While cable operators have long been seen as virtually recession-proof, some analysts following the sector are concerned about a possible slowdown in consumer spending after October market turbulence.
"History would predict that cable is defensive, and I'm not worried that cable is going to lose customers," said John Martin, ABN Amro analyst. "But the near-term concern is that advanced service growth is going to slow."
While all of the cable companies deploying new services are vulnerable if that happens, Cablevision Systems and Comcast (News - Alert), which have ownership stakes in retail outlets and content properties, could see their top lines harder hit than their peers in a prolonged economic downturn. Both Comcast and Cablevision also own basketball and hockey teams and sports venues that could be hurt by poor attendance stemming from the attacks.
More significant than a retail downturn for cable investors is what happens to digital cable in the event of a recession. Analysts estimated the rate of digital video growth would drop six percent "next year compared with this year."
Even with a significant shortfall in new service additions, he says the cash flow growth for cable operators could still reach 10 percent, driven by modest growth in basic subscribers and annual pricing increases.
Analysts were less concerned about a slowdown in the cable modem business.
Keep in mind that all these things were said in October 2001. As someone who has followed recession impact on consumer spending for networked entertainment services for some time, perspective helps.
Though anything can happen, what likely will happen is that broadband, wireless and entertainment video churn, subscriber and revenue growth will emerge from even the present recession in remarkably good shape. By that, I mean historical precedent suggests slower rates of growth and flatter rates of average revenue per unit growth. Emphasis: growth. There is some reasonable chance of lower ARPU on some services, disguised in many cases by bundling practices.
There is a good chance growth of advanced services will slow. That could take the form of slower uptake of DVR services, video on demand, advanced smart phones, faster broadband tiers or managed services.
Some applications will fare a bit better; others a bit worse. Wired voice, which is in secular decline, could see an acceleration of trends already underway. Negative line or revenue trends are not a direct result of economic conditions, though.
One always can argue “this time is different.” People expressed that fear each of the last times as well. The point is that the feared conditions did not occur. So there are reasons to believe the standard pattern will play out.
Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary's articles, please visit his columnist page.
Edited by Tim Gray
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