Charter Communications added about 185,000 broadband customers in Q1, in line with many analysts’ estimates as the broadband slowdown rages on, while wireless subscriber additions totaled 373,000 in the period.

Most analysts had expected Charter to add between 175,000 and 186,000 high-speed internet customers in the period, about half the 355,000 subscribers added in Q1 2021. Mobile additions bested last year’s Q1 performance of 300,000 additional lines by about 24%. 

Charter’s results were nearest to its closest competitor, Comcast, which added about 262,000 broadband customers in Q1 and shattered its previous record mobile customer growth with 318,000 additions in the period. Charter didn’t set a new mobile record in Q1, but it came close to the 380,000 lines it added in Q4.    

But about one-third of Comcast’s broadband subscriber gain was the result of the conversion of customers that were formerly getting the service for free to paying subscribers. Excluding this one-time gain, Comcast actually added about 170,000 to 175,000 broadband customers in the period.  

That caused some analysts to wonder if Charter would end up in the same boat and prepared for even lower subscriber growth than originally anticipated. That the company reported growth in line with earlier expectations caused some to breathe a sigh of relief.

In a research note, Wells Fargo Securities media analyst Steven Cahall wrote that Charter stock was down about 4% on April 28 after the Comcast results, “so we'd say the expectations bar had already been lowered.” 

But Cahall noted that cable isn’t out of the broadband woods yet. 

“The net adds number indicates a broad-based Cable industry internet slowdown,” Cahall wrote. “We think churn is low indicating gross adds are low too, and likely tied to the ramp in subs from fiber and FWA initiatives. This all indicates a more competitive arena ahead and that's going to be the backdrop of sentiment for CHTR and peers for a while.”

Overall revenue was up 5.4% to $13.2 billion and cash flow also rose 5.4% to $5.2 billion. 

"We remain focused on our primary goal of driving connected customer and mobile broadband relationship growth," Charter chairman and CEO Tom Rutledge said in a press release. "We continue to grow our business by offering superior converged connectivity products. And our new joint venture with Comcast will allow us to provide a next generation streaming platform that offers new and differentiated direct-to-consumer products to meet demand in a fast-changing video environment." 

Just months after it pressed the accelerator on its planned fiber network buildout, Altice USA said it lost about 13,000 residential broadband customers in Q1, driving revenue down 2.3% to $2.42 billion in the period and cash flow down 7.7% to $991.7 million.

Altice lost about 3,000 broadband subscribers in 2021, as competition from Verizon and delays in its fiber rollout affected the business. In February, Altice USA said it would accelerate its fiber build-out plans, planning to pass about 6.5 million homes by 2025.  

Altice said it is making progress on the fiber rollout, adding that it added 146,000 new fiber-to-the-home (FTTH) passings in Q1, bringing the total number of homes passed with FTTH to 1.3 million. The company said it plans to add another incremental 1.3 million FTTH passings in 2022.

The company also is moving forward with its edge-out program, extending its network to 42,000 additional homes in Q1 and to 273,000 total passings in the past 12 months. 

While Q1 losses were higher than even the most skeptical analyst expected — most estimated growth would be flat to down by about 3,000 customers. In a conference call with analysts to discuss results, Altice USA CEO Dexter Goei said the performance was more due to lower gross additions and slower household move activity. While competition was somewhat of a factor in its Suddenlink territories in the Midwest, Goei said churn is stable in its eastern Optimum markets and its competitive stance with Verizon’s Fios product is improving on a quarter-over-quarter basis. 

Still, Goei was reluctant to say that Altice will be able to turn around its broadband deficit this year.

“We definitely believe we are going to be growing subscribers in the second half of this year,” Goei said on the call. “I can’t tell you where the map will end up and whether we will be positive [for the full year] or not. But we’re clearly pushing to the positive and we’ve got some good momentum in terms of some of the initiatives we’ve been working on for the last six months.”

For instance, Altice said that it added about 11,000 fiber-to-the-home customers in the markets it has upgraded and plans to roll out a multi-Gig product in the second quarter, which should attract heavy data users — the company said the average speed taken by customers is 363 Megabits per second, and its broadband-only customers consume an average of 630 Gigabytes of data each month. Also, Goei was pleased with its mobile additions in the quarter — about 12,000 customers — coming after the company renegotiated its MVNO agreement with T-Mobile earlier this year. Those moves, coupled with its rebranding and improved customer experience campaigns, are anticipated to have a positive effect on growth. ▪️

Comcast added 262,000 broadband subscribers in Q1, better than some analysts' estimates and fueled by what the company said was record customer retention levels in the period, as its wireless business had its best quarterly subscriber gain ever. 

Broadband growth was still nearly half of the 461,000 customers it added in Q1 2021, but Comcast bested some analysts who expected subscriber additions in the 180,000 to 225,000 range. The big difference appeared to be customer retention. Comcast does not release churn numbers, but said its broadband business “benefited from the highest level of customer retention on record for any quarter.” 

Analysts noted that a good chunk of the broadband gain was the result of the conversion of customers who were on free plans that ended in 2021 to paying subscribers. Excluding this one-time gain — which some analysts estimated accounted for about one-third of additions in the quarter — and Comcast actually added about 170,000 to 175,000 broadband customers in the period.  

Also: Brian Roberts Says Peacock Had ‘Exceptional’ Quarter

On the wireless side, Comcast continued to impress. Its 318,000 customer additions in the period increased its total wireless base to 4.3 million. 

The subscriber increases also helped drive cable unit revenue up 4.7% to $16.5 billion and cash flow rose 6.5% to $7.3 billion. Consolidated revenue was up 14% to $31 billion and overall cash flow rose 8.8% to $9.2 billion.

In a press release, Comcast chairman and CEO Brian Roberts was pleased with the results, and noted the company continues to make “important organic investments,” pointing to its streaming platform partnership with Charter Communications that was unveiled yesterday (April 27).   

“This partnership demonstrates the benefits of our focus on innovation and enables us to bring entertainment aggregation and streaming products that run off our global technology platform to millions more customers,” Roberts said. “In cable, we are increasing the capacity of our broadband network and providing our customers with cutting-edge equipment that delivers the best in-home experience. Our media business is performing well, and the scale of our reach is underscored by our successful broadcast of the Super Bowl and the Olympics in the same week. These events were viewed by more than 200 million people in the U.S. across NBCUniversal’s platforms, including Peacock, which had an exceptional quarter. Our recovery from the pandemic at theme parks has been fantastic and shows no signs of slowing down.” ▪️

With the start of the first-quarter earnings season about 10 days away, J.P. Morgan media and telecom analyst Phil Cusick expects total broadband customer additions to continue to slow, but said a boost from some fixed wireless access providers will make what could have been a really bad quarter a little better.

Comcast is expected to kick off the 2022 earnings season on April 28,  when it reports Q1 results, followed by Charter Communications on April 29.  

In a research note, Cusick estimated total broadband additions of about 674,000 in Q1, a 32% decline from the prior year. But the analyst noted it could have been worse -- his Q1 estimates include 274,000 fixed wireless access (FWA) additions from T-Mobile. Without those FWA customers, total broadband additions would be down 56% in the period. 

Cusick blamed the overall broadband slowdown on sluggish cable growth, weak housing growth (moves are down 17% for the year, according to U.S. Postal Service data), and the loss of about 5 million consumers with access via the Keep Americans Connected COVID-19 program since 2020.  

Cable operators will continue to see sluggish broadband growth in Q1. Cusick estimates that total cable broadband additions will fall 51% to 445,000 in the period from 910,000 in Q1 2021. For the full year, he expects cable operators to add about 1.78 million broadband customers, down from 2.64 million additions in 2021.

Overall, Cusick expects total broadband additions of 2.94 million, a 4% decrease from 3.07 million additions in 2021. Fixed wireless is expected to add about 1.77 million new customers in 2022, down from 2.55 million in the prior year.

But Cusick still expects cable to attract about 66% of new broadband additions -- FWA is in second place with 39% -- mainly because in many areas, cable is the best choice for reliable high-speed connection.

Comcast and Charter are expected to add about 180,000 residential broadband subscribers each, compared to the 448,000 and 334,000 broadband customers, respectively, they added in Q1 2021. 

Analyst: No Sign of a Cable Slump

In his research note, Cusick explained that he hasn’t taken down his overall cable broadband estimates -- unlike some of his colleagues -- not because he believes cable MSOs will do better, but because he hasn’t seen any evidence they will do much worse. 

“Typical seasonality would be for 1Q to be stronger, and most cable commentary in 4Q was that the business improved through 4Q until omicron hit,” Cusick wrote “[W]ith no useful commentary from the companies, aside from consistently denying that FWA is impacting, we prefer to leave our estimates unchanged than reflexively lower the bar due to bullish FWA commentary from [T-Mobile and Verizon].”

Low housing moves and increased pricing will also most likely help boost cable margins, the analyst continued, adding that Charter repurchased about $3.7 billion of its shares during Q1, usually an indication of strong cash-flow growth despite slower subscriber additions. 

For other operators, Cusick sees flat broadband subscriber adds at Altice USA in Q1, and about 11,000 additions at Cable One.

On the telco side, Cusick predicted AT&T would lose about 10,000 broadband customers (15,000 IP additions offset by 25,000 digital subscriber line losses). Verizon Communications should add about 45,000 consumer wireline broadband subscribers (65,000 Fios Internet additions offset by 20,000 DSL losses), he said. Frontier Communications, which emerged from bankruptcy last year and has an aggressive fiber buildout strategy underway, should be well-positioned for growth, according to Cusick. The analyst predicted that Frontier will add 15,000 broadband customers in Q1 (46,000 fiber adds offset by 32,000 DSL losses).

Legacy video losses are expected to be about 1.5 million in Q1, down from 1.67 million in the prior year, but the improvement is more due to waning satellite TV losses. Cusick expects DirecTV/Dish to shed a collective 575,000 customers in Q1 (compared to losses of 750,000 in Q1 2021), while he predicts cable operators to lose 872,000 video subscribers, 5% worse than the prior year. 

Comcast’s video losses are expected to rise to 435,000 from 404,000 in the prior year, mainly because of a price increase that took effect in January. Charter’s video losses are expected to be slightly better in the quarter -- 150,000 compared to 156,000 in Q1 2021 -- reflecting slowing move activity. For the full year, legacy video losses are expected to be 5.3 million, better than the 5.8 million shed in 2021. 

Virtual multichannel video programming distributors (vMVPDs) such as Hulu Plus Live TV, YouTube TV and Sling TV are expected to add about 23,000 customers in Q1 (better than a loss of 92,000 subscribers in Q1 2021). For the year, vMVPDs should add about 1.4 million video customers, about even with the prior year. ▪️

Comcast managed to keep the broadband wheels humming in the first quarter, adding 461,000 high-speed data customers -- inline with last year’s gains of 477,000 customers -- while its wireless business added its most quarterly customers ever -- 278,000.

Broadband revenue for the cable giant rose 12% to $5.6 billion in the period, driving an overall  increase at the cable unit of 5.9% to $15.8 billion. The wireless additions helped drive revenue at that segment up 49.7% to $513 million, and for the first time that business didn’t lose money. 

Also read: Peacock Signups Hit $42 Million As Losses Rise 

Video subscriber losses were 491,000, compared to a loss of 401,000 in Q1 2020. Overall, the cable side of the business increased its cash flow in the quarter by 12.4% to $6.8 billion. The company said its streaming service Peacock ended the period with 42 million signups, up from 33 million about three months ago. The streaming service lost $277 million in the period, compared to a loss of $59 million in the prior year period. 

Overall, Comcast reported consolidated revenue of $27.2 billion (up 2.2) and cash flow of $8.4 billion, (up 3.5%). Revenue at its NBCUniversal programming division was down 9.1% to $7 billion and adjusted cash flow was down 11.8% to $1.49 billion in the period.   

Altice USA posted results yesterday and Charter Communications is reporting earnings tomorrow. Dish Network posted results today, too, amid satellite TV's ongoing decline.

In a press release, Comcast chairman and CEO Brian Roberts was pleased with the results.

“Our entire company performed well across the board, highlighted by another strong performance from cable, which posted its third consecutive quarter of double-digit adjusted EBITDA growth, while adding the most quarterly customer relationships in our company’s history,” Roberts said in the release. “Outside of cable, I was also very pleased by the persistent recovery and increasing momentum at NBCUniversal and Sky. Our theme parks once again reached breakeven, excluding Universal Beijing Resort pre-opening costs; and – to the delight of our guests – we successfully re-opened Universal Studios Hollywood on April 16th. At Sky, customer relationship additions increased by 221,000, marking the best first quarter result in six years despite the lockdowns imposed throughout Europe. Across all parts of the company, our teams are executing at a high level and collaborating to drive growth and innovation, and I couldn’t be more excited about our future."

The COVID-19 pandemic is expected to continue to squeeze advertising revenue at the top cable networks in the first quarter, but the full force of its impact likely won’t be felt until the second quarter and beyond, according to several analysts.

Networks have seen viewership increase as consumers were confined to their homes in the pandemic’s early days. That won’t have as much of an effect on revenue in Q1 (the lockdown was only about two weeks old at the end of the period), but the real impact could be in the second quarter and beyond.

Just how much of an impact will be known soon. Most top programmers are set to release results in the next few weeks. The Walt Disney Co. and AMC Networks are expected to release results on May 5, followed by Discovery and Fox on May 6 and ViacomCBS on May 7.

Heading into the earnings season, analysts were a little spooked by what MoffettNathanson principal and senior analyst Craig Moffett called WarnerMedia’s “shockingly bad” Q1 performance reported on April 22.

WarnerMedia Worries

WarnerMedia was hampered by the cancellation of the NCAA March Madness men’s basketball tournament — a staple of its Turner networks — and costs associated with the May 27 launch of its latest streaming product, HBO Max. Turner revenue was down 8.2% in the period, which helped drive overall WarnerMedia sales down 12.2%.

On a conference call with clients, Moffett said the results don’t bode well for WarnerMedia in later quarters, when the pandemic’s full impact will be felt. “You can just imagine how deep the problems there will become,” he said. “I really think you can see the wheels utterly falling off that business by the end of this year.”

Turner notwithstanding, it could be a rough couple of quarters for programmers as a whole. Perhaps the hardest hit will be networks relying on sports programming, which is virtually nonexistent in the pandemic, to drive advertising revenue. Other programmers also are expected to report sluggish results through the first half of the year.

Moffett’s colleague, MoffettNathanson media analyst Michael Nathanson, estimated Disney, Discovery and other programmers could face more difficult times as the pandemic plays out.

“The challenge is we don’t know when things will return to normal,” Nathanson said on the call.

Many analysts believe that the sector is headed for an ad recession that could last a while. At Wells Fargo Securities, media analyst Steven Cahall lowered his estimates for Fox, Discovery, ViacomCBS, Disney and Discovery.

Most of that pain is going to come in the calendar second quarter and beyond. Unlike WarnerMedia, most analysts see at least a thin silver lining for programmers before they enter the dark cloud.

At Fox, for example, Cahall expects cable network advertising to be flat in fiscal Q3 at $276 million, while television advertising revenue should rise 65% to $1.3 billion, driven largely by increased news ratings. The lack of sports won’t really make a mark until Fox’s fiscal Q4, where Cahall estimates cable network revenue will decline 15% and television ad sales will be down nearly 30%. He sees that trend continuing into fiscal Q1.

“We think Fox heads into upfront season in a challenging spot, including weak pricing, less live sports inventory and uncertainty about the NFL season,” Cahall wrote in a client note.

At Disney, arguably the most affected by the pandemic shutting down sports, theme parks, movie and TV production, the outlook is mixed. In a research report, Sanford Bernstein media analyst Todd Juenger reduced ad revenue estimates for Disney’s Media Networks (including ESPN) by 40% in calendar Q2 and by 15% in calendar Q3, followed by a recovery path into 2021 that could either turn into a quick economic recovery or a lengthy recession.

Cahall estimated that ESPN ad sales will dip by 15% in calendar Q2, followed by a 40% decline in calendar Q3 and troubles continuing into the first half of 2022.

“While the early ad reductions reflect a lack of sports including NBA and college, our estimates also include CPM compression, even as sports return,” Cahall wrote.

Direct-to-Consumer Lifeline

One bright spot for Disney could be its direct-to-consumer subscription services Disney+ and Hulu. Disney+ has gotten most of the attention: It had one of the most successful product launches ever in November, and said earlier this month that it has reached 50 million global subscribers. Domestically, the numbers are at about 23.9 million subscribers, but Cahall estimates it could reach 34.9 million subs by 2024, generating more than $2.4 billion in revenue.

For other programmers the road will be equally rocky.

Cahall estimated domestic ad sales would rise 8% at ViacomCBS in Q1 (despite also being affected by the loss of March Madness), but fall 20% in Q2 and Q3 and drop another 10% in Q4. Juenger predicted a “significant” domestic ad revenue decline at Discovery and a mid-teens drop at AMC Networks in the quarter, all due to the current climate.

Analysts did see some bright spots in the various networks’ OTT offerings, with Viacom expected to push its OTT subscribers from about 11 million before the pandemic to 16 million by the end of 2020.

Nathanson said NBCUniversal’s planned launch of Peacock could represent opportunities to increase revenue without having to lay out the expense of creating a standalone offering.

Whatever they decide, to survive, networks and distributors have to prepare for the long haul, Moffett said.

“I think what the market is starting to price in is not a V-shaped recovery,” Moffett said. “The recovery of the market sort of prices in this sort of dystopian future where a handful of companies with really strong balance sheets survive what could turn out to be a brutal shakeout of the macro economy.”