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Cable Operators Ought Not Be Afraid of OTT A Financial View of the Content & Distribution Businesses David C. Joyce, CFA Miller Tabak + Co., LLC

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Presentation on theme: "Cable Operators Ought Not Be Afraid of OTT A Financial View of the Content & Distribution Businesses David C. Joyce, CFA Miller Tabak + Co., LLC"— Presentation transcript:

1 Cable Operators Ought Not Be Afraid of OTT A Financial View of the Content & Distribution Businesses David C. Joyce, CFA Miller Tabak + Co., LLC

2 2

3 3 What Consumers are Paying

4 4 What OTT Issue? Online Viewing is a Fraction of Traditional

5 5 TV Usage Time Leads & Is Stable Internet & Mobile Will Take Ad Share from Other Media, Though.

6 6 Where the Costs are Going

7 7 Where Content Costs are Going Networks Rely on Affiliate Fees for ~46% of Revenue

8 8 Where Content Costs are Going Studios Have Much Lower Margins, with Greater Volatility – Looking for Margin Help?

9 9 Where Else can Content be Monetized? OTT May Be Only 2% of Home Entertainment Revenue

10 10 1Q12 Cable Net Viewership NBA & NCAA Helped TBS, but a Networks Need a Constant Lineup Refresh Lest Ratings Drop

11 11 1Q12 Cable Net Viewership

12 12 1Q12 Cable Net Viewership Consistent Measurement Quality Is Necessary, or Ratings Could Become Less Meaningful – The Rentrak vs. Nielsen Debate

13 13 Recent Top Cable Network Share Week-to-Week Slippage is Common, but Viacom Had a Particularly Challenging Time – Is it Programming or Measurement?

14 14 Broadcast Ratings Also Challenged

15 15 Ad Growth Outlook for 2012 Political Ad Spending & Olympics Should Help Broadcasting, but Cable Networks Should Demonstrate Consistently Leading Growth

16 16 OIBDA Growth Should Follow

17 17 Cable Network Margins Already Quite Strong

18 18 ARPU Growth Necessary for Programming Cost Growth Far Above CPI

19 19 Residential Cable Revenue Growth

20 20 Ad Revenue Growth – Cyclical, but Cable Can Capture More

21 21 Residential Revenue Driven by Market Exposure

22 22 Resi Revenue / Video Sub

23 23 Resi Margins – What Cost to Retain Subscribers?

24 24 Resi EBITDA Growth

25 25 Resi EBITDA / HP: A Bifurcation of Dense Markets vs. Overbuilder Model

26 26 Resi Video Revenue / HP

27 27 Resi Broadband Revenue / HP

28 28 Resi Voice Revenue / HP: What is the Legacy Differentiator?

29 29 Resi Video EBITDA / HP

30 30 Resi Broadband EBITDA / HP

31 31 Resi Voice EBITDA / HP

32 32 Resi Cap Ex Declines as Cheaper CPE is the Main Driver

33 33 Resi Cap Ex / Video Sub: Mature vs. Expanding Footprint

34 34 Commercial Revenue Growth: Still Young and Growing Strong

35 35 Commercial Revenue / RGU: Complexity of Client Counts

36 36 Commercial EBITDA Growth: Far Outpacing Resi for the Future

37 37 Healthy Commercial Margins Depend on Density

38 38 Commercial EBITDA / RGU: What Size Client Targeted?

39 39 Commercial Cap Ex / RGU: Client Complexity Counts, Again

40 40 HSD Net Adds: Cable is Taking Share

41 41 Digital Video Net Adds: The Sooner All-Digital, the Better

42 42 Digital Voice Net Adds: Cable Still Taking Share with Bundle

43 43 HSD Becoming More Important than Video

44 44 Cable Can Monetize Its Avails Better With or Without Canoe

45 45 Free Cash Flow is Improving

46 46 Public Cable Operators: Increasingly a Scale Business

47 47 Public MSOs: Moderate Leverage, Attractive FCF Multiples

48 48 Recent Revenue History and Estimates, Public & Private

49 49 Recent OIBDA History and Estimates, Public & Private

50 50 Cable OIBDA Multiples Below Growth Parity = Upside

51 51 1Q12E Net Add Expectations

52 52 1Q12E Net Add Expectations

53 53

54 54 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 DistributionMedia, as of April 23, 2012 Coverage Universe # / % Total Expected Total Return for One Year Buy 15 65% Buy = 15% or more Hold 8 35% Hold = + or - 15% Sell 0 0% Sell = -15% or more 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 ©2012 Miller Tabak + Co., LLC, All Rights Reserved. Member SIPC. Member NYSE, NYSE Arca, FINRA, CBOE, PHLX, ISE, NFA. Additional information is available upon request.


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