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Operators’ Programming Costs Inch Up

Per-subscriber programming costs for the top three cable
operators are outpacing average monthly revenue — in
some cases by nearly a 3-to-1 margin, according to a recent
SNL Kagan research report.

SNL Kagan looked at programming costs and average
monthly subscriber revenue at the top three publicly-traded
MSOs — Comcast, Time Warner Cable and Charter Communications
— for the past year.

What the research firm found is that while average
monthly revenue per unit (ARPU) has risen in the 3% to
5% range, it has not been enough to outpace spiraling programming
costs, which have increased at more than twice
that rate during the period. According to SNL Kagan,
monthly programming costs per subscriber in the past 12
months rose at their fastest pace since 2009.

As retransmission-consent payments and affiliate fees
rise, and video customers fade away, costs go up. Some operators
fared better than others, and size definitely appears
to matter, according to the Kagan research.


For example, the nation’s largest cable operator, Comcast,
saw its average monthly programming cots per customer
rise 10.1% in the second quarter, compared to the prior
year, while video ARPU increased 4.9%. However, in absolute
dollars, Comcast’s $3.77 ARPU increase for the year
more than offset the $2.90 increase in programming per

Programming costs at Time Warner Cable — the second-
largest cable operator in the country, with 12.3 million
customers — grew about four times faster than video revenue
in the period, according to Kagan. Monthly content
costs per subscriber increased 9.4% and video ARPU was
up just 2.4% in the period.

In absolute dollars, Time Warner Cable’s size wasn’t
quite enough to off set the programming gap — video
ARPU rose by $1.75 in the period, while programming
costs rose by $2.66 per customer, according to
SNL Kagan.

Most operators have said they expect programming
costs to rise in the mid-to-high single-digit percentage
range in 2012, becoming moderately lower by
2013. And though accelerating programming rates are
the biggest factor in the video-revenue gap, a declining
video customer base also plays a role. The three
top publicly traded cable operators lost a combined
411,000 basic video subscribers in the second quarter
and 1.5 million since the second quarter of 2011.

At the smaller of the three large operators — Charter
Communications, with about 5 million customers
— average monthly programming costs increased
9.3% in the period, while ARPU was up 3.2%. In absolute
dollars, Charter fell short, as programming costs
increased $3.27 in the period while ARPU rose just
$2.27, according to Kagan.


ISI Group media analysts Vijay Jayant and David Joyce
agreed that the gap between programming costs and
video revenue is widening, adding that in some cases
even additional revenue from advanced services
like broadband and digital telephone aren’t helping
to narrow the chasm.

But the analysts noted that in some cases, other
revenue streams from advertising and new products
like commercial services could help offset video costs.
Jayant and Joyce pointed to Comcast, which grew
overall ARPU by 8% in the second quarter, including
commercial services and advertising, “which points
to the importance of cable adding to its array of revenue
streams. In time, home security could also help
on the margin.”