In addition, we implemented equipment price increases for [D to As] and HD DVRs to this larger base, which in combination negatively impacted our customer base during the quarter. However, about half of our video subscriber losses were due to the methodology we use to count [MDU] subscribers under our bulk contracts and the other half were primarily video-only customers.
As you may know, we count video customers that are billed under bulk contracts on an FCC equivalent or [EBU] basis, which results in fewer customers as rates increase. In order to improve our transparency in how we report and manage these bulk contracts, we’ll be changing our external reporting to a billable units methodology at the end of the year. We believe this change will reinforce our operational focus in this customer segment, and align our video customer account methodology with the rest of the cable industry.
|Comcast's spiffy logo, NBC's peacock was added in December|
One of the most competitive parts of the multichannel television business is providing service to MDUs. Individual apartments face a host of issues subscribing to DirecTV or Dish Network, notably the need a place to put a dish antenna that can see the provider's satellites -- a challenge if one does not have access to the roof. The building itself, however, does not have this problem -- it owns the roof. Dish and DirecTV aggressively discount their services for apartment buildings -- as DirecTV notes on its website to building owners: "you can offer your residents the amenity of reduced package prices." Needless the say, bulk discounting often exceeds the old 30% amount. As Michael Angelakis notes, as the residential price goes up faster than the bulk price (which may not be going up at all), the EBU number is declining -- even as the number of units receiving service in the building is unchanged.
So, that describes the "old" method of counting subscribers in bulk accounts. What is the new way? Angelakis said that "we'll be changing our external reporting to a billable units methodology". This sounds to me like the count of actual units in the building getting service, irrespective of the discounting. One thing it definitely will be is a bigger number -- a great way to obfuscate the declining value of the bulk accounts. Comcast does have a history of liking to report bigger numbers. For many years it reported digital boxes it had deployed, rather than digital subscribers the way every other cable operator did. (Typically digital boxes were 40% higher than digital subscribers -- since many digital subscribers had multiple digital boxes. Note the Comcast's definition of a "digital subscription" in its 2001 annual report, it's in notes 5 and 6 on page 6.)
It is contrary to my experience that Comcast's move on counting bulks is "aligned" with the rest of the cable industry, I would have assumed the opposite. Perhaps Comcast is announcing this change now, three quarters before it plans to implement it as a way of enticing others to follow suit.
So, what have we learned? Comcast lost 60,000 basic subscribers in 1Q13 and it is attributing half of that loss, 30,000 subscribers, to lowering the cost of the video service it provides to MDUs, rather than actually serving fewer subscribers. Since we don't know how many Comcast subscribers are in bulk-billed arrangements, we don't know if that number represents a small or dramatic decline in the pricing of service to MDUs.
Updated (7 May 2013): Charter released its 1Q 2013 earnings today which included a few notes about bulks as well. This is the complete text of footnote (o):
Included within commercial video customers are those in commercial structures, which are calculated on an equivalent bulk unit ("EBU") basis. We calculate EBUs by dividing the bulk price charged to accounts in an area by the published rate charged to non-bulk residential customers in that market for the comparable tier of service. This EBU method of estimating video customers is consistent with the methodology used in determining costs paid to programmers and is consistent with the methodology used by other multiple system operators. As we increase our published video rates to residential customers without a corresponding increase in the prices charged to commercial service customers, our EBU count will decline even if there is no real loss in commercial service customers. For example, commercial video customers decreased by 10,000 during the three months ended March 31, 2013 due to published video rate increases.Apparently, Charter is seeing the same drop in bulks due to effectively lower pricing in the MDU market that Comcast is seeing. Additionally, unlike Comcast, Charter sees counting commercial subs on an EBU basis as "consistent with the methodology used by other multiple system operators".
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