michael Angelakis first suggested to the analysts that the timing of monthly rate increases could have been a factor. The cable operator notified subscribers in the first quarter that the cost of some programming packages would soon rise.
"In the first quarter, we lost 60,000 video customers, compared to a loss of 37,000 in last year’s first quarter. During the quarter, we accelerated the timing of rate adjustments and implemented increases to 72 percent of our customer base versus 62 percent in the first quarter of 2012," Angelakis said.

But then the company's chief financial officer went deep into the weeds to further explain the video losses.

"About half of our video subscriber losses were due to the methodology we use to count [MDU] subscribers under our bulk contracts and the other half were primarily video-only customers," he said. "As you may know, we count video customers that are billed under bulk contracts on an FCC equivalent or (EVU) basis, which results in fewer customers as rates increase. In order to improve our transparency in how we report and manage these bulk contracts, we’ll be changing our external reporting to a billable units methodology at the end of the year. We believe this change will reinforce our operational focus in this customer segment, and align our video customer account methodology with the rest of the cable industry."

Got that?

If you do, tell me what it means.

Okay, I'm being sarcastic. Basically, Angelakis is saying that much of the blame for the first quarter losses can be attributed to a "account methodology" for counting bulk subscribers that somehow is not 'aligned' with 'the rest of the cable industry.'

He would have us believe that Comcast, which has been desperately trying to show the industry that it has stopped video subscribers from leaving, continued to use an accounting process that was destined to report that more video subscribers did indeed leave in the first quarter.

Does that make sense to you? Wouldn't Comcast change this accounting procedure before the first quarter to ensure a more positive result when so many industry officials and investors were looking for one?

Sorry, I have to conclude that Comcast yesterday tried to create a double-talk smokescreen to thwart tough questions about the continuing video losses.

Deutsche Bank analyst Doug Mitchelson later quizzed about Angelakis about the counting of bulk video subscribers and how it might have affected the overall total.

To his credit, Angelakis chose to respond by talking about the rate increases, rather than the bulk counting methodology.  But at this point, you have to question that reason, too. The CFO said that in the first quarter of 2012, 62 percent of subscribers were alerted to an upcoming rate increase, compared to 72 percent in 2013.

That's about a 15 percent increase. However, the actual number of video losses in the first quarter of 2013 compared to 2012 was roughly 62 percent higher.

So the rate increase doesn't explain it, either.

Bottom line: Comcast still has a major problem keeping current video subscribers and attracting new ones. And any amount of industry-speak and double-talk won't change that.

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