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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
3 What Consumers are Paying
4 What OTT Issue? Online Viewing is a Fraction of Traditional
5 TV Usage Time Leads & Is Stable Internet & Mobile Will Take Ad Share from Other Media, Though.
6 Where the Costs are Going
7 Where Content Costs are Going Networks Rely on Affiliate Fees for ~46% of Revenue
8 Where Content Costs are Going Studios Have Much Lower Margins, with Greater Volatility – Looking for Margin Help?
9 Where Else can Content be Monetized? OTT May Be Only 2% of Home Entertainment Revenue
10 1Q12 Cable Net Viewership NBA & NCAA Helped TBS, but a Networks Need a Constant Lineup Refresh Lest Ratings Drop
11 1Q12 Cable Net Viewership
12 1Q12 Cable Net Viewership Consistent Measurement Quality Is Necessary, or Ratings Could Become Less Meaningful – The Rentrak vs. Nielsen Debate
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 Broadcast Ratings Also Challenged
15 Ad Growth Outlook for 2012 Political Ad Spending & Olympics Should Help Broadcasting, but Cable Networks Should Demonstrate Consistently Leading Growth
16 OIBDA Growth Should Follow
17 Cable Network Margins Already Quite Strong
18 ARPU Growth Necessary for Programming Cost Growth Far Above CPI
19 Residential Cable Revenue Growth
20 Ad Revenue Growth – Cyclical, but Cable Can Capture More
21 Residential Revenue Driven by Market Exposure
22 Resi Revenue / Video Sub
23 Resi Margins – What Cost to Retain Subscribers?
24 Resi EBITDA Growth
25 Resi EBITDA / HP: A Bifurcation of Dense Markets vs. Overbuilder Model
26 Resi Video Revenue / HP
27 Resi Broadband Revenue / HP
28 Resi Voice Revenue / HP: What is the Legacy Differentiator?
29 Resi Video EBITDA / HP
30 Resi Broadband EBITDA / HP
31 Resi Voice EBITDA / HP
32 Resi Cap Ex Declines as Cheaper CPE is the Main Driver
33 Resi Cap Ex / Video Sub: Mature vs. Expanding Footprint
34 Commercial Revenue Growth: Still Young and Growing Strong
35 Commercial Revenue / RGU: Complexity of Client Counts
36 Commercial EBITDA Growth: Far Outpacing Resi for the Future
37 Healthy Commercial Margins Depend on Density
38 Commercial EBITDA / RGU: What Size Client Targeted?
39 Commercial Cap Ex / RGU: Client Complexity Counts, Again
40 HSD Net Adds: Cable is Taking Share
41 Digital Video Net Adds: The Sooner All-Digital, the Better
42 Digital Voice Net Adds: Cable Still Taking Share with Bundle
43 HSD Becoming More Important than Video
44 Cable Can Monetize Its Avails Better With or Without Canoe
45 Free Cash Flow is Improving
46 Public Cable Operators: Increasingly a Scale Business
47 Public MSOs: Moderate Leverage, Attractive FCF Multiples
48 Recent Revenue History and Estimates, Public & Private
49 Recent OIBDA History and Estimates, Public & Private
50 Cable OIBDA Multiples Below Growth Parity = Upside
51 1Q12E Net Add Expectations
52 1Q12E Net Add Expectations
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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