Giganomics Consulting Inc.

The four largest cable operators in Canada posted overall growth in revenues of approximately 12% in 2009 compared to 2008, according to information posted by the CRTC.  Total revenues topped $8.3 billion for the period ended August 31, 2009.  Profit (before interest and taxes) reached $2.3 billion.  These results include the cable operators’ video programming services and their non-programming services – internet and telephony services.

Most of the growth was due to higher revenues from non-programming services, which increased by 24%.  Subscriber growth is likely the primary driver, with internet subscribers up more than 6%; and telephony subscribers up 23% between the third quarter of 2008 and 2009, as indicated in the four companies’ quarterly financial reports. 

Video services revenues increased by 7%.  A small portion of the increase can be attributed to subscriber gains of 1.4% - which is consistent with normal household growth.  Another source of the increase comes from subscribers adding digital services and related equipment (personal video recorders, high-definition set-top boxes).  Increases in the prices for video services account for some of the gains as well.

The faster growth in non-programming services has boosted these services to about 45% of the total revenues earned by the large cable operators.  Current trends indicate that these services could become the predominant source of revenues within the next couple of years.

Non-programming services already account for about two-thirds of operating income.  The higher operating income for these services is due to much lower operating expenses, which account for only about 25% of the total.  Non-programming services do not require expenditures on community channel or programming content (affiliation fees), which together account for 37% of cable operators’ total operating expenses.

There are a few gaps in the data publicly released for the cable operators that require some estimates to derive the profit before interest and taxes (PBIT) for the video programming and non-programming segments, respectively.  An allocation of the depreciation expense is necessary to determine the PBIT for video only services.  Information filed in a recent CRTC proceeding, combined with historical data, supports an allocation of about 65%.  

This analysis indicates the large cable operators earned PBIT from video services of less than $250 million – about 10% of the total profits before interest and taxes.

The following chart provides a comparison of the revenues and profits (PBIT) for video programming and internet & telephony services of the four large cable operators in 2009.