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July 09, 2008

Catching Up With Comcast

Comcast COO Stephen Burke spoke recently at an industry conference and had some interesting insights. I would have missed it if not for my subscription to SNL Kagan.

Burke spoke optimistically of the possibility of picking up millions of basic cable subscribers in 2009 due to the transition to digital TV. Kagan calculates that as many as 6 million TV households within Comcast's territory presently receive only over the air signals. Most analysts, including Kagan, are assuming some of these households will subscriber to cable TV once their TVs stop working. I've seen estimates of up to 10% of the blacked out households taking cable and there is positive subscriber additions for the digital TV transition built into 2009 estimates. Burke, however, is more optimistic, believing up to half of the blacked out households will switch to cable. On its own this would be a meaningful positive surprise. Adding in the possibility that these households would now be more receptive to broadband and telephony services offered by Comcast and it could be a big deal.

Offsetting this positive is Burke's view that housing will present a headwind for subscriber growth all the way through 2009....

The problem is lack of new household formation – there just aren't any new subscribers to sign up, you have to steal them all from your competitors. I believe that Burke's view is a little more pessimistic than what is currently assumed in 2009 cable industry estimates. However, upside may exist from the fact that Comcast appears to be budgeting for a worst case scenario. That should help margins. It should also lessen capital spending.

Burke made a few other interesting points but the only one that seemed relevant to me was that Comcast is looking to more rapidly complete its own digital transition, ultimately eliminating analog video systems entirely. This would free up significant space on the network enabling more HD channels to be delivered, mitigating one of cable's vulnerabilities vs. satellite, especially versus resurgent DirecTV.

Comcast shares have performed relatively well this year, up a few percent. The stock has pulled back sharply form its May highs, however, as worries about competition and the seasonally weak 2Q have risen. The shares look cheap to me again ahead of what should be an inline quarter. And inline should be good enough for a pop in the shares. It is worth noting that despite my optimism I have not gotten long.

Posted by Steve Birenberg at July 9, 2008 11:57 AM in Comcast/Cable TV