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Kagan Forecasts Cable Growth Via Phone, Local Ads, VOD, HD, ITV Revenue

Cable TV, once a question mark in the digital revolution, has leveled the playing field with rival digital media such as direct broadcast satellite. With digital cable now accounting for 40% of total U.S. basic cable subscribers, cable is migrating from its analog infrastructure to offer on-demand programming and super-sharp high-definition TV resolution.

Still, Wall Street harbors some worries about DBS competition and telco's entry into video, keeping cable stock prices low in the public market. What the skeptics miss is that cable has positioned itself to cash in on high-growth digital-based businesses -- interactive TV, video on demand, IP voice and local cable advertising.

As a result, Kagan Research projects residential average revenue per unit (ARPU) -- cable's intake per cable customer -- will soar from $72.89 per month in 2004 to $143.15 per month by 2015. "As cable provides more and more services, ARPU continues to climb," says Kagan Research analyst Renee Shaening. "Remember that cable doubled its ARPU in the past 10 years even as the rival DBS medium went from zero to 25 mil. subscribers."

From 2004 to 2015, the Kagan Research newsletter CABLE TV INVESTOR: DEALS & FINANCE forecasts that revenue from digital enhancements -- high-definition TV, digital video recorders and interactive TV -- will soar from $233 mil. to $6.4 bil. Cable is better positioned to deliver local HD content and ITV services than satellite competitors because satellite transmissions lack the return path of fixed-wire platforms. VOD, subscription VOD and near VOD are also expected to boost cable's overall ARPU during that period, growing from a $1.3 bil. revenue stream to $6.1 bil., as time-shifting of TV shows gains popularity, the pool of VOD titles expands and VOD penetration increases.

Also from 2004 to 2015, as availability of IP voice expands, revenue from voice service via cable is forecast to jump from $1.7 bil. to $11.8 bil. -- contributing $13.88/ basic sub/month to cable's coffers in 2015. Local advertising is expected to climb from $4.47 per month to $13.38, with interactivity enabling greater targeting of desired demographics and geography.

Basic TV service will remain the bedrock for cable systems. Kagan Research figures the weighted-average basic rate will grow from $38.14 per month in 2004 to $56.59 by 2015. And in addition to these increases in the "residential" sector, cable is expected to make inroads in the business market as well, with its high-speed data service serving as a lure that can be bundled with its other services.

With competitive platforms multiplying in the digital marketplace, there's a danger players will engage in aggressive discounting. Kagan Research projects some discounting in bundling multiple services to a single customer, but believes a cut-throat price war is unlikely.

Media companies are mindful they must cover infrastructure upgrades and don't want to ruin economics for their various services. "Nobody wants an all-out price war because it wouldn't be beneficial to anyone," adds Shaening.

For Table of Contents and more information on CABLE TV INVESTOR: DEALS & FINANCE visit www.kagan.com/CTI/102105

About Kagan Research, LLC.

Kagan Research consulting and publishing services offer exclusive financial data and analysis, relevant market advisories and expert 5- to 10-year projections on cable and DBS, broadcast television and radio, movies, entertainment and sports, digital, wireless and Internet technologies and media finance and law.

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