Analyst applauds Cable One's strategy of replacing video revenues with data services revenues

During a meeting with analysts yesterday, Cable One highlighted its ongoing strategy of forsaking video services in favor of high-speed data (HSD) services. And at least one analyst voiced support for the company's tactics.

"We believe this is the right strategy," wrote New Street Research's Spencer Kurn to investors. "We think the company (and industry) should take it one step further and raise broadband HSD pricing to properly align pricing with the utility that is delivered to the customer."

In his research note, Kurn outlined Cable One's corporate strategy. "In 2012, Cable One saw the cash flow generation of the video business declining and changed course," Kurn explained. "They pursued a harvest strategy for video and directed growth towards HSD and business services. In video, they cut costs by reducing programming expense (they cut Viacom for example), used a lifetime value model to cater to high-value customers, and raised video ARPU to curb rising content costs. In HSD they introduced the fastest speeds in their market (50Mbps standard going to 100 Mbps by January 2016)."

Added Kurn: "The results have been encouraging: despite losing 24 percent of video PSUs [Primary Service Units, or subscribers] from 2012-2014, they grew revenue by 1 percent and EBITDA by 7 percent during this time period."

In its presentation, Cable One reiterated its move from video to data. The company said video accounted for 64 percent of its bottom line in 2005, a figure that is down to 39 percent so far this year. The company projects video services will account for only 30 percent of its margins by 2018.

Indeed, in the first quarter, Cable One reported 421,331 video subscribers, down markedly from the 524,563 it reported a year earlier. 

However, the company's high-speed data revenue increased 5 percent over that same period, with HSD customers growing from 484,168 to 496,579.

Phoenix-based Cable One is the 10th largest MSO in the U.S., serving parts of the South, Midwest and Western U.S. The company recently raised $550 million in debt as it works to complete its separation from parent Graham Holdings.

For more:
- see this Cable One investor presentation

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