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Comcast Staves Off Cord-Cutting

02/04/2016 | 02:48am US/Eastern
   By Shalini Ramachandran 

Comcast Corp. is forestalling the cord-cutting trend.

The nation's largest cable company added video customers in the fourth quarter, capping off its best year in almost a decade as cable providers gain market share in a contracting pay-TV market.

Comcast added 89,000 video customers in the quarter, contributing to a boost in revenue and profit. In all of 2015, the company only lost 36,000 video customers, its best result in nine years.

Comcast was able to, at least for now, defy the industry logic that cord-cutters are increasingly abandoning pay TV. It has been investing in customer service and in its set-top box and guide, which it says encourages customers to watch more TV and makes them less likely to cancel service.

In an interview, Comcast Chief Executive Brian Roberts said he hopes to "continue the trend" in TV customers this year. "We need to keep that pace going because it's never been more competitive."

Comcast's results illustrate the comeback of cable operators, who for years lost video subscribers to satellite and phone companies but have lately clawed back some market share. Cable companies are benefiting from investments in their cable-TV products and bundling those alongside fast broadband, as well as offering cheaper, slimmed-down packages of channels for more cost-conscious consumers. Last week, Time Warner Cable said it added net video subscribers last year for the first time since 2006.

Part of cable's success is due to the weakening of its fiercest competitors, satellite and phone companies. The rising importance of broadband and on-demand TV to customers has favored the cable companies, since it is difficult technologically for satellite to provide those services.

"I think the pendulum does tend to swing," Mr. Roberts said. "There was a time others had high-definition TV and we didn't, and there was no interactivity and no video-on-demand. Fortunately, we made investments and we bet right."

Phone companies entered the TV business about a decade ago but their overall growth was largely driven by wireless and other businesses. Verizon Communications Inc. has sold off parts of its FiOS footprint, while AT&T Inc. has de-emphasized its U-Verse TV offering in favor of its newly acquired satellite operator DirecTV. But the 214,000 satellite customers AT&T added in the fourth quarter didn't offset the 240,000 U-Verse television subscribers it shed. Verizon's FiOS TV additions also slowed in the most recent quarter, to 20,000 from 116,000 a year earlier.

"Amidst pay TV's worst year ever, cable just enjoyed its best year in the past decade," MoffettNathanson analyst Craig Moffett said. Cable's strength is "real and very likely sustainable," he said.

Fears of cord-cutting swept through the media industry last year amid evidence that the total number of households paying for traditional TV service is declining. Pay-TV providers are fighting for customers as people "cut the cord" and opt for cheaper, skinnier packages. Mr. Moffett estimates total U.S. pay-TV subscribers are contracting at a rate of 0.9% a year.

Despite those fears, Comcast said 75% of its new video customers in the fourth quarter signed up for big TV packages. The big bundle "is going to continue to be a very good business for a long time," said NBCUniversal CEO Steve Burke, who oversees the company's TV networks.

Comcast has been investing in video over the past several years, even as others in the industry have played down cable TV's importance in comparison to broadband.

Since 2010, Comcast has hired more than 650 software engineers to create a transformed video experience, and those efforts led to the X1 Internet-connected set-top box and guide, a sleeker alternative to the clunky cable guides of the past that allows for fast, Web-like updates and an easy way to watch TV on-demand. The company now employs more than 1,000 software engineers -- a marked change from its analog cable television roots.

Mr. Roberts also credited Comcast's recent investments in customer service for helping to retain customers. The company last year budgeted $300 million to turning around its customer operations, including building an Uber-like app to allow customers to track and rate their technicians, after some embarrassing episodes of poor customer interactions went viral.

But given the broader trends, Comcast is seriously exploring a new growth opportunity in wireless. Comcast said it plans to file to participate in the coming government auction of wireless spectrum, which will enable the cable operator to potentially buy wireless airwaves to be used for offering mobile service.

Shares of Comcast, down 13% over the past three months through Tuesday, rose 6% to $57.84 on Wednesday as the company also announced plans to increase its dividend and its stock-buyback plan.

Comcast's fourth-quarter profit grew 2.4% to $1.97 billion, or 79 cents a share, up from $1.93 billion, or 74 cents a share, a year ago. Revenue rose 8.5% to $19.2 billion. Both revenue and adjusted earnings topped analysts' estimates.

Comcast's broadband and business-services divisions posted strong revenue growth in the fourth quarter, offsetting softness in the voice and cable advertising units. At the cable business, which accounts for the bulk of the top line at Comcast, revenue rose 5.9% to $11.98 billion.

The cable giant added 460,000 broadband customers in the quarter compared with 375,000 a year earlier. Voice customer additions grew to 139,000, compared with 123,000.

At NBCUniversal, revenue was bolstered by growth at the filmed entertainment and theme parks divisions.

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