First Quarter Shows Cable Has a Pulse - TheStreet

Cable businesses, which have been sliding down a

glacier of worry since the first of the year, enjoyed a minor uptick this week as respectable first-quarter results persuaded investors that the sector isn't going to fall into the sea just yet.

Charter Communications

(CHTR) - Get Report

, down more than 50% since the first of the year, was among several cable-industry stocks rebounding this week, rising as much as 17% following its Monday conference call (though it fell back to $8.34 by noontime Friday). Observers say numbers across the board were strong enough to give investors hope for coming quarters, which is something that has been sorely lacking in the tech-telecom area for some time now.

Over the past few months, operators including Charter,







Cox Communications


have been shadowed by a variety of overarching market worries. Those have included slowing growth of basic subscriptions, the leveling off of new subscribers for advanced digital video services, competition from satellite subscribers and



-inspired debt paranoia.

But first-quarter results from some of the biggest operators -- Cox, Charter, Comcast and Cablevision all reported in the past week -- put at least some of those worries temporarily to rest, thanks to various encouraging comments about basic cable, new video-on-demand services and even cable advertising.

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Looking back on this batch of first-quarter numbers, one conclusion to draw is that basic, or plain-vanilla subscriber growth, which weakened last year, is indeed tied to the advanced services that cable operators can offer.

"An upgraded plant is your best defense against competition from satellite," says Kavir Dhar, media analyst at Jefferies & Co. Putting aside Charter, whose basic weakness in the first quarter is attributable to what Dhar calls a company-specific bad-debt and nonpayment issues, that's borne out, he says, by the performance of Cox, whose relatively strong basic growth resulted from its strategy of marketing advanced-service bundles.

Average revenue per users, says Dhar, went up "nicely" across the board. In part, he says, that's due to an improvement in the cable advertising market; though advertising typically amounts to less than 10% of a cable operator's revenue, the apparent recovery is "a nice pleasant surprise."

Digital video -- using digitized signals to expand channel capacity and offer advanced video services -- was also the source of some optimism, despite investor concerns about the saturation of those services among cable customers.

On its conference call, for example, Comcast told investors it would make a big marketing push in the second half of the year related to video-on-demand -- the ability of a user to select programming from a library and watch it as if he had it on tape in his VCR. That VOD service, analysts hope, will make digital video attractive to customers who wouldn't otherwise be willing to upgrade to that level of service.