Cablevision stems video subscriber losses, but at a cost

By Devika Krishna Kumar and Sai Sachin R

(Reuters) - Cablevision Systems Corp's transition to a "connectivity company" seems to be paying off as it added more Internet data customers and lost fewer video subscribers than expected in the second quarter.

But the company, controlled by New York's Dolan family, had to sacrifice margins to stem the loss of video subscribers.

Cablevision's shares fell as much as 7.8 percent on Friday.

Cablevision has lost video subscribers for about three years as people opt for lower-priced bundled services from telecom companies such as Verizon Communications Inc and Internet streaming firms such as Netflix Inc and Hulu.

Nagging investor concerns over viewers "cutting the cord" on cable TV were proved well founded over the past two days after results from Walt Disney Co and other cable companies.

Cablevision has aimed to capture some of those "cord cutters" by marketing a package that bundles broadband service and a digital antenna for broadcast stations.

The company also incurred higher programming costs, the biggest expense in its cable business.

The moves paid off as it lost 16,000 net video subscribers, far less than the 30,000 analysts had expected, according to market research firm FactSet StreetAccount.

Still, it was "nothing to write home about," said MoffettNathanson Research analyst Craig Moffett, pointing to the higher costs and Verizon's weak FiOS results.

"The Verizon FiOS effect, if there ever was one, in our opinion, is over," Chief Executive Jim Dolan said.

Cablevision's adjusted operating cash flow, an indicator of margins, in the cable division fell 3.4 percent to $462.7 million in the quarter ended June 30.

"In general, it appears that CVC was more aggressive with promotions which had the impact of better subscriber trends at the expense of lower-than-expected margins," Evercore ISI analyst Vijay Jayant said.

Cablevision has moved to offset its cable subscriber losses by offering HBO's streaming service, HBO Now, and Hulu's video streaming service to its data customers.

Data, not video subscribers, were Cablevision's "most valuable" clients, Dolan said.

Indeed, Cablevision reported net additions of 14,000 customers for its data services, blowing past analysts expectations of 4,400 losses.

Cable revenue rose 1.8 percent due to higher rates. Net revenue rose 1.6 percent to $1.65 billion, in line with analysts estimates.

Net income attributable to stockholders fell nearly 20 percent to $75.6 million, or 27 cents per share. That beat analysts expectations of 25 cents.

Cablevision's shares were down 7 percent at $24.66 in afternoon trading.

(Editing by Don Sebastian and Savio D'Souza)