Why Does Anyone Run Cable Systems in Small Markets These Days?

Cable World, July 11, 2005

In the spring, John Malone famously said he'd be "creamed" if he bought up cable systems today. Malone believed he wouldn't be able to get big enough to make money. That got us thinking: If one of cable's original pioneers can't make the case for operating in smaller markets, why does anybody bother? CableWORLD decided to ask several smaller operators what they see that Malone doesn't. Their answers may surprise you.

Ben Hooks

president and CEO

Buford Media Group

The consolidation frenzy in 1999 and 2000 meant that larger MSOs wound up with many systems that were not within their cluster. That allowed cable guys like Buford Media's Ben Hooks to get back into the business by picking up smaller, nonstrategic systems.

"It's clear that business plans and management styles for running small markets are dramatically different," he says. "The economics are different. How you run your business is different...As companies get bigger, they get more centralized. A one-stop shop doesn't apply across the board. Smaller systems become a distraction. For that reason, a lot of them haven't been upgraded. It doesn't fit into their core business plan."

If he were operating a big MSO, Hooks says he would sell off smaller systems, too.

"If I had a big company, I don't know if it would be a smart idea to hold onto small systems," he says. "It makes sense for them to spin these off...It's an affordable opportunity for us to buy them at a much lower price. It's a smart move for their shareholders." --John P. Ourand

Martin Brophy

president and CEO

Shen-Heights TV

For Martin Brophy, operating a small system is a way of life. His father founded Shen-Heights Television 54 years ago in Shenandoah, Pa., and the system now serves about 4,000 households in the vicinity. "This is a niche market too small for the big operators to worry about," Brophy says. "I've lived here my whole life. This is just something that's in our blood, taking care of the local folk."

Being small enables the company to more rapidly make its decisions and roll out services such as high-speed access and telephony. "If you decide to buy a piece of equipment, you don't have to file 15 pieces of paperwork with all sorts of people," Brophy says. "If you want to add or delete channels, you don't go to a huge corporate board or 17 VPs. You make the call."

Brophy also has a direct relationship to the city; he's been a member of Shenandoah's chamber of commerce since 1997. "People appreciate when you do things for the community at large," he says. "Just having so much interaction with my customers and my employees, and just being local, gives me the most satisfaction." --Simon Applebaum

Steve Simmons

CEO

Patriot Media

Operating in small markets "provides the opportunity to see immediate impact from decisions," says Patriot Media's Steve Simmons. Patriot serves 117,000 customers in Princeton, N.J., and 31 nearby communities.

"We were able to turn this system around with a nice growth in cash flow after [its] acquisition by completing the upgrade [started by previous owners] and building a management team that focuses on customer service," he adds.

"You can get real close to the customer" running a small system, says Simmons, who meets with Patriot's customer service representatives, installation crews and repair technicians each day to gauge customer acceptance of new services. "I also am able to interact with the management team regularly, and communication is consistent with each employee," he says. "We can move quickly with our decisions, since we operate without multiple layers." --Simon Applebaum

Patrick Davis

VP

Davis Communications

Given the option of running small or large cable systems, Patrick Davis has no doubt which he would choose. His family has been in the small system operations business for four decades, and he has no intention breaking the streak.

Davis' company runs small rural and suburban systems in the eastern half of Washington state. His systems serve 35 to 40 homes per mile, compared to 100 to 150 homes per mile for large operators. "The average customer takes us 5.3 years, and with the big boys, their typical longevity from what I read is slightly more than two years," he says.

Small systems can achieve better customer penetration and have a higher profile within communities, Davis says. "We sponsor the Little League team and local soccer team and have a float in the July 4 parade. Things like these give you a great presence in the community, especially in places with great population stability."

There's also substantially less bad debt in small towns, according to Davis. "Rural communities have more home ownership, less apartment complexes where a lot of bad debt originates," he says. "You have less churn, and that reflects well on long-term profitability." --Simon Applebaum

Amy Tykeson

president and CEO

BendBroadband

Big MSOs don't bypass acquiring small systems deliberately, says Amy Tykeson, CEO of Oregon-based BendBroadband, which was named Small Operator of the Year by CableWORLD in 2004. "Large MSOs operate small, contiguous systems that fit their footprint, so I don't think MSOs ignore systems of a certain size, if they make sense," says Tykeson. At BendBroadband, "we have some geographic advantages on a smaller scale, serving three franchises in Deschutes County from a single head-end."