Sacramento Business Journal | January 23, 2004 print edition | By Mark Larson
Heavy competition for pay-TV subscribers is putting pressure on Comcast Corp. in the region, flattening the cable giant’s local TV revenue even as its rates have risen.
That was the backdrop for the unexpected departure last week of Ruth Blank, a longtime employee and well-liked regional manager of Comcast’s cable operations from Fresno to Chico, including Sacramento, Roseville and Davis. The Central Valley territory includes 750,000 subscribers.
Comcast spokesman Bob Smith this week remained mum on why Blank left. He said the position is open and there’s no deadline for finding a replacement.
Industry observers figure Comcast, which a year ago bought AT&T Broadband’s cable operations, has had time to digest the acquisition, and is now focusing on its bottom line by selling cable TV and high-speed Internet services.
That’s especially so in Sacramento, where Comcast’s cable-TV revenue has been flat and it’s fighting for subscribers — mainly to sign up the people moving into the area’s thousands of new homes.
Competitors include two satellite-TV providers, Dish and DirecTV, and SureWest Broadband of Roseville, which has 11,200 television subscribers and is planning forays into Lincoln, Roseville, Elk Grove, and now Citrus Heights and Antelope (see related story below).
Nationally, satellite providers have about 25 percent of the pay-TV market, a share considered to be in the ballpark here.
Seeking higher margins: More competition could be a year or so off, when some expect many new housing developments will have their own internal cable-TV systems similar to the one planned for a big development in Lincoln.
“The competition is fierce to get to the new homes,” Smith said.
Comcast isn’t backing away. Executives say their companywide goal is to boost cash-flow margins for cable operations to 40 percent by the fourth quarter of 2004. The company expects $2 billion in consolidated free cash flow for the year, fueled by 15-to-17 percent growth in cable operating cash flow and sharply lower cable capital expenditures as it finishes a program of system upgrades around the country.
” They’re about done with capital expenditures,” said Rich Esposto, executive director of the Sacramento County Cable Television Commission. “I expect you’ll see Comcast do some mergers and acquisitions this year.”
” Comcast has to increase cash flow; they’re under pressure to do that,” said Tom Reiman, a Sacramento-based broadband consultant who is well versed on cable markets nationally. “The whole Central Valley has become very competitive — a lot more than other regions I’ve seen.”
Esposto was at Comcast’s local headquarters last week when Blank told him she was leaving. The rest of the staff was told later in the week.
” It was a very terse kind of announcement,” he said.
Flat is flat: In Sacramento County, housing growth represents a “tremendous upside” for new cable-TV subscribers, Smith said.
Industry insiders speculate that flat cable-TV revenue in that kind of market may have factored into Blank’s departure.
In Sacramento County, Comcast’s largest service area in the region, the company splits with its customers the cost of paying 5 percent license and franchise fees to the county, based on Comcast’s total cable-TV revenue for the local service area.
Cable-service fees collected by the county commission over six months in 2003, which indicate Comcast’s cable-TV revenue for roughly 380,000 subscribers, were virtually unchanged from the same period in 2002.
The county collected $3,751,169 in cable fees for the second and third quarters of 2003, up just $2,352 from 2002’s $3,748,817 in fees during the same period.
” It’s essentially flat year-to-year, even though there had been a rate increase,” said Esposto. Rates went up 5.8 percent a year ago for Comcast subscribers with full basic service and a signal converter. Another 6.4 percent increase took effect this month, said Esposto.
In two years the increases boosted the mean monthly cable bill from around $40 to above $45.
More channels: “We don’t look at this as a flat market,” said Comcast’s Smith. “We look at it … as something with tremendous upside.” While cable-modem Internet connections represent a younger market with big potential for the company, he said, the TVs in new homes are seen as a growth opportunity for the company here and across Northern California. He could not provide an Internet subscriber count.
Rate increases are a market reality, Smith said, reflecting a higher value of Comcast’s cable fare from years past.
” Almost everything we buy goes up,” he said. “The important thing is, what do they get for the money? We have over 200 channels of audio/video service. That’s dramatically different from a few years ago.”
Comcast is adding new services this year, starting with video on demand (already offered by SureWest Broadband), and then digital-video recording options for subscribers, Smith said.
But consultant Reiman said subscribers now are willing to consider a switch to a competitor in response to a rate hike.
” It’s a very different marketplace than it was three or four years ago,” he said.
More changes? When Philadelphia-based Comcast bought AT&T Broadband, it added two regional divisions to the company, bringing the total to six. In November, the company combined the mountain and western divisions (the latter includes Sacramento, Roseville and Davis) into one. They’re now run from Comcast’s Denver office.
In a Jan. 15 newsletter to Northern California Comcast employees obtained by the Business Journal, where Blank’s departure was announced, senior vice president Rick Germano wrote:
” Following the recent division reorganization, we determined that a change in leadership in Central California was necessary. As a result Ruth Blank will be leaving the company at the end of this week.”
No other executive changes are planned, Smith said this week.
” Over the past several weeks I have visited many of our employees in offices throughout the Bay Area and Central California,” Germano said in the newsletter. “One theme that has come across in all of those meetings was the need for strong internal communications.”
He promised more e-mailed newsletters to keep employees apprised in coming weeks “as we finalize leadership changes and organizational charts.”
© 2004 American City Business Journals Inc.