The slowdown in cable broadband subscriber additions may be even slower than anticipated after executives at two of the top three publicly traded cable companies -- Comcast and Altice USA -- hinted that customer growth is trending at an even more decelerated pace than expected. 

Comcast Cable CEO Dave Watson touched off a mini firestorm on Dec. 7, telling the virtual audience at the UBS Global TMT Virtual Conference that he expected to end 2021 with 1.3 million additional broadband subscribers. That is lower than the 1.4 million Comcast added in 2019 and implies that Comcast would add about 185,000 high-speed data customers in Q4, its lowest growth since Q2 2017. 

Most analysts had expected Comcast to end 2021 with about 1.4 million additional broadband customers. In a recent research report, MoffettNathanson principal and senior analyst Craig Moffett predicted Comcast would add about 286,000 broadband customers in Q4. Moffett expects Charter to add 271,000 broadband customers and Altice to add 3,000 high-speed internet subscribers in the period. 

While Charter may well hit Moffett's target, chances are that Altice USA, coming off a third quarter where it lost 13,000 broadband customers, could see negative growth in Q4.

“We probably are trending -- and we still have a big month of December coming up -- slightly negative in Q4, which probably leads us to be down in a range of 5,000 to 10,000 for the year,” Goei said at the UBS conference.

He added that the declines are in markets where Altice USA competes with Verizon Communications’ Fios Internet product, which Goei described as heavily promotional. 

“These losses are in Fios zones,” Goei said. “I think Fios has been saying they have not lost momentum. We’ve slowed momentum relative to Fios and we really need to drive to the first quarter when we have a better mobile product.”

The news sent Comcast shares down 7% on Dec. 7, as well as the rest of the sector. At the end of the day, losses eased a bit -- Comcast stock closed down 5%, Charter down 3% and Altice USA fell 2%. But the fear that sluggish broadband growth could last a while longer didn’t seem quite as irrational as the day before. Between Dec. 6 and Dec. 8 the three stocks fell 6.5%, 4.6% and 6.4%.

Charter Communications chairman and CEO Tom Rutledge spoke at the UBS conference on Dec. 8, and avoided making any specific broadband predictions. Rutledge did say that as the spike in pandemic-fueled consumer acceptance of the broadband product begins to unwind, there is still plenty of runway left. 

“I do think that the opportunity to grow the business is pretty much unchanged,” Rutledge said at the UBS conference. “If you look at it on a four- or five-year growth rate trend, it’s pretty solid, pretty straightforward and pretty consistent. I think that that future will look more like the trend than it will look like the third or fourth quarter.”

Cable operators have consistently denied that stepped up telco 5G wireless and fiber broadband initiatives would cut into their businesses, and at the UBS conference tried to stress that in addition to strong opportunities ahead for broadband, their other services are even more robust. Watson said at the conference that wireless subscriber additions should break records in Q4, and added that cable EBITDA growth should be between 7% and 8% in the period, exceeding analysts expectations.  

Watson said Comcast would add a record number of mobile customers in Q4, after signing on 285,000 additional Xfinity Mobile customers in Q3, its best quarterly performance since launching the wireless product in 2017. At the UBS conference, Watson said Comcast expects cable EBITDA growth to be in the 7% to 8% range in Q4, while net cash flow growth will be in the low double-digit percentages. 

“In wireless, we’ll  beat Q3 in Q4,” Watson said. “We’ll set a record.”

Rutledge didn’t make any wireless subscriber predictions, but said mobile service will be Charter’s biggest growth engine going forward, likening the mobile opportunity to that of the wireline telephone business several years ago. Back then, traditional phone companies were offering wireline phone service for $72 per month. Today, cable companies are selling wireline service for $13 per month and dominate the industry, with Comcast and Charter the two largest wireline phone companies in the U.S. 

“We took that business,” Rutledge said. “So, what kind of upside is there [to the mobile business]? That kind of upside.” ■ 

UBS Securities is encouraged by what it believes is strong upside in Netflix’s Q4 subscriber guidance, adding that a recent price increase should have no impact on growth, according to a new research report.

According to a Jan.17 report conducted by its Evidence Lab, which provides UBS analysts with rigorous primary research, UBS estimated that year-over-year subscriber improvements at the SVOD pioneer were sustained through the fourth quarter, and that an October price increase appears to have had little effect on momentum. UBS estimated that Q4 domestic subscribers should reach 54.04 million (up 1.27 million) and international customers will reach 61.54 million (up 5.06 million), basically in line with management forecasts. Its 12-month price target on the stock -- $250 per share, a 30% premium to its $191.96 closing price on Dec. 29 – reflects that optimism.

Netflix is expected to release fourth quarter results officially on Jan. 22.

“We believe Netflix's core competencies in both content and technology will drive a virtuous circle of greater subs and increased viewing time, enabling higher ARPU and revenue, which will fuel content spending to attract even more subscribers, positioning Netflix to sustain its clear global leadership in the emerging online video subscription business,” UBS wrote in the report.

When Netflix announced in October that it would raise monthly rates for its standard service to $10.99 from $9.99 and for its premium tier to $13.99 from $11.99, some analysts feared it would lead to some subscriber erosion. But in a November consumer survey of about 2,000 people, the UBS evidence lab showed no signs of materially increased churn.  

Netflix had some of its strongest domestic and international subscriber growth ever in the third quarter, adding 5.3 million customers globally, far outpacing guidance of 4.4 million additions. The company predicted it would add about 6.3 million customers globally, 1.25 million in the U.S. and 5.05 million internationally.  

The emergence of additional OTT players also has had little impact on Netflix, according to the UBS survey, which reported a strong uptick in household penetration (50%) from its April survey (42%) and no discernible change with respect to the competitive landscape.

UBS also was encouraged by a strong content slate, adding that in 2017, season two of sci-fi hit Stranger Things had stronger Google search interest than HBO’s  Game of Thrones. Newer series like Ozark and Mindhunter attracted as much search interest as established series like House of Cards and Narcos. In 2018, a reboot of Bravo’s Queer Eye, dark comedy Maniac and a western anthogogy from the Coen Brothers -- The Ballad of Buster Scruggs – are all expected to attract attention.

Time Warner, understandably preoccupied with its pending $108.7 billion acquisition by AT&T, still managed to lap its media company peers on the affiliate-revenue front last year and is on pace for more of the same in 2017, according to UBS media analyst Doug Mitchelson.

That growth, especially during a period when programmers are pressured by falling ratings, skinny bundles that lock them out of millennial-focused packages and over-the-top distribution, could be a key reason why the programmer was so attractive to AT&T in the first place.

AT&T has said repeatedly that content will drive the future — and Entertainment Group chief John Stankey reiterated that point at the Mobile World Congress conference in Barcelona, Spain, last week, telling the audience that programming is what will make AT&T relevant.

“Content that is compelling matters,” Stankey said at the conference.

Content that is compelling also makes money.

‘TIMING WAS GOOD’
In a recent deep dive into the programming industry, Mitchelson pointed out that Time Warner’s affiliate fee growth in Q4 of 2016 was 15%, more than double that of its closest peer, 21st Century Fox, at 7.4%.

Affiliate-fee growth actually declined for other programmers last year, according to Mitchelson, as 2016 was marked by declining subscriber rolls as customers cut back on various distribution cords in favor of OTT services and skinnier bundles.

Time Warner’s Turner division in fact has seen similar declines — the company averaged about a 2% loss in subscribers last year, about the same as its peers — yet has managed to keep affiliate-fee growth humming.

Part of that is because Time Warner struck carriage deals in 2015 and 2016 with major distributors like AT&T and Dish Network that usually have higher increases in the early years.

“The timing was good,” Telsey Advisory Group media analyst Tom Eagan said. Turner had earlier issued guidance for mid-teen percentage growth for 2016, which it delivered handily, Eagan noted. He said domestic affiliate-fee growth is expected to rise another 13% to 14% at Turner in 2017, leveling off a bit to 13% growth in 2018.

Mitchelson doesn’t expect the affiliate train to slow down this year, either. He’s predicting a 12.9% increase in fees for Time Warner in 2017, while Fox is expected to grow by about 8.2% in the same period.

Credit Suisse media analyst Omar Sheikh also was encouraged by the affiliate fee increases. He expects 15% growth in 2017 followed by a 10% rise in each of the years between 2018 and 2020. At premium channel HBO, which had a 5% affiliate fee increase in 2016, Sheikh predicts fees will rise 6% in 2017-2018 and 5% in 2019-2020.

Helping out HBO’s bottom line has been its standalone OTT product, HBO Now. Launched in April 2015, HBO Now has about 2 million subscribers and growing.

“We expect growth to be driven by affiliate renewals and strength at HBO Now,” Sheikh wrote, helping to offset rising programming costs — up 7% in 2016 and estimated to rise 9% in 2017 — “and demonstrates that the company is executing well on its opportunity to grow domestic subscribers, which management has noted is HBO’s ‘most important long-term growth driver.’ ”

Just as in 2016, key to Turner’s future growth will be its ability to secure healthy increases with existing distributors as well as with new digital distributors. Turner seems to be out of the mix at least initially in Google’s new YouTube TV offering — the 30-channel, $35 monthly video service currently doesn’t have any Turner or Viacom networks in its lineup. That’s likely to change, Eagan said, but in order to keep the $35 price point, more expensive networks like Turner will likely be available on separate tiers or packages for an additional charge.

MILESTONE MOMENTS AHEAD
On the traditional carriage front, Turner’s Comcast affiliate agreement comes due in the next few months, and the programmer is expected to be part of Hulu’s live-TV streamed offering scheduled to be release later this year. Time Warner is a part owner of Hulu, along with The Walt Disney Co., Fox and Comcast’s NBCUniversal.

The Hulu deal could be key for Turner. The much anticipated but scantily described offering — expected to have a $40 monthly price point — could set the tone for similar offerings in the future.

Turner has been an enthusiastic participant in OTT services: Its AT&T distribution pact in September was one of the first for the telco’s DirecTV Now over-the-top service, which launched in December and has about 200,000 subscribers.

Eagan said that while the number of bundled-streaming services — including Sony PlayStation Vue, Sling TV and more on the way — is growing, most have been launched by existing pay TV distributors. Programmer-owned Hulu could offer a new perspective.

Eagan said channel-driven streaming services such as CBS All Access, which has about 2 million customers, have fared better than operator-led services like Sling TV, which has about 1.1 million subscribers.

“The question is what is going to happen when you get all of the individual channel OTT services and the package runs together,” Eagan said.

Charter Communications chairman and CEO Tom Rutledge said the cable operator is moving toward a future where broadband speeds of up to 10 Gigabits per second are possible, but stopped short of pinpointing exactly when that future will be.

At the UBS Media and Communications conference in New York, Rutledge pointed to the cable operator’s current MVNO agreement with Verizon, which he said could take hold in late 2017 or 2018. But building on that deal – which would allow Charter to resell a Verizon wireless service under its own brand – would be an even faster wireline service that Rutledge said could open up a “whole new industry.”

Rutledge said there are already about 200 million wireless devices connected to Charter’s wireline network and about 80% of the bits on a mobile company’s network travel through that same network.

“We are a wireless company,” Rutledge said.

Charter has already exercised its Verizon MNVO rights, part of the SpectrumCo sale of wireless licenses to Verizon in 2011. Comcast also has said it exercised those rights.

Charter currently offers data speeds of up to 100 Megabits per second in most of its markets and its minimum speed is 60 Mbps. Other operators have offered 10 Gbps download speeds in select areas, and symmetrical 10 Gbps is part of the “Full Duplex” enhancement to the DOCSIS 3.1 standard. The spec for the Full Duplex extension is expected to be completed sometime in 2017. However, commercial deployment probably won't begin until 2018 or 2019.

At the UBS conference, Rutledge said MVNOs have their limitations, but with future technologies on the horizon like 5G wireless – he said Charter has applied for experimental licenses for testing that technology – the possibilities surrounding hybrid wireline and wireless networks are endless.

“I think we’ll begin to move toward building out a 10 Gigabit symmetrical infrastructure that is ubiquitously deployable across our footprint at fairly low capital investments relatively to anybody else,” Rutledge said. “…We can attach wireless devices to that high-capacity wireline network in a way I don’t think anybody else can do at the same level of capital efficiency and get tremendous throughput, low latency, high compute networks that bring the possibility down the road to a whole new industry essentially.”

A two-year grace period that shielded veteran Netflix subscribers from a 2014 price increase expires next month, an event some think could cause the subscription VOD pioneer to actually subtract customers during the second quarter of 2016.

The May switchover could be tricky: It’s the biggest price increase since 2011, when the company announced a rate hike for its streaming/mail-order DVD combination from $9.99 to $15.99 per month. Back them the backlash was swift — Netflix stock fell 40%, and customers called for Netflix CEO Reed Hastings to resign.

This time around, the company has been careful, buying itself time in the two-year wait for the initial outrage to wane. And analysts point out that customers intent on keeping the $7.99 price point can do so by dialing back their tier of service to the single-stream, standard- definition Basic Plan.

The pricing details: Netflix hiked the monthly fee for new customers in May 2014 to $9.99, but allowed existing customers at the time to remain at the previous $7.99 and $8.99 monthly rates for two years.

UBS media analyst Doug Mitchelson estimates about 17.8 million Netflix customers in the U.S. (37% of its total base) were at the $7.99 price point. He thinks the $2-permonth increase will be too high for between 3% and 4% of those customers, who will probably cancel service.

‘U.S. MATURITY FEARS’

Netflix is offering those grandfathered customers an opportunity to stay at the $7.99 rate, but they would have to downgrade service to one streaming device in standard definition, as opposed to two streaming devices in HD. While that could offset some of the cost-conscious churn, it isn’t expected to be much.

The churn from the grandfathered base amounts to about half of Netflix’s quarterly subscriber gains; in the fourth quarter it added about 1.5 million U.S. customers. Couple that with a maturing market — subscriber growth has softened in recent periods — and Netflix could be heading into its first negative streaming quarter ever.

“Investor concerns regarding the potential churn from such a large price increase are compounding the U.S. maturity fears already plaguing Netflix’s stock,” Mitchelson wrote. “Add in the fact that 2Q is the seasonally softest quarter, and some investors are even questioning whether Netflix will have its first quarter ever of declining U.S. streaming subscribers.”

In the past several quarters, Netflix has seen a steady softening of domestic subscriber additions, from 2.3 million adds in Q4 2013 to 1.5 million in Q4 2015. Most analysts who follow the company aren’t expecting the worst, but anticipate that the slower growth trend will continue.

Morgan Stanley media analyst Ben Swinburne revised his Q1 subscriber estimate downward to 1.8 million from 2.2 million after the SVOD pioneer missed his Q4 estimates.

“When you have as large of a subscriber base as Netflix, minor changes in churn can have a material effect on net subscriber additions,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. “I would be surprised if it goes negative even with negative 2Q seasonality, but you cannot completely rule it out. I figure they can do at least a couple hundred thousand.”

Mitchelson said in his report that the bear case for Netflix to lose subscribers in Q2 is unlikely, and he estimated the company would end the period with an increase of about 450,000 customers in the U.S.

Of the customers paying the old $7.99 monthly rate, Mitchelson estimated that 229,000 would churn off in Q2, with another 360,000 dropping the service in Q3.

Swinburne was a little less optimistic. He estimated that total additions would be about 150,000 and paid customer additions would be flat in the second quarter.

Fueling Mitchelson’s optimism is Netflix’s programming lineup. The company, the analyst wrote, has a strong original content slate with hit shows like Orange Is the New Black, Jessica Jones and Daredevil.

This year is expected to be especially strong — Netflix is increasing its original scripted series slate to 31 in 2016 from 16 in 2015 with shows like The Crown, Marvel’s Luke Cage, Frontier and The Ranch and has 10 feature films released or in production.

“We feel comfortable the slate supports our view for low levels of churn,” Mitchelson wrote in a report.

GROWTH MARKET: THE WORLD

While domestic growth is slowing, Netflix’s real opportunity is international, Mitchelson said. UBS estimates that the U.S., which represented 60% of total gross customer additions in 2014, will shrink to 38% by the end of 2016. Taking up the slack will be areas like Latin America, Europe and Australia.

Swinburne, also in a research note, figured international subscriber additions would rise to 3 million in the second quarter (from 2.4 million last year), with full-year additions at 15 million — 28% higher than the 11.75 million added in 2015 and outpacing his estimates for 4.1 million domestic additions in 2016.

Swinburne said he thinks international streaming customers will overtake their domestic counterparts in 2017, with 54.6 million subscribers (compared with 52.6 million domestically), reaching nearly 80 million customers by 2020. Domestic subscribers could reach 60 million in 2020 by his figures.

Wlodarczak added that, while international growth is important, so is stable U.S. growth, which validates Netflix’s increasing its original programming spend.

Time Warner Cable chairman and CEO Rob Marcus said at an industry conference that if recent over-the-top video offerings lead to more flexibility in programming contracts, he’s all for it.

Recently, Home Box Office and CBS have announced plans for an online video product that doesn’t require a pay TV subscription and others are expected to follow. While Marcus wouldn’t comment on those products specifically, he said if it means that programmers are beginning to loosen the reins on some programming issues, it could lead to overall growth in the video product.

“We’ve been articulating for quite some time that we thought that delivering video with a greater degree of flexibility would be very customer friendly,” Marcus said at the UBS Global Media & Communications conference in New York Monday. “Whether that is flexibility around devices, place- shifting, time-shifting , or flex in the way we package video services so we could make different customer demands. To the extent any of these recent announcements are reflective of programmers’ greater willingness to play ball on that front, greater willingness to explore new models, we’re in.”

Marcus didn’t seem to be worried about the potential that these services and other over-the-top offerings from Sony, Verizon and Dish Network could have in luring away pay TV customers. He said that right now, his focus is on traditional competitors like satellite TV and telco TV.

“I tend to focus more on our traditional competition than I do on the threat from OTT,” Marcus said. “There is no question that there is some element of cord-cutting out in the universe, but I don’t think it is having anywhere near the impact that  losing customers to traditional competitors has on our lives day to day. …We are confident about the value proposition we offer on the video side and we’re getting more confident as we enhance the product with a better guide, more VOD, improvements to our TWCTV app. We think we can compete with any variation on the video theme.”

 To that end, Marcus said that subscriber metrics have been strong and that Time Warner Cable has every intention of growing video subscribers in 2015.