Cablevision CEO: Our video product is losing margins

Cablevision (NYSE: CVC) continued to see a decline in its video subscribers in the first quarter of 2015, although its overall revenue per user increased, which helped offset the decline in customers. The company said video customers dropped by 28,000 to 2.65 million in the first quarter 2015, down from 2.68 million in the fourth quarter of 2014.  But average monthly revenue per customer was up 4.8 percent to $155.34 per month over the prior year thanks to rate increases and other pricing strategies.

During the conference call with analysts, Cablevision CEO James Dolan said that Cablevision, like most cable operators, is seeing a decline in its video product margin and compared this business trend to a convenience store business. "Our philosophy is that video is akin to the eggs and milk in a convenience store. You have to have it, but you don't make money on it."

Dolan added that broadband connectivity is more like the "soda and chips" in a convenience store. "You can charge more, you can differentiate and the margins are good."

Company executives also provided some insight into its two cord cutter packages that it introduced last month.  Cablevision is offering 50 Mbps downstream Internet service and a digital antenna for $44.99 per month and a $34.99 per month package that includes 5 Mbps downstream Internet, a digital antenna and a Freewheel Wi-Fi phone.  COO Kristin Dolan said that the company is not seeing cannibalization of its existing customers with these new plans. Instead, she said the digital antenna packages are typically attracting new customers but added that the company is monitoring it closely.

Kristin Dolan also provided an update on the company's Freewheel Wi-Fi voice calling service, noting that the company is seeing an "enthusiastic" response to the produce, which made its debut in February.  The service costs $9.95 per month for Cablevision's Optimum Online customers and $29.95 per month for non-customers, and right now works with only one smartphone, Motorola's Moto G, which is available for a heavily discounted price of $99.95.  Dolan did not provide subscriber numbers but said that weekly orders for the product are increasing and said users are typically making and receiving about 20 calls per week using the service and making and receiving about 70 text messages per week. 

James Dolan added that the company believes that there is an international opportunity to offer this service and the company is considering some sort of international offering in the future.

Interestingly, when asked to comment about Verizon's (NYSE: VZ) introduction last month of a FiOS package that allows customers to customize their pay-TV bundle, James Dolan said that he believes Cablevision's packages offer the customer more flexibility than Verizon's packages and that while he doesn't know how Verizon's programming packages are structured, he doesn't believe they think much of their programming deals. "All the packages that we put out are in line with our programming agreements and are sustainable," Dolan added.

Regarding the consolidation in the industry, James Dolan also told investors that he believes many were taken by surprise at the demise of the Comcast's proposed acquisition of Time Warner Cable and that everyone in the industry is trying to figure out what to do.  "We are watching and studying it," he said.

Here's a breakdown of other key metrics for the company:

Revenues:   Cablevision  reported a net revenue increase of 2.4 percent to $1.452 billion for the first quarter. AOCF increased 0.8 percent to $446.8 million and operating increase increased 1 percent to $252.1 million compared to the same quarter in the previous year.

Customers:  The company ended the first quarter with 3.112 million total customers down from 3.118 customers at the end of 2014, a decline of 6,000.   Video customers were 2.63 million at the end of first quarter, down 28,000 from the fourth quarter 2014.  Internet customers were 2.767 million, up 7,000 from the end of 2014.  And voice customers were 2.215 million, down from 2.229 million at the end of 2014.

Earnings summary: Sizing up pay-TV earnings for the first quarter of 2015

For more:
- see the press release

Related articles:
Cablevision becomes the first pay-TV company to distribute Hulu
Cablevision rolls out addressable advertising platform
Cablevision bundles a digital antenna with broadband, calls it 'cord-cutter' package
Cablevision to distribute HBO Now to Optimum broadband customers
James Dolan to take over day-to-day operation of MSG as Tad Smith exits
Cablevision loses 34K video subs in Q4, revenue up 3%

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