It only covers 90,000 subscribers, but last week's
financial report by Coaxial Communications of Central Ohio Inc. provided a stark glimpse
at the difficulties of operating a competitive cable system.
Privately owned Coaxial Communications sold a 75 percent
stake in its flagship Columbus, Ohio, operation to Insight Communications Co. in August
for $170 million. Tiny Coaxial needed a bigger partner to upgrade its system, which
competes against Ameritech New Media's newer, snazzier 750-megahertz operation.
Insight plans to leapfrog telco Ameritech Corp.'s cable arm
by upgrading the Columbus system to 870 MHz from its current 490 MHz, at a cost of about
$23 million.
"We made the determination that we think we need the
bandwidth there," Insight CEO Michael Willner said last week, adding that the MSO
plans to introduce digital-television and cable-modem services in Columbus in the first
half of 1999.
After selling publicly traded bonds to finance the
acquisition, privately owned Insight has begun to issue quarterly financial reports for
the Columbus operation on a stand-alone basis.
As of Sept. 30, the Columbus system had 90,314 subscribers,
up just 1 percent from 89,499 a year earlier. That relatively low growth rate came despite
some "deeply discounted promotional rates" that were instituted as part of the
system's battle against ANM, which offered giveaways like supermarket coupons and movie
tickets. Willner said Coaxial decided to cut rates by more than 40 percent in some cases.
Overall revenue per subscriber declined by $1.96, or 4
percent, to $43.68 from $45.64 a year ago, because of the discounts. The system's overall
quarterly revenue of $12 million was up 1.6 percent, but only because advertising revenue
rose nearly 15 percent and Coaxial increased some equipment charges.
Through nine months, overall revenue was down by close to 2
percent, to $35.8 million from $36.5 million in the same period in 1997. Some 15,000
subscribers, or 17 percent of the system, were given rate discounts, compared with 200
subscribers in the first three quarters of 1997.
Cash flow in the quarter, at $4.4 million, was nearly
unchanged from the same period a year ago, as Coaxial was pinched by 11 percent higher
programming costs.
Going forward, the Columbus system will benefit from
programming discounts available to Insight, a top 20 operator with 510,000 subscribers.
Insight also shaved some costs by eliminating duplicated jobs and some unneeded real
estate.
Had the Insight cost base been in effect for the entire
quarter, cash flow would have been about $5.3 million, compared with a pro forma $5.2
million in the second quarter of 1998.
But through nine months, the system's actual cash flow was
off by about 15 percent, to $12.8 million from $15 million a year ago, due to 16 percent
higher programming costs, coupled with the rate discounts.
Insight claimed no buyer remorse. In fact, its $23 million
upgrade plan, announced in October, represents an acceleration of its previously planned
$15 million upgrade to 750 MHz.
In a glimpse at the future, September's cash flow, after
the first full month under Insight's ownership, was consistent with annualized earnings
before interest payments, depreciation and taxes of $21.6 million. Willner said that
figure was "very close" to the projections that Insight had given to bond buyers
who invested in the deal.
