THE SIZE OF GLOBAL cable companies has always been defined by the number of basic cable customers they have. For decades, basic cable has been the first buy-in for any household wanting more than the TV channels they can capture off-air.
That, however, is changing. Today’s customers often want to talk about broadband first because increasingly, they want their web and e-mail before their favourite shows. Besides, they can often find those favourite shows online via that broadband connection, negating the need for traditional cable TV service of any kind, depending on what sort of entertainment they like.
Shaw Communications CFO Steve Wilson encouraged the industry’s cable, telecom and media financial analysts to start thinking of his company in a broadband-first way during the company’s second quarter conference call on Friday, saying a basic cable customer tally is increasingly a relic of the past. Of course, the company is down about 54,000 basic subs since this time last year, so they wouldn’t mind deflecting attention from that number, but Wilson – when he said that revenue generating units (a customer count by services, in Shaw’s case, cable + Internet + home phone + satellite TV), powered by the broadband customer is key to the present and future – does have a point.
Counting by RGUs is certainly not new, since most North American cable companies now offer that sort of count (Shaw’s RGU count is 6.3 million), but, said Wilson, “the focus on video seems to be, in relation to all the things we've done for the quarter, to be a bit lost in the past and a bit out of place,” he told the conference call. “We could manage video to get to a higher number if we wanted to, but we're managing RGUs overall and we expect as we do that we'll see a move to higher-margin Internet customers and away from video subscribers.
“…In the old days, you thought about the video customer as the base. But that's not the case now. The base customer is our Internet customer, and that's how we're looking at the overall mix of everything.”
Plus, acknowledged the CFO, unless we start dramatically increasing the number of households in its cable territories, Shaw will not really see much growth through new customer additions, but through the sales of new products and services. “It's really not subscriber growth that's going to drive results going forward. It's going to be more the ability to be able to price products and offer value to customer.”
Which leads one to wonder, how long before the basic cable subscriber count is dropped by the industry and the analysts as the lead quantifier for companies like Shaw, Cogeco, Vidéotron and Rogers in favour of broadband customers and the number of additional services (like, conversely then, cable video) these communications giants sell to that connected, loyal, higher-margin base?
There is a major flaw in that scenario, however. When I look at my own cable bill, my broadband connection accounts for less than 20% of my entire services bundle, with the rest divided up between phone (another 20%) and cable video (60%). Others may buy less television than I do, but TV is still a dominant chunk of most customers’ monthly fees. Because of that, I’d certainly expect Bay Street to continue placing serious weight on the cable TV subscriber count at Canadian cable operations since if a growing number do choose to get their video over-the-top, the loss of basic cable TV customers will provide a serious sting, whether the broadband subscriber count is the new lead metric, or not.
– Greg O’Brien
