TCI says digital cable sales are strong...........................
cabledatacomnews.com
TCI Reports Strong Digital Sales,
Slow @Home Rollout
In Q3 Briefing MSO Also Alludes to Set-Top
Strategy Shift Resulting from AT&T Merger
Tele-Communications Inc. announced it finished the third quarter with 720,000 digital cable TV customers on September 30 and topped the one-million mark in November. In the third quarter alone, TCI said it added some 300,000 digital customers, more than 20,000 per week.
During TCI's Q3 analyst briefing, TCI President Leo J. Hindery, Jr. boasted the company's digital video customers are spending an average of $15.46 per month (not including set-top lease fees) on digital video, due largely to increased pay-per-view buy rates. Since TCI only incurs $5.67 per month in direct expenses per digital subscriber, Hindery says these customers are now delivering $9.79 per month in direct cash flow, or a margin of 63 percent. At this rate, TCI's current digital customer base could contribute more than $110 million in 1999 cash flow.
TCI is quick to crow about the pace of its digital rollout compared to other MSOs. However, in reality, TCI's aggressive broadcast digital TV service deployment has been driven by the slow pace of its cable plant upgrades. Lacking the analog channel capacity required to meet customer needs, TCI needed to quickly introduce an expanded digital TV programming lineup to prevent customer defection to DBS competitors.
Conversely, MSOs like Cox and MediaOne have widely upgraded the analog capacity of their networks and activated two-way capabilities before broadly offering digital. And compared to TCI, they have far more aggressively launched cable modem services.
At its annual analyst conference in March 1998, TCI hyped an agreement with Bank of America and Intuit to subsidize the costs of digital set-tops. Under the plan, the companies were to exclusively offer personal finance services to TCI digital subscribers and pay an undisclosed per-customer fee for the privilege. TCI was also going to pay for the set-tops with an "off balance sheet financing vehicle" to avoid adding to its existing debt burden.
During TCI's November analyst call, Hindery noted that the "Bank of America transaction has lapsed," and that the MSO is now negotiating with other financial players. Hindery also says TCI has now decided to keep set-top capital on its own balance sheet. Why the change? With pending access to AT&T's deep pockets and excellent credit rating, TCI no longer needs to worry about scrounging for set-top capital subsidies. It marks a fundamental change in TCI's operating strategy.
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