Advertising, Athena shine in Altice Q3 amid pay TV anguish

Altice USA continued the trend with 28,000 pay TV subscriber losses during the third quarter, yet finances impressed with revenue up 4.1% to over $2.4 billion – hoisting net income to a record high $33.7 million. But before we assess Altice USA’s third quarter in more detail, let’s take a look at the full picture – which looks something like 225,000 video losses for the top 5 US cablecos in Q3 and a catastrophic year to date loss of 814,000.

Third quarter results for 4 of the top 6 US cablecos have been published (Comcast, Charter, Mediacom and Altice), just leaving CableOne to go, while we cannot include Cox Communications due to it being a private company. CableOne has been on a run rate of around 10,000 video losses a quarter, so assuming a similar loss for Q3, we arrive at the conclusion shown in the table below.

Year to date losses for Comcast are extreme, a hemorrhage of cable to OTT churn we highlighted last week, although Comcast’s net figure accounts for gains from the Xfinity Instant TV OTT service so the true picture is much worse. Given the three-year silence from Cox Communications, a cableco which likes to sporadically publish numbers, it would be safe to assume the cableco is close to dropping below 4 million pay TV subscribers. If so, it means the top 6 cable TV companies own something closer to 46.5 million subscribers, almost half of which are registered to Comcast.

High speed broadband growth was a silver lining for Comcast in Q3 and a similar slight offset occurred at Altice USA, adding 14,000 broadband subscribers to reach 4.1 million. It also managed to increase ARPU, rising 2.3% year on year to $143.

Advertising was the standout performer for Altice USA in Q3, with revenue growing by 37.8% to $123 million. Altice USA’s fastest growing business segment was driven by a growth in multiscreen advertising beyond linear TV, with around half of total revenue coming from political campaigns.

The cableco launched Athena recently, an audience-based multiscreen advertising marketplace with household targeting for campaigns across TV, digital, OTT and social media. Athena also provides in-depth reporting, measurement and analytics for advertisers, so a similar type of product to AT&T’s Xandr, except rather than competing, Athena and Xandr teamed up in Q3, to exclusively sell Altice USA’s addressable TV inventory at a national level. The partnership also means Athena gets access to AT&T’s video subscriber data – to help inform national addressable digital campaigns and multiscreen campaigns at regional and local levels. The tie up means more bad news for Verizon’s Oath (see separate story in this issue).

On the entertainment side, Altice USA CEO Dexter Goei suggested on the company’s earnings call that a broadband-only offer along with a third party set top could be an attractive business model, pointing to Charter’s recent deal to roll out of Apple TV devices.

While total revenue enjoyed growth, pay TV revenue was hit by some $15.3 million, dropping to just over $1.05 billion, and broadband revenue saw a healthy 9.8% climb to $729.9 million. Altice USA made a net loss of $192.6 million in Q3 last year, so the latest results show an impressive period even with substantial pay TV subscriber losses.

Looking forward to its MVNO-based mobile launch via Sprint’s network, another third quarter highlight for Altice was the testing of CBRS technology to complement, becoming the latest cableco to do so. Prior to this week, Goei has said he believes Altice could make a mobile business more profitable than Comcast and Charter can. In the latest earnings, Goei highlighted some of the key differences between its full infrastructure-based MVNO approach compared to other market entrants, including operating its own core network with its own Home Location Register (subscriber database), meaning full management of the configuration and of subscribers, as well as providing its own SIM cards and the ability to negotiate pricing with its SIM card supplier.

Additional differences include optimizing data offloading where possible to reduce costs, helped by its dense WiFi coverage, as well as flexibility to offer services through its ‘thick’ MVNO approach, with a lower wholesale price than ‘light’ MVNOs, meaning more control over profitability, according to Goei. Essentially, by building out some of its own infrastructure, Altice USA has an advantage to offer differentiated services compared to a basic MVNO deal, for example deploying small cells to improve indoor coverage or to add capacity for a certain user base. This can also improve costs by keeping some traffic on the cableco’s own network, reducing MVNO fees.

“We basically own and control everything apart from spectrum and base stations, although we are currently testing CBRS spectrum, and will see if any spectrum locally becomes available. We have a path to a spectrum strategy with this approach, whereas light MVNOs would have to completely switch strategies and build their own mobile infrastructure if they want to do this,” said Goei.

Goei also played down Verizon’s 5G launch, saying it will take years before there is any threat to the cable industry and claiming that he has direct insights into the 5G tests being carried out in Europe, giving Altice USA a unique advantage over Verizon. “It’s clear that what Verizon is currently launching is not a standard product today, and it is not necessarily a commercially viable product going forward,” said Goei.