Transcript Cable Operators Ought Not Be Afraid of OTT

Cable Operators Ought Not
Be Afraid of OTT
A Financial View of the Content & Distribution Businesses
David C. Joyce, CFA
Miller Tabak + Co., LLC
[email protected]
212-370-0040
2
What Consumers are Paying
ARPU/Month, Yearly Avg.
$230
$210
$190
$170
$150
$130
$110
$90
$70
$50
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
3
What OTT Issue?
Online Viewing is a Fraction of Traditional
Nielsen's A Week in the Life: Time Spent Viewing TV
Report released week of 10/3/2011; Hours:Minutes
On Traditional TV
Watching time-shifted TV
Using the Internet on a computer
Watching video on the internet
Mobile subs watchting video on mobile phone
Avg American TV usage
DVR viewing
TV HH w/ DVRs
% of total
TV HH paying for TV service
Online viewing
Mobile viewing
2Q10
143:35
24:28
3:55
3:37
2-11
26:31
1:49
0:40
0:07
NA
12-17
24:21
1:31
1:45
0:20
0:20
18-24
26:28
1:30
5:31
0:48
0:15
25-34
30:34
3:11
8:29
0:57
0:10
35-49
36:23
3:11
8:34
0:38
0:05
65+
50-64
49:17
44:54
1:40
2:48
3:55
7:20
0:12
0:25
0:02 minimal
growth
2Q11
1.9%
146:20
0.1%
24:30
45.3 mm
39%
90%
4:30
4:20
% of pop.
48.0%
14.7%
10.0%
19.8%
4
TV Usage Time Leads & Is Stable
Internet & Mobile Will Take Ad Share from Other Media, Though.
Media Usage Time Share vs. US Ad Spending Share, 2010
Source: eMarketer, December 2011
Time
2011 Ad
Spent
Spending
Share
Share
Television
42.5%
42.2%
Internet
25.9%
21.9%
Radio
14.6%
10.9%
Mobile
10.9%
0.9%
Newspapers
4.0%
15.0%
Magazines
2.8%
9.7%
likely to take share
likely to take share
likely to lose share
likely to lose share
5
Where the Costs are Going
Entertainment Conglomerates' Representative Expense Margins
Source: company filings, Miller Tabak + Co. estimates. As of 4/23/12.
EBITDA
Margin
Programming Production
Broadcast Networks
16%
24%
15%
Cable Networks
41%
19%
12%
Film & TV Studios
12%
Cable Operators
39%
Production Other Op Ex &
Cost Amort Participations
40%
22%
Expenses
Distribution
15%
10%
Selling
18%
11%
Labor
22%
9%
Exhibitor
Fees
11%
Mrktg &
Distribution
6%
DVD
Production
7%
Data
Network
Marketing
Corporate
14%
4%
2%
Video
Transmission
Programming
& Production
43%
(% Vid Rev)
26%
(% Tot Rev)
17%
6
Where Content Costs are Going
Networks Rely on Affiliate Fees for ~46% of Revenue
Media Conglomerate Ad, Affiliate, & Ancillary Revenue Composition (Television Properties Only)
Source: Miller Tabak + Co. est. $ in mm.
Affiliate = cable network carriage, subscription & broadcast retransmission fees
Ancillary = TV program syndication and home entertainment (DVD, VOD & streaming) revenue
2012E
Advert. % Total Affiliate % Total Ancillary % Total
AMC Networks
$
496
41% $
656
55% $
46
4%
CBS
$ 5,779
58% $ 1,671
17% $ 2,443
25%
Comcast/NBCUniversal Broadcast
$ 5,451
69% $ 1,780
23% $ 668
8%
Cable
$ 3,608
39% $ 4,755
52% $ 808
9%
Overall
$ 9,059
53% $ 6,535
38% $ 1,476
9%
Discovery
Domestic
$ 1,463
52% $ 1,241
44% $ 110
4%
International
$
560
35% $
978
61% $
61
4%
Overall
$ 2,023
46% $ 2,219
50% $ 171
4%
Disney
$ 8,060
42% $ 9,840
51% $ 1,456
8%
News Corp.
Broadcast
$ 4,831
86% $
279
5% $ 489
9%
Cable Domestic
$ 2,146
30% $ 4,595
64% $ 489
7%
Cable International $
178
13% $ 1,221
87% $
0%
Overall
$ 7,155
50% $ 6,095
43% $ 977
7%
Scripps Networks
$ 1,564
71% $
634
29% $
20
1%
Time Warner
$ 4,389
30% $ 8,981
62% $ 1,186
8%
Viacom
$ 5,153
53% $ 3,923
40% $ 612
6%
Average
47%
46%
7%
CBS
Comcast/NBCUniversal
Disney
News Corp.
Time Warner
Total Co. TV % of
Advertising Tot Adv
$ 10,709
54.0%
$ 11,261
80.4%
$ 8,292
97.2%
$ 9,505
75.3%
$ 6,416
68.4%
incl
incl
incl
incl
incl
interactive, radio, outdoor
cable ops
interactive
papers, inserts, sat. tv ads
filmed ent., publishing
7
Where Content Costs are Going
Studios Have Much Lower Margins, with Greater Volatility –
Looking for Margin Help?
Film Studios Relative Comps
Source: Miller Tabak + Co. estimates
Calendarized results & estimates. $ in mm
CBS Films
NBCUniversal
Walt Disney Studios
DreamWorks Animation
Lionsgate Motion Pictures
Fox Entertainment Group
Sony Pictures Entertainment
Warner Bros. Entertainment
Paramount Pictures
OIBDA
Revenue
2012E growth 2011 2012E
Yr End 2011
6.5% $ (10) $ (67)
77 $ 82
Dec $
CBS
91
24
4,557 -0.8%
4,592
CMCSA/K Dec
754
754
6,106 -3.9%
6,351
Sept
DIS
160
167
718 -4.3%
751
Dec
DWA
188
91
1,383 22.9%
1,125
Mar
LGF
8.0% 1,038 1,183
7,451
6,899
June
NWS/A
na
na
na
na
na
Mar
SNE (a)
12,638 12,337 -2.4% 1,759 1,581
Dec
TWX
315
430
5,619 -5.1%
5,923
Sept
VIA/B
Margin
2011 2012E growth
-13.0% -81.7% 570.0%
0.5% 2.0% 279.2%
0.0%
11.9% 12.3%
-4.1%
22.2% 22.2%
8.1% 13.6% 106.6%
14.0%
15.0% 15.9%
na
na
na
13.9% 12.8% -10.1%
7.3% 5.6% -26.7%
Note: DWA and SNE are not officially covered by Miller Tabak + Co.
(a) using Y=78.445/$
8
Where Else can Content be Monetized?
OTT May Be Only 2% of Home Entertainment Revenue
2011E Media Conglomerate Syndication and Home Entertainment Exposure
Source: Miller Tabak + Co. est. $ in mm.
Film, Cable
Content
Total
% of
& Bdcst TV Synd. TV DVD Movie Licensing Home Ent Online Online % of
Home Ent. Peer Total Revenue % Total % Total % Total % Total % Total % Total Home Ent
AMC Networks
$
12
0% $ 1,218
0%
1%
0%
0%
1%
1%
50%
CBS
583
3%
14,740
14%
3%
0%
0%
4%
1%
25%
Discovery
31
0%
3,922
0%
1%
0%
0%
1%
0%
0%
Disney
2,909
14%
24,424
13%
0%
10%
0%
12%
2%
15%
Lionsgate
788
4%
1,537
21%
4%
40%
0%
51%
8%
15%
NBCUniversal (d.n.incl. Comcast cable)
4,876
23%
20,850
7%
7%
8%
7%
23%
3%
11%
News Corp.
2,628
12%
19,714
5%
1%
9%
2%
13%
2%
13%
Time Warner (film HE incl electr deliv)
5,727
27%
26,549
12%
3%
10%
6%
22%
2%
9%
Viacom (Cable Syndic & HE discl together)
3,509
17%
14,574
2%
2%
12%
9%
24%
1%
5%
$ 21,062
100% $ 127,528
9%
3%
9%
4%
17%
2%
11%
9
1Q12 Cable Net Viewership
NBA & NCAA Helped TBS, but a Networks Need a
Constant Lineup Refresh Lest Ratings Drop
Top-Viewed Cable Networks, 1Q12 (through 3/25/12)
Source: Turner Research analysis of Nielsen data
Top-Viewed Cable Networks among Adults 18-49 (mm)
Network
1Q12
1Q11
% Chg
TBS
1.230
0.923
33%
USA
1.090
1.200
-9%
ESPN
1.020
1.050
-3%
History
1.035
0.899
15%
TNT
0.887
1.010
-12%
A&E
0.827
0.818
1%
FX
0.775
0.915
-15%
MTV
0.767
0.948
-19%
Discovery
0.712
0.653
9%
Owner
TWX
CMCSA/K
DIS
A&E Networks (a)
TWX
A&E Networks (a)
NWSA
VIAB
DISCA/K
(a) DIS 42.5% / Hearst 42.5% / CMCSA's NBCUni 15%
10
1Q12 Cable Net Viewership
Average Viewers in Primetime, 1Q12 (mm)
Network
1Q12
1Q11
USA
3.00
3.16
Disney
2.40
2.61
History
2.30
1.95
ESPN
2.20
2.27
TBS (b)
2.10
1.59
TNT
1.90
2.11
Fox News
1.80
1.82
A&E Netwk
1.70
1.63
Adult Swim
1.40
1.41
FX
1.40
1.67
% Chg
-5%
-8%
18%
-3%
32%
-10%
-1%
4%
-1%
-16%
Owner
CMCSA/K
DIS
A&E Networks (a)
DIS
TWX
TWX
NWSA
A&E Networks (a)
TWX
NWSA
(b) TBS was also #1 A18-49, +33%. #1 A18-34, +28%
11
1Q12 Cable Net Viewership
Consistent Measurement Quality Is Necessary, or
“Ratings” Could Become Less Meaningful – The
Rentrak vs. Nielsen Debate
Average Viewers Total Day, 1Q12 (mm)
Network
1Q12
1Q11
Nickelodeon
1.80
2.37
Disney
1.60
1.67
USA
1.30
1.37
Adult Swim
1.30
1.37
Cartoon Net
1.10
0.96
% Chg
-24%
-4%
-5%
-5%
14%
Owner
VIAB
DIS
CMCSA/K
TWX
TWX
12
Recent Top Cable Network Share
Week-to-Week Slippage is Common, but Viacom Had
a Particularly Challenging Time – Is it Programming or
Measurement?
Prime-time Avg Viewers (Live+SD) Wk Ending 4/8/12
PT Share of Top 25 Networks
AMCX
CMCSA
CRWN
DIS
A&E Nets (a)
DISCA
NFL
NWSA
SNI
TWX
VIAB
Prime-time A18-49 Viewers (Live+SD)
Share
935
3,738
na
5,648
4,218
2,643
na
3,165
2,336
5,157
3,371
31,211
3.0%
12.0%
na
18.1%
13.5%
8.5%
na
10.1%
7.5%
16.5%
10.8%
100.0%
(4.7)% AMCX
2.0 % CMCSA
na CRWN
16.6 % DIS
1.4 % A&E Nets (a)
40.1 % DISCA
na NFL
(2.3)% NWSA
4.1 % SNI
(6.8)% TWX
(36.6)% VIAB
(2.1)%
Top 25 Share
366
2.7%
1,846
13.7%
na
na
2,008
14.9%
1,901
14.2%
936
7.0%
na
na
693
5.2%
994
7.4%
2,515
18.7%
2,173
16.2%
13,432
100.0%
Total Day Average Viewers (Live+SD)
6.7 % AMCX
8.7 % CMCSA
na
CRWN
27.2 % DIS
1.1 % A&E Nets (a)
4.2 % DISCA
na
NFL
(35.4)% NWSA
0.9 % SNI
(9.0)% TWX
(12.0)% VIAB
(1.9)%
Top 25 Share
543
2.7%
1,173
5.8%
na
na
3,038
14.9%
2,094
10.3%
1,546
7.6%
na
na
1,758
8.6%
1,269
6.2%
4,275
21.0%
4,663
22.9%
20,359 100.0%
(12.6)%
1.6 %
na
10.4 %
1.7 %
43.8 %
na
(1.9)%
(1.9)%
1.9 %
(12.8)%
0.4 %
(a) DIS 42.5% / Hearst 42.5% / CMCSA's NBCUni 15%
13
Broadcast Ratings Also Challenged
Media Conglomerates w/Broadcasting Networks: Season-to-date Ratings vs. Stock Performance
Week 29 2011-12 TV Year ending 4/8/12 (Most Current DVR viewing = Live+7-day and Live+Same-day)
An Adults 18-49 rating point = 1.279 mm of that demographic
Ranked by % Chg in
Total
A18-49
Rating
Viewers Stock Pr
Rating
Y-O-Y
avg (mm) 3-Mo Chg
1
2
3
4
5
FOX (NWS/A)
CBS (CBS)
NBC (CMCSA as proxy)
ABC (DIS)
UNI (Televisa (TV) as proxy)
(Entravision (EVC) as proxy)
6 CW (50/50 CBS/TWX)
3.2
3.1
2.6
2.4
1.5
(8)%
3%
8%
0%
0%
2
1
4
3
5
8.96
11.99
7.59
8.29
3.60
0.8
13.6
(14)%
6
1.75
42.2
(0.4)%
13.8 %
9.5 %
7.8 %
1.4 %
(14.5)%
13.8 %
Week 29 Rankings
Ranked by Total
A18-49
Viewers
Rating avg (mm)
1
2
3
4
5
CBS
FOX
ABC
NBC
UNI
6 CW
2.5
2.1
1.8
1.6
1.5
10.26
6.64
7.72
5.03
3.65
0.4
9.9
0.99
34.3
14
Ad Growth Outlook for 2012
Political Ad Spending & Olympics Should Help
Broadcasting, but Cable Networks Should Demonstrate
Consistently Leading Growth
Ad Revenue Growth, By Segment: (a)
2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12E 2012E
TV Broadcasting (Stns & Nets)
(11)% 11 %
1%
4%
2 % (6)%
2%
5 % 13 %
Cable TV Networks - Domestic
3 % 18 % 17 % 12 %
7%
6%
9%
9%
9%
Cable TV Networks - International
3 % 23 % 24 % 15 % 22 % 18 % 22 % 10 %
9%
Radio
(21)%
9%
4%
4%
0 % (5)%
1%
1%
2%
Outdoor-Domestic
(17)%
5%
6%
6%
4%
0%
4%
6%
7%
Outdoor-International
(21)%
3%
7 % 19 % 11 %
6 % 11 % (4)%
0%
Newspapers
(15)%
9 % (2)%
1%
1 % (9)%
1 % (7)% (4)%
Publishing (magazines)
(22)%
3%
0%
1 % (3)%
0 % (1)% (1)%
0%
Online
(13)% (3)%
3 % 10 %
7%
8%
6%
5%
5%
(a) among media companies covered by Miller Tabak + Co.
15
OIBDA Growth Should Follow
OIBDA Growth, By Segment: (a)
2009A 2010A 1Q11A 2Q11A 3Q11A 4Q11A 2011A 1Q12E 2012E
TV Broadcasting (Stns & Nets)
(16)% 54 % 69 % 48 %
(1)% (47)% 36 % 40 % 24 %
Cable TV Networks - Domestic
16 % 20 % 14 % 10 %
8 % 12 % 11 %
9%
7%
Cable TV Networks - International
16 % 21 % 18 % 31 % 20 %
7 % 18 % 12 % 13 %
Radio
(38)% 69 % 26 %
8%
(6)% (17)%
(2)%
7 % 15 %
Outdoor-Domestic
(42)% 41 % 28 % 12 %
1 % 13 % 12 % 13 %
7%
Outdoor-International
(40)% 62 % 41 % 35 % 15 % 11 % 22 % 14 %
8%
Newspapers
(34)% 500 % (34)% 38 % (38)% (43)% (14)% (23)%
8%
Publishing (magazines)
(50)% 34 % 16 %
6 % (15)%
(7)%
(3)%
(1)%
(3)%
Online
(14)%
3%
(3)%
(4)% (14)%
(6)% (13)%
(6)%
(2)%
(a) among media companies covered by Miller Tabak + Co.
16
Cable Network Margins
Already Quite Strong
Cable Network Margins (incl Dom & Int'l Ad & Affil revenue)
65.0%
DISCA (dom. only)
60.0%
55.0%
SNI
50.0%
DISCA
VIAB
AMCX
45.0%
DIS
NWSA
40.0%
NBCUniversal
(CMCSA)
35.0%
TWX
30.0%
25.0%
20.0%
2007
2008
2009
2010
2011
2012E
2013E
2014E
2015E
2016E
17
ARPU Growth Necessary for
Programming Cost Growth Far Above CPI
ARPU Growth
20%
15%
10%
5%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-5%
-10%
-15%
Cablevision Systems Corp.
Charter Comm., Inc.
Comcast Corp.
Knology, Inc.
Time Warner Cable
18
Residential Cable Revenue Growth
Residential Revenue Growth
25%
20%
15%
10%
5%
0%
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
19
Ad Revenue Growth – Cyclical, but
Cable Can Capture More
Advertising Revenue Growth
50%
40%
30%
20%
10%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-10%
-20%
-30%
Cablevision Systems Corp.
Charter Comm., Inc.
Comcast Corp.
Knology, Inc.
Time Warner Cable
20
Residential Revenue Driven
by Market Exposure
Residential Revenue / HP / Year
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
21
Resi Revenue / Video Sub
Residential Revenue / Basic Video Scription / Yr
$3,000
$2,500
$2,000
$1,500
$1,000
$500
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
22
Resi Margins – What Cost to
Retain Subscribers?
Residential EBITDA Margin
45%
43%
41%
39%
37%
35%
33%
31%
29%
27%
25%
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
23
Resi EBITDA Growth
Residential EBITDA Growth
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-10%
Cablevision Systems Corp.
Charter Comm., Inc.
Comcast Corp.
Knology, Inc.
Time Warner Cable
24
Resi EBITDA / HP: A Bifurcation of
Dense Markets vs. Overbuilder Model
Residential EBITDA / HP / Year
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
25
Resi Video Revenue / HP
Residential Video Revenue / HP / Year
$900
$800
$700
$600
$500
$400
$300
$200
$100
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
26
Resi Broadband Revenue / HP
Residential Broadband Revenue / HP
$350
$300
$250
$200
$150
$100
$50
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
27
Resi Voice Revenue / HP: What
is the Legacy Differentiator?
Residential Voice Revenue / HP
$250
$200
$150
$100
$50
$0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
28
Resi Video EBITDA / HP
Residential Video EBITDA / HP
$350
$300
$250
$200
$150
$100
$50
$0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
29
Resi Broadband EBITDA / HP
Residential Broadband EBITDA / HP
$140
$120
$100
$80
$60
$40
$20
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
30
Resi Voice EBITDA / HP
Residential Voice EBITDA / HP
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
31
Resi Cap Ex Declines as
Cheaper CPE is the Main Driver
Residential Cap Ex / HP
180
160
140
120
100
80
60
40
20
0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
32
Resi Cap Ex / Video Sub: Mature
vs. Expanding Footprint
Residential Cap Ex / Basic Video Subscriber
$350
$300
$250
$200
$150
$100
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
33
Commercial Revenue Growth:
Still Young and Growing Strong
Commercial Revenue Growth
60%
50%
40%
30%
20%
10%
0%
2009
2010
2011
Cablevision Systems Corp.
2012
Charter Comm., Inc.
2013
2014
Comcast Corp.
2015
Knology, Inc.
2016
2017
Time Warner Cable
34
Commercial Revenue / RGU:
Complexity of Client Counts
Commercial Revenue / RGU
$2,500
$2,000
$1,500
$1,000
$500
$0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
35
Commercial EBITDA Growth:
Far Outpacing Resi for the Future
Commercial EBITDA Growth
70%
60%
50%
40%
30%
20%
10%
0%
2010
2011
2012
2013
2014
2015
2016
2017
-10%
Cablevision Systems Corp.
Charter Comm., Inc.
Comcast Corp.
Knology, Inc.
Time Warner Cable
36
Healthy Commercial Margins
Depend on Density
Commercial EBITDA Margin
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
37
Commercial EBITDA / RGU:
What Size Client Targeted?
Commercial EBITDA / RGU
900
800
700
600
500
400
300
200
100
0
2005
2006
2007
2008
Cablevision Systems Corp.
2009
2010
Charter Comm., Inc.
2011
2012
Comcast Corp.
2013
2014
Knology, Inc.
2015
2016
2017
Time Warner Cable
38
Commercial Cap Ex / RGU:
Client Complexity Counts, Again
Commercial Cap Ex / RGU
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
2009
2010
2011
Cablevision Systems Corp.
2012
Charter Comm., Inc.
2013
2014
Comcast Corp.
2015
Knology, Inc.
2016
2017
Time Warner Cable
39
HSD Net Adds: Cable is
Taking Share
High-Speed Data Subscriber Adds Since Q2:01
Note: Cable and telcos had been adding similar amounts of price-sensitive,
slower-speed subs in 2007, but superior cable speeds have been winning even
vs. the entry of similar-speed FiOS offerings.
140%
2.500
120%
2.000
1.500
60%
1.000
40%
20%
0.500
Net Adds in millions
80%
% Major Cablers
11
0.000
30
/2
0
10
Major Cablers' Modem Adds
6/
30
/2
0
09
6/
30
/2
0
08
6/
30
/2
0
07
6/
30
/2
0
06
% RBOCs
6/
30
/2
0
05
6/
30
/2
0
04
6/
30
/2
0
03
6/
30
/2
0
02
/2
0
30
-40%
6/
30
/2
0
-20%
6/
01
0%
6/
% Net Add Share
100%
-0.500
RBOCs' Adds
40
Digital Video Net Adds: The
Sooner All-Digital, the Better
90%
Digital Video Net Adds since Q2:01
Note: Cable had led the share for 13 straight quarters until 4Q08
(Price Sensitivity, Fewer Moves = Less Opportunity to Add Connects)
Beat the 7/1/07 FCC
removable security
set-top box deadline
80%
2.000
1.800
1.600
70%
% Net Add Share
1.200
50%
1.000
40%
0.800
30%
Net Adds in Millions
1.400
60%
0.600
20%
0.400
10%
0.200
0%
6/30/20016/30/20026/30/20036/30/20046/30/20056/30/20066/30/20076/30/20086/30/20096/30/20106/30/2011
% Major Cablers
% Satellite & RBOCs
Major Cablers' Adds
-
Satellite & RBOCs' Adds
41
Digital Voice Net Adds: Cable
Still Taking Share with Bundle
2.000
Digital Voice Net Adds since Q1:04
Note: Cable has clearly taken share directly from RBOCs, but so too
have other VoIP and Wireless providers;
Wireless-only Substitution is Now a factor
0.500
1.500
0.000
1.000
(0.500)
0.000
04
(0.500)
20
/
31
3/
(1.000)
3
3/
20
1/
05
3
3/
20
1/
06
3
3/
20
1/
07
3
3/
20
1/
08
3
3/
20
1/
09
3
3/
20
1/
10
3
3/
20
1/
(1.500)
11
(1.000)
(1.500)
Net Losses in Millions
% Net Add Share
0.500
(2.000)
(2.500)
(2.000)
(3.000)
(3.500)
(2.500)
Major Cablers' Voice Adds
RBOCs' Voice Adds
Total Net Adds
42
HSD Becoming More
Important than Video
Major Product Share/Penetration Projections
100.0%
80.0%
70.0%
Traditional
Telephony
60.0%
50.0%
Cable Video
Cable
HSD
40.0%
Telco
HSD
30.0%
Satellite Video
Cable
Telephony
20.0%
10.0%
20
16
E
20
14
E
20
13
E
20
12
E
20
11
E
20
10
A
20
09
A
20
08
A
20
07
A
20
06
A
20
05
A
20
04
A
20
03
A
20
15
E
RBOC
Video
0.0%
20
02
A
% of Total Product Penetration
90.0%
As of Year End
43
Cable Can Monetize Its Avails
Better With or Without Canoe
Major US MSOs Ad Revenue
6,000
5,000
$ in millions
4,000
3,000
2,000
1,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E 2012E 2013E 2014E 2015E 2016E
44
Free Cash Flow is Improving
Cable Industry - Multiple System Operators (MSOs)
Free Cash Flow Breakeven Analysis - $ in millions
Miller Tabak + Co. estimates as of:
3/5/2012
CVC (c)
2011A
EBITDA
Cap Ex
Int. Exp., Taxes, WC
Free Cash Flow
Return on 4Q11E Capital
2012E
EBITDA
Cap Ex
Int. Exp., Taxes, WC
Free Cash Flow
Return on 4Q12E Capital
2013E
EBITDA
Cap Ex
Int. Exp., Taxes, WC
Free Cash Flow
Return on 4Q13E Capital
CHTR
CMCSA (b)
KNOL
TWC (a)
US Public
Totals
Private
COX
Private
MCCC
Private
RCNI
Private
Cequel
2,294
815
896
583
11.4%
2,675
1,311
880
484
3.7%
18,458
4,873
5,783
7,802
9.1%
187
99
34
54
7.7%
7,226
2,937
1,543
2,746
9.4%
30,840
10,035
9,136
11,669
4,240
922
573
2,745
na
607
269
212
125
3.8%
240
139
38
63
8.1%
707
368
247
91
11.7%
2,260
832
868
559
11.0%
2,819
1,453
780
586
4.4%
19,425
4,835
6,862
7,728
9.1%
199
96
45
59
8.4%
7,746
3,028
2,645
2,073
7.1%
32,449
10,244
11,200
11,005
4,240
941
573
2,726
na
640
275
204
161
4.9%
256
142
38
76
9.7%
749
377
247
124
15.9%
2,379
670
907
803
15.8%
3,018
1,243
714
1,061
8.0%
20,876
4,680
7,087
9,109
10.7%
213
97
64
52
7.4%
8,365
3,172
3,208
1,985
6.8%
34,851
9,862
11,980
13,009
4,240
906
573
2,761
na
679
265
204
210
6.3%
274
142
38
94
12.0%
801
387
247
167
21.4%
(a) Pro forma for unwinding of TWE/A-N partnership, the Adelphia and Comcast acquisitions.
(b) Includes content (cable channel) results, Adelphia, Time Warner, Insight and NBC Universal ('11+) acquisitions.
(c) 2011+ excludes AMCX for the spin.
Return on Capital = FCF/ (most recent qrtr Net Debt + Book Equity)
45
Public Cable Operators:
Increasingly a Scale Business
Cable Industry - Multiple Systems Operators (MSOs)
Miller Tabak + Co. LLC
Valuation - Figures in Dollars
Price
MT Target
Rating 4/20/12 ST Targ. Apprec.
Larger-Market Cable Television Peers (U.S.)
Cablevision Systems Corp.
CVC
Buy
13.78 $ 18 31%
Charter Comm., Inc.
CHTR
Buy
61.78 $ 76 23%
Comcast Corp. (incl NBCU)
CMCSA,K Buy
29.46 $ 35 19%
Knology, Inc.
KNOL
Neutral 19.43 $19.75 2%
Time Warner Cable
TWC
Buy
81.96 $ 90 10%
Average (US Publicly Traded MSOs)
Net Debt
($mm)
Market
Cap
Total
Cap
(10,547)
(12,827)
(37,689)
(679)
(21,565)
3,835
7,222
80,750
760
26,473
14,994
20,078
120,059
1,527
53,215
CableOnly Ent. Enterprise
Value
Value
14,382
20,049
99,123
1,438
47,264
14,382
20,049
118,439
1,438
48,038
46
Public MSOs: Moderate Leverage,
Attractive FCF Multiples
Debt/12E '12E Tot
'12E
Debt /
Cable OIBDA
Free
Total Cap OIBDA Coverage Csh Flw
Cable Television Peers (U.S.)
Cablevision Systems Corp.
74%
Charter Comm., Inc.
64%
Comcast Corp. (incl NBCU)
33%
Knology, Inc.
50%
Time Warner Cable, Inc.
50%
Average (US Publicly Traded MSOs)
54.3%
4.6 x
4.6 x
2.5 x
3.8 x
3.5 x
3.8 x
3.1 x
3.0 x
7.8 x
5.4 x
4.7 x
4.8 x
583
484
7,802
54
2,746
'12E
FCF
Yield
'12E
FCF
Mult
'12E
'12E
FCF/
FCF/
Share Net Debt
15.2%
6.7%
9.7%
7.1%
10.4%
9.8%
6.6 x
14.9 x
10.3 x
14.0 x
9.6 x
11.1 x
$ 2.09
$ 4.14
$ 2.85
$ 1.38
$ 8.50
$ 3.79
5.5%
3.8%
20.7%
8.0%
12.7%
10.1%
47
Recent Revenue History and
Estimates, Public & Private
Cable Industry - Multiple Systems Operators (MSOs)
Valuation - Figures in $mm
2008A
Cable Television Peers (U.S.) total
Cablevision Systems Corp.
7,230
Charter Comm., Inc.
6,479
Comcast Corp. (incl NBCU) 34,256
Knology, Inc.
410
Time Warner Cable (w/Insight '12+)
17,200
US Average Growth
RCN Corp. (private)
Mediacom (private)
Cequel (Suddenlink) (private)
Insight Comm. Co.
9.9%
739
1,402
1,579
917
2008A
cable
5,165
6,479
32,443
410
17,200
9.5%
739
1,402
1,579
917
2009A
cable
5,432
6,754
33,742
426
17,868
4.1%
764
1,458
1,689
981
2010A
cable
5,736
7,003
35,762
460
18,868
5.6%
783
1,499
1,692
1,053
Revenue ($mm)
Cable Only
2011A
2011A
2012E
total
cable
total
6,701
6,286
6,885
7,204
7,204
7,482
57,661
37,226
62,286
519
519
543
19,675
19,675
21,342
28.3%
831
1,550
1,901
1,075
4.5%
7.4%
831
869
1,550
2,325
1,901
1,996
1,075 now in TWC
2012E
cable
6,458
7,482
39,763
543
21,342
6.6%
869
2,325
1,996
2013E
total
7,244
7,903
65,954
568
22,659
5.9%
913
2,442
2,096
2013E
cable
6,795
7,903
42,647
568
22,659
6.6%
913
2,442
2,096
48
Recent OIBDA History and
Estimates, Public & Private
Cable Industry - Multiple Systems Operators (MSOs)
Valuation - Figures in $mm
Cablevision Systems Corp.
Charter Comm., Inc.
Comcast Corp. (incl NBCU)
Knology, Inc.
Time Warner Cable (w/Insight '12+)
US Average Margins
US Average Growth
RCN Corp.
Mediacom
Cequel (Suddenlink) (private)
Insight Comm. Co.
2008A
cable
2,036
2,319
13,170
137
6,187
38.7%
9.8%
194
512
524
280
2009A
cable
2,228
2,493
13,695
145
6,489
39.0%
5.0%
219
542
561
310
2010A
total
2,581
2,587
14,596
159
6,875
220
548
617
344
OIBDA ($mm)
Cable Only
2010A 2011A
cable
total
2,358
2,294
2,587
2,675
14,561 18,458
159
187
6,875
7,226
39.1%
6.0%
220
548
617
344
240
607
707
356
2011A
cable
2,496
2,675
15,288
187
7,226
2012E
total
2,260
2,819
19,425
199
7,746
2012E
cable
2,434
2,819
15,985
199
7,746
39.3%
38.6%
5.0%
4.7%
240
256
256
607
640
640
707
749
749
356 now in TWC
2013E
total
2,379
3,018
20,876
213
8,365
274
679
801
2013E
cable
2,526
3,018
17,042
213
8,365
38.7%
6.8%
274
679
801
49
Cable OIBDA Multiples Below
Growth Parity = Upside
2007A 2008A
CVC
7.9
CHTR
9.5
CMCSA,K 8.3
KNOL
13.6
TWC
8.2
x
x
x
x
x
7.1
8.6
7.5
10.5
7.6
x
x
x
x
x
EV/ OIBDA
Cable Only
2009A 2010E 2011E
6.5
8.0
7.2
9.9
7.3
x
x
x
x
x
6.1
7.7
6.8
9.0
6.9
x
x
x
x
x
5.8
7.5
6.5
7.7
6.5
x
x
x
x
x
2012E
2013E
5.9
7.1
6.2
7.2
6.1
5.7
6.6
5.8
6.8
5.7
x
x
x
x
x
x
x
x
x
x
Grwth
Rate
4.7%
7.0%
6.4%
7.6%
7.4%
Basic Cable
12/31/2011
Cable OIBDA
Subs
EV/Sub
Per Sub ('12)
mm
3.3
4,425 $
749
4.3
4,633
652
22.3
4,435
715
0.3
5,602
776
12.1
3,919
642
50
1Q12E Net Add Expectations
Cable Industry - Multiple Systems Operators (MSOs)
Miller Tabak + Co., LLC
1Q12E Subscriber Net Adds Vs. 1Q11
Basic Net Adds
Reporting:
1Q11A 1Q12E
Cablevision Systems
CVC
(8)
(7)
Charter Comm., Inc.
CHTR
(24)
(21)
Comcast Corp.
CMCSA,K
(39)
(16)
Knology, Inc.
KNOL
(0.6)
0.4
Time Warner Cable (& New Wave) TWC
(137)
(130)
Average (US Publicly Traded MSOs)
(208)
(174)
Mediacom
Suddenlink
Other NCTC operators, est.
private
private
7,136
(65)
(4)
(93)
(370)
1Q11A
DirecTV
DTV
110
DISH Network
DISH
40
AT&T
T
218
Verizon
VZ
192
560
Industry adds (loss)
Total TV households (Nielsen est.)
(10)
(8)
(24)
(215)
Est:
20
15
190
160
385
170
114,600
%
Dig. Vid. Net Adds
Chg
1Q11A 1Q12E
13%
12
26
13%
28
6
59%
301
390
167%
5.3
3.9
5%
361
136
17%
708
562
85%
-100%
-82%
-63%
-13%
-17%
15
10
5
18
%
Tot. HSD Net Adds
Chg
1Q11A 1Q12E
117%
32
26
-79%
92
79
30%
496
422
-26%
5.2
3.6
-62%
814
99
-21%
1,439
630
-68%
80%
Actual Diffrnc
-
189
20
2
15
%
Dig. Voice Net Adds
Chg
1Q11A
1Q12E
-19%
40
32
-14%
29
28
-15%
260
228
-31%
2.1
2.4
-88%
415
53
-56%
746
343
-99%
-25%
84
17
Est:
|DSL Losses:
300
200
|DSL Losses:
1
10
Est:
(1,908)
(103)
-
67
(500)
(400)
132
0.1% of total TV homes
51
1Q12E Net Add Expectations
Cable Industry - Multiple Systems Operators (MSOs)
Miller Tabak + Co., LLC
1Q12E Subscriber Net Adds Vs. 1Q11
CVC
CHTR
CMCSA,K
KNOL
TWC
Avg.
Total RGU Net Adds %
1Q11A
1Q12E
Chg
76
77
1%
125
92
-26%
939
1,024
9%
12.0
10
-14%
1,374
158
-89%
2,526
1,361
-46%
Mediacom
Suddenlink
223
43
DTV
DISH
110
40
(2) -101%
35
-19%
Est.
20
15
-82%
-63%
2012E
OIBDA Growth
Cap Ex
1Q11A
1Q12E Grwth (bp) % of Rev
10.0%
-2.7%
(1,397)
12.9%
4.7%
4.9%
22
19.4%
7.7%
4.1%
(396)
12.0%
11.4%
6.7%
(517)
17.6%
7.5%
4.9%
(284)
18.6%
8.3%
3.6%
(514)
16.1%
0.7%
10.0%
4.9%
7.0%
462
(330)
21.5%
15.0%
8.0%
9.0%
52
Primary US Cable Operators 4Q11 Operating Statistics
Public
Miller Tabak + Co.
Buy
CVC
Equity Research
2011 (in millions)
Data As Of:
12/31/11
Capital Expenditures 2009A
810.3
Capital Expenditures 2010A
840.5
Capital Expenditures 2011A
815.0
Capital Expenditures 2012E
832.0
Capital Expenditures 2013E
670.0
2011A Free Cash Flow / Sub
$
179
2012E Free Cash Flow / Sub
$
172
Homes Passed (HP)
5.584
'12E Cap ex / HP
$
149
Homes Upgraded (HU) for Digital
5.361
Net Adds for the Quarter
0.012
% HU for Digital
96%
HU for Internet
5.361
Net Adds for the Quarter
0.012
% HU for Internet
96%
HU for Telephony
5.361
Net Adds for the Quarter
0.012
% HU for Telephony
96%
Basic Video Customers (Basic Subs)
3.250
Net Adds for the Quarter
(0.014)
Video Penetration (of HP)
58%
Estimated Share of MVPD Market
4%
Digital Customers
3.177
Net Adds for the Quarter
0.023
Digital Penetration (of HP)
57%
Digital Penetration (of HU)
59%
Digital Penetration (of Basic Subs)
98%
Internet Customers
2.969
Net Adds for the Quarter
0.020
Internet Penetration (of HP)
53%
Internet Penetration (of HU)
55%
Internet Penetration (of Basic Subs)
91%
Telephony Customers
3.022
Net Adds for the Quarter
0.038
Telephony Penetration (of HP)
54%
Telephony Penetration (of HU)
56%
Telephony Penetration (of Basic Subs)
93%
Total RGUs
12.418
OCF/Customer
$65.20
EBITDA Margin
42.2%
Avg Mthly Rev / Basic Customer
$ 154.10
acq 2/29/12
Buy
CHTR
Buy
CMCSA/K
Neutral
KNOL
Buy
TWC
U.S. Peer
TOTAL
private
MCCC
12/31/11
1,134.0
1,208.6
1,311.0
1,453.0
1,243.0
$
112
$
135
11.960
$
121
11.960
0.032
100%
11.634
0.032
97%
10.871
0.022
91%
4.325
(0.046)
36%
5%
4.325
0.924
36%
36%
100%
3.655
0.075
31%
31%
85%
1.870
0.032
16%
17%
43%
14.175
$52.87
37.4%
$ 140.69
12/31/11
5,117.0
4,961.0
4,873.0
4,835.0
4,680.0
$ 349
$ 346
52.544
$
92
52.544
0.159
100%
52.544
0.159
100%
52.544
0.159
100%
22.343
(0.017)
43%
25%
20.556
0.301
39%
39%
92%
18.147
0.336
35%
35%
81%
9.342
0.146
18%
18%
42%
70.388
$58.77
41.6%
$141.24
12/31/11
55.9
76.8
98.9
95.6
97.0
$ 211
$ 229
1.192
$
80
1.087
0.006
91%
1.087
0.006
91%
1.087
0.006
91%
0.257
(0.001)
22%
0%
0.156
0.007
13%
14%
61%
0.262
0.003
22%
24%
102%
0.277
0.000
23%
25%
108%
0.951
$60.12
35.8%
$131.33
12/31/11
3,231.0
2,930.0
2,937.0
3,028.0
3,172.0
$ 228
$ 172
27.904
$ 109
27.904
7.179
77%
27.814
0.270
100%
27.381
0.267
98%
12.061
(0.048)
43%
14%
9.227
0.145
33%
33%
77%
10.344
0.177
37%
37%
86%
4.707
0.077
17%
17%
39%
36.339
$52.21
37.8%
$133.20
12/31/11
10,348.2
10,017.0
10,034.9
10,243.6
9,862.0
$
225
$
221
99.2
$
112
98.9
7.4
100%
98.4
0.479
99%
97.2
0.466
98%
42.2
(0.126)
43%
48%
37.4
1.400
38%
38%
89%
35.4
0.611
36%
36%
84%
19.2
0.293
19%
20%
46%
134.3
$57.83
39.0%
$ 140.11
12/31/11
236.7
237.4
269.2
274.8
264.6
$ 117
$ 151
2.810
$
98
2.803
(0.000)
100%
2.803
(0.000)
100%
2.654
94%
1.069
(0.031)
38%
1%
0.718
0.015
26%
26%
67%
0.851
0.001
30%
30%
80%
0.339
0.001
12%
13%
32%
2.977
$47.87
39.7%
$118.70
by TWC
ICCI
12/31/11
169.3
191.1
185.7
190.3
195.1
$ 130
na
1.344
$ 142
1.330
0.006
99%
1.328
0.012
99%
1.322
0.001
98%
0.670
(0.010)
50%
1%
0.646
(0.004)
48%
49%
96%
0.550
0.006
41%
41%
82%
0.290
(0.003)
22%
22%
43%
2.156
$45.37
33.8%
$133.60
private
Suddenlink (Cebridge)
12/31/11
247.4
354.1
368.0
377.2
386.7
$
73
$
99
2.899
$
130
2.899
100%
2.899
97%
2.899
90%
1.252
(0.016)
43%
1%
0.767
0.014
26%
26%
71%
0.999
0.015
34%
34%
80%
0.457
0.014
16%
16%
36%
3.475
$188.11
37.2%
$ 119.68
53
Disclosures
•
REGULATION ANALYST CERTIFICATION
•
I, David C. Joyce, CFA, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company and its securities. I
also certify that I have not been, and will not be receiving, direct or indirect compensation in exchange for expressing the specific recommendation in this report.
•
•
IMPORTANT DISCLOSURES
Historical price data designating ratings changes and/or price targets for all covered stocks mentioned in this report is available upon request.
•
Miller Tabak + Co., LLC is a registered market maker in the following securities: No companies mentioned in this report.
•
The analyst does not have equity positions in any of the stocks mentioned.
•
No individual at Miller Tabak + Co., LLC holds a position on the board of directors of a covered company, nor does an individual at a covered company do so at Miller
Tabak + Co., LLC. Miller Tabak + Co., LLC does not own one percent or more of the outstanding shares of the company discussed in this report.
•
Ratings Distribution—Media, as of April 23, 2012
•
•
•
•
Coverage Universe # / % Total
Buy
15
65%
Hold
8
35%
Sell
0
0%
•
OTHER DISCLOSURES
•
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and
completeness of such information and the opinions expressed herein cannot be guaranteed.
•
This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any
recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. An options
disclosure document may be obtained from Mr. Jay Stenberg, Chief Compliance Officer, Miller Tabak + Co., LLC, 331 Madison Avenue, New York, NY 10017.
•
©2012 Miller Tabak + Co., LLC, All Rights Reserved. Member SIPC. Member NYSE, NYSE Arca, FINRA, CBOE, PHLX, ISE, NFA. www.millertabak.com
•
Additional information is available upon request.
Expected Total Return for One Year
Buy = 15% or more
Hold = + or - 15%
Sell = -15% or more
54