WideOpenWest is inching closer to a planned initial public offering, setting a price range for the stock that potentially could raise nearly $500 million to help pare down debt.

While the overbuilder has stressed it is focused on organic growth, it also points to a string of successful purchases over the past 15 years and is keeping its deal options open while moving deeper into a strategy that favors broadband over video.

Related: WOW Sporting New Logo

WideOpenWest was formed in 2001 and made its mark that same year when it bought SBC Communications’s Ameritech New Media, a state-of-the-art overbuild in Illinois and Michigan and Ohio that gave the upstart company instant credibility. WOW paid between $200 million and $300 million for the assets, which added about 300,000 subscribers. Using a popular metric from the period, the Ameritech deal was valued at about $1,000 per subscriber, or about one-quarter of SBC’s original asking price for the assets, according to reports.

From there, WOW set off on a string of acquisitions that beefed up subscriber rolls. Buying Sigecom in 2006 gave the company an inroad in the Indiana market, followed by five other deals that added 330,000 customers for a combined $1.6 billion.

New Organic Approach
WOW has focused on organic growth lately. Chairman Jeffrey Marcus, who joined the company after private-equity player Crestview Partners purchased a 35% interest in WOW in 2015, has said it will emphasize broadband rather than video going forward. But it also wants to take advantage of smaller tuck-in acquisitions.

Related: Marcus Helps Set WOW's Winning Strategy [subscription required]

Tuck-ins may be the only deals left to pursue. Altice USA, the domestic cable arm of European telecom company Altice N.V., is expected to unveil its IPO later this year and could be an aggressive buyer in the future. While Altice has said it is focused on integrating its past purchases of Cablevision Systems (2016) and Suddenlink Communications (2015), many expect it to at least kick the tires on midsized operators such as Cox Communications (which says it isn’t for sale) and others once it has a public deal currency.

Related: Testing Cable's Value Proposition

In the meantime, WOW will focus on growing the high-speed data business. That’s a tack many small operators have taken over the years in the wake of rising programming costs, most notably Cable One, the Phoenix-based cable operator that was the top-performing stock in the sector in 2016.

But that approach has pitfalls. While Cable One stock rose more than 40% in 2016, due largely to takeover speculation, its metrics have declined. Video subscribers have plunged from 436,370 to 293,726 between 2014 and March 2017. Broadband revenue increases have largely been the result of steep price hikes for service.

According to MoffettNathanson principal and senior analyst Craig Moffett, Cable One broadband subscribers increased by about 2.9% in the first quarter, above the 2.5% growth of the previous quarter, but still about half the growth rate for its peers. Video customers declined at about a 12.4% clip.

The big difference is that Cable One has little competition in its markets: customers who want high-speed internet either have to pay the increases or opt for inferior digital subscriber line service. According to its prospectus, 53% and 39% of WOW’s footprint is overlapped by Comcast and Charter, respectively.

The competitive dynamic with phone companies is a bit better. AT&T’s U-verse (a mixture of fiber and DSL) is available in about 63% of WOW’s footprint based on homes passed. Verizon Fios is in about 3.5% of the footprint and Frontier Communications operates in about 2.7% of WOW’s territory, according to the prospectus.

Allure of High Margins
The allure of high broadband margins — in excess of 95%, according to the prospectus — is strong, though, and led to a steep rise in net income ($26 million in 2016, a $53.6 million improvement over 2014) while revenue increased about 1% to $1.2 billion.

At the same time, video customers have declined steadily while broadband increases have been relatively minimal. Video revenue-generating units (RGUs) fell from about 635,000 in 2014 to 474,000 by this March, according to the prospectus. High-speed internet customers increased from 728,000 to 729,000 in the same time period. During that time, WOW sold its Lawrence, Kan., system with about 31,000 customers, to Midco.

WOW apparently sees greater upside in broadband, driven by increased data consumption from social media applications, OTT video and cloud-based computing. Customers who crave video are just going to have to pay more.

WideOpenWest chairman Jeffrey Marcus doesn’t think he has to build a better mousetrap to take the overbuilder to the next level in the ever-changing pay TV and broadband landscape. He believes he already has one.

Marcus, a cable pioneer who built Marcus Cable from scratch in the 1980s before selling it to Microsoft co-founder Paul Allen in 1998, re-entered the domestic pay TV space in a larger way in December after his Crestview Partners invested $125 million in WOW for a 35% interest in the overbuilder. As part of the investment, Marcus, who has been with Crestview since 2004 and helped manage its stakes in several cable operators over the years, agreed to become chairman.

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Becoming WOW chairman — he replaced Colleen Abdoulah, who retired but remains on the company’s board — is Marcus’s highest-profile position in the cable business since he sold Marcus Cable to Allen (it later became part of Charter Communications). He hasn’t really been away, though.

Through Crestview, Marcus has helped in its investments in Insight Communications, sold to Time Warner Cable in 2012, and Charter: Crestview was at one point the third-largest Charter shareholder and cashed out of most of that investment when Liberty Media John Malone bought a 27% stake in the cable operator in 2013. Marcus also was part of Crestview’s 2005 acquisition of Adelphia Communications’s OneLink cable operation in San Juan, Puerto Rico, which it sold to Liberty Global in 2012.

SEASONED TEAM

Marcus was named chairman in January after Crestview made its investment. Topping the management team are CEO Steve Cochran, a 14-year veteran of WOW, and chief operating officer Cathy Kuo, another seasoned executive who formerly ran marketing for the overbuilder for nearly 15 years.

“They’ve got a very good track record and good operational experience,” MoffettNathanson principal and senior analyst Craig Moffett said. “The management roster has to give you some confidence that they will be able to execute a compelling strategy.”

Marcus said in an interview that WOW first came up on his radar screen in the late 1970s and early 1980s, when he and cable pioneer Rick Michaels were partners in cable broker Communications Equity Associates.

The company re-emerged during the sales process for Insight Communications. WOW operated in Illinois and competed in several markets there against Insight and at one point considered bidding on Insight. When WOW’s biggest shareholder, Avista Capital Partners, decided to monetize a portion of its stake in the overbuilder, Crestview jumped.

“The thing that impressed me about WOW was their customer service,” Marcus said in an interview related to WOW’s selection as a Multichannel News Independent Operator of the Year. “Their J.D. Power scores are among the highest in the industry for years on end. That’s how they are able to garner a significant subscriber base and loyalty among their subscribers. They provide something the incumbent cable operators don’t and that is really good cable service. They understood that in order to get traction in a competitive situation, they not only have to build a better mousetrap, they have to service it better.”

WOW still ranks high on the J.D. Power list for pay TV and Internet service. It was fourth in the 2015 survey of the North Central region of the country with a score of 721, behind AT&T’s U-verse TV, DirecTV and Dish Network but still well ahead cable competitors like Comcast (689) and Charter Communications (688).

That customer service edge is key to WOW’s growth, Marcus said.

While Moffett added that focusing on better service is a potential strategy for small operators, “the bigger question is, do they continue to measure themselves as video providers at all,” adding that Wave Broadband and Cable One have taken a “broadband-first” stance in their respective markets.

While data is important — high-speed Internet subscribers outnumber video customers — WOW still sees benefits in offering a TV product.

Revenue in the first quarter was down 3% to $302.1 million, cash flow rose 3% to $112.9 million and WOW also continued to reduce video customer declines. Video losses were about 10,000 in the first quarter, compared to a loss of 17,000 in the fourth quarter. It was the fifth consecutive quarter of reduced losses on the video side. High-speed Internet customers grew by about 10,000 to 722,200 subscribers in the period.

Marcus said that WOW will continue to gain scale both through organic growth, including an edge-out program to extend its network within its existing footprint, and by acquisition.

“WOW, in order to win, has to not only provide the best customer service, but also to have state-of-the-art services and have them delivered in a way that customers want to buy them, not forcing big packages on people,” Marcus said.

That means looking into ways to offer skinny bundles, the current rage in the distribution industry. While Marcus realizes that the ability to do that is limited to the terms of programming contracts, he believes that is the direction the industry is ultimately moving toward.

“That’s where the evolution is going,” Marcus said. “I think the content providers are going to have to figure out where they want to play, where their bread is buttered and how they want to provide their programming. I think that HBO Now and CBS and others that provide OTT programming are doing it in a way where they are putting their toe in the water, and it’s good for the cable operators to provide for their customers.”

BUYING JUST WHAT FITS

On the acquisition front, Marcus said the company will keep an eye on systems that come on the market as they fit into the WOW strategy. “We will be interested in other acquisitions as they come about and as they make sense for us geographically,” he said.

But he sees no burning need to gain scale quickly.

“It’s all opportunistic,” Marcus said. “When I started Marcus Cable with 18,000 subscribers, I had no idea that it would get to 1.3 million. One thing led to another and we took advantage of opportunities as they presented themselves. I think that’s what is going to happen here.“

Time Warner Inc. launched its standalone HBO service, HBO Now, last April, and premium channels Showtime and Starz followed with their own versions of a standalone product. While Custom TV, Verizon’s skinny-bundle experiment, looks different than it has in the past — it now includes sports channels in the basic bundle — Marcus said that WOW is looking for ways to meet customer needs.

“Ours is more of a video-agnostic approach,” Marcus said. “If somebody wants a skinnier bundle, we’ll put it together for them within the constraints of the contracts. If they want to use broadband for over-the-top, we’ll deliver a package or give them increased broadband speeds to do that. And we’ll tailor our product offerings to what people want.”