I talk to a lot of folks in our industry every week about issues ranging from cable modems to investment capital to billing software. And lately, the tone has been relatively somber, sort of a "I'm just waiting the bad times out, hoping for the good times to arrive soon." There is a general consensus that the cable TV industry as a whole has lost its momentum, its successful late 90s "star" status.
And clearly, if you follow the industry closely, you have to agree. You've seen the lack of capital available, the equity sources drying up, the lack of transactions and a limited number of new players. You may have also noticed that the more successful private broadband providers have slowed their growth, or have even come to a grinding halt.
The public markets have beaten down many industry sectors this past year, including cable TV. Some providers saw their valuation cut in half. And it seems that the blockbuster "$5,000 per sub acquisition deals from the last 2 years are a thing of the past. There are even a lot of unwanted MDU properties on the market that are still left unsold, even at bargain-basement prices.
Many believe that this is a less desirable time to be in this industry. On the surface, the investment community seems disinterested, and lenders are shying away. Everyone is struggling to build a case for their business.
As a response, should PCOs change their business model? Would a whole new business plan attract more attention? If you do more of this and less of that, will venture-capital suddenly appear at your doorstep? What about changing your technology? Or picking a new geographic region? Change your name? Your logo?
No! No! And No!
"Momentum" is a very funny thing, and it is clearly not in our favor right now. But big events can create positive momentum, and big events can turn it in the other way. If you remember, the cable TV sector saw its last momentous swing occur in June 1997 when Bill Gates committed a $1 billion investment in ComCast. In one swoop, he legitimized the cable TV pipe as the chosen delivery vehicle into the home. And yet three short years later, the momentum has reversed.
Why? You don't have to look any further than to public companies like AT&T and RCN who over-promised Wall Street and under-delivered, in terms of cash-flow projections, cable/telephony roll-outs, and video-on-demand expectations. The NASDAQ tumble didn't help, as everyone shifted their thinking to the negative (in a typical "herd" mentality fashion) and began to question cable TV's business plans and valuations.
But my confidence in our industry has never wavered. The fundamentals of our business still make tremendous sense. Basic cable revenues are growing much faster than ever before, as many PCOs exceed $35 - $40 average revenue levels. This is up from just $25 two years ago. Buy rates are increasing too, and DBS hasn't proven to be the MDU threat everyone expected it to be.
Further, the data and digital businesses are thriving. In high-speed internet, cable modems have a 3-to-1 lead on DSL, and will surpass 7 million users early in 2001, up from just 500,000 two years ago. And everyone is successful with digital solutions. AT&T has over 2 million digital subs and Charter has just surpassed 1 million. And revenues are up for everyone: Charter saw 19.5% same-stone growth last year; AT&T Broadband 11% growth. And the beginning of these trends are present among PCO's in data and digital, too.
The fundamentals of this business absolutely make sense. And our primary customers, the real-estate owners, are very bullish on our industry. Judging by their involvement in Private & Wireless Broadband magazine and our trade association, we have seen tremendous energy and enthusiasm among our clients for what we do, and what we can do in the future.
The key is to use this time wisely. Even though you may not be growing right now, it's a good opportunity to explore cost efficiencies in your back office, or ways to grow penetration rates on existing properties. One of the positive by-products of this time is that operators are not doing crazy deals: ridiculous up-front fees, high royalty payments, or small, single-market projects. And that's encouraging. It's a time to become more fiscally responsible.
Have confidence and stay positive. The momentum will turn again, and when it does, you want to be poised to take advantage of all the opportunities it brings.