Moody's: Broadband, Business Services Will Drive Growth in 2012

Moody's Investors Service predicted that cable video subscribers will continue to decline in 2012, but those losses should be tempered by gains in broadband and business services.
In a report issued Thursday, Moody's assistant vice president and analyst Karen Berckmann and senior vice president Neil Begley estimated that revenue and cash flow will rise about 3% in 2012, fueled mainly by broadband and business services.
"Over 90% of US households already subscribe to video service through various channels and this saturation means future revenue growth will likely come from data services," Berckmann wrote.
Sluggish housing growth and the overall weak economy will continue to depress video subscriber rolls, the analysts wrote, and increased competition will also shrink the industry's video subscriber base. Moody's predicts that cable penetration of the video market will slip to 41% in 2012, down from 43% today and 50% five years ago.
The credit rating agency expects fastest-growth in the business segment although gains will be from a low base. Moody's adds that increases will vary widely by company. For example, it expects Comcast, which had about $1.3 billion in business services revenue during the first nine months of the year, to add more than $500 million in new commercial revenue in 2012.
While there is still concern about so-called over-the-top services, Moody's believes those fears are largely overblown and unlikely to hurt video revenue materially over the intermediate term. The agency believes online video streaming will play a complementary role to cable-TV service, not displace it.
"Streaming will replace some of the industry's video-rental and premium-channel revenue but it will bolster the strength and pricing power of the high-speed-data product," Begley wrote.
Moody's also came up with an new metric - the Triple-Play Equivalent (TPE) penetration rate - to track the acceptance of the industry's three primary residential products, video, high speed data and voice. TPE growth, according to Moody's has slowed to a trickle since 2009.
"We believe it will flatline in 2011 and 2012 at 32.5% for the sector given the continuing video subscriber losses and deceleration of high-speed-data and voice subscriber additions, which is not healthy news for some of the industry players suffering the most," Begley wrote.
The TPE varies widely between industry players, with Cox Communications and Cablevision Systems showing TPE rates of over 40%, while Charter Communications and Mediacom Communications have rates of 27%.