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Cablevision Systems Corporation (NYSE:CVC)

Q3 2011 Earnings Call

October 28, 2011 10:00 am ET

Executives

Patricia Armstrong – Executive Vice President and Senior Vice President, Investor Relations

James L. Dolan – President and Chief Executive Officer

Thomas M. Rutledge – Chief Operating Officer

Gregg G. Seibert – Chief Financial Officer and Executive Vice President

Analysts

Jason Bazinet – Citigroup

Phil Cusick – JPMorgan

Douglas Mitchelson – Deutsche Bank

Craig Moffett – Sanford Bernstein

Jessica Reif Cohen – Bank of America/Merrill Lynch

James Ratcliffe – Barclays Capital

Benjamin Swinburne – Morgan Stanley

David Joyce – Miller Tabak & Co.

Thomas Eagan – Collins Stewart

Bryan Kraft – Evercore Partners

Operator

Good morning, my name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Cablevision Third Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I’d now like to turn the conference over to Pat Armstrong, Senior Vice President of Investor Relations. Please go ahead.

Patricia Armstrong

Thank you. Good morning, and welcome to Cablevision’s third quarter 2011 earnings conference call. Joining us this morning are members of the Cablevision Executive Team, including Jim Dolan, President and CEO; Tom Rutledge, Chief Operating Officer; Gregg Seibert, Executive Vice President and Chief Financial Officer, John Bickham, President of Cable and Communications; and Donna Coleman, Senior Vice President Financial Planning And Control.

Following a discussion of the company’s third quarter 2011 results, we will open the call for questions. If you don’t have a copy of today’s earnings release, it is available on our website at cablevision.com.

Please take note of the following. Today’s discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.

Please refer to the company’s filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call.

And let me point out that on Page 5 of today’s earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow or AOCF to operating income.

I would now like to introduce Jim Dolan, President and CEO of Cablevision.

James L. Dolan

Thank you, Pat, and good morning. For the third quarter, Cablevision’s consolidated revenue grew 8% to $1.67 billion, while AOCF was essentially flat at $539 million when compared to the prior year period. These results were impacted by Hurricane Irene as well as the addition of the Bresnan property. Without these two times, revenue growth would have been essentially flat and AOCF would have decreased 4% for the quarter.

Cablevision generated $440 million in free cash flow from continuing operations over the last nine months of 5% improvement over 2010. In addition, the company repurchased more than 5 million shares in the third quarter and the Board of Directors has approved the quarterly dividend of $0.15 per share payable in December. The impact of Hurricane Irene resulted in an extensive loss of electricity through significant part of our footprint in the New York metropolitan area.

Cablevision met this challenge well responding to the customers needs and restoring service quickly. Tom is going to talk in more detail about the business and also highlight some positive underlying trends in our performance. These include certain improved subscriber metrics during quarter that has historically been seasonally weak for Cablevision and continued growth at Optimum Lightpath.

Not all of our results in the quarter are where we want them. By many measures, we have built the most successful cable television company in the nation and have set nearly every industry benchmark for sales, customer retention, penetration and financial performance. Continuing to build upon, this historical performance has become more challenging in a highly competitive environment, which is compounded by economic pressures including a significant decline in housing activity. However, we are addressing the challenge and in many ways have been preparing for it for several years.

We have taken pioneering steps to develop products and enhance our services for our customers without straining their wallets. We have sought and identified new markets that offer attractive growth opportunities to which we allocate a portion of our investable capital both Optimum business and Bresnan exemplify this. And as importantly, we have aggressively addressed the financial and capital structure of Cablevision to optimize long-term shareholder returns through the refinancing of our balance sheet, the spin-off of MSG and AMC and the allocation of our investable capital to our quarterly dividend, our stock buyback plan and highly strategic acquisitions.

That said our primary focus is the continued improvement of our product offerings, quality of our services and the provision of the most attractive priced value proposition in the market for our customers.

Historically, Cablevision has confronted the challenges and the constantly evolving business also over multiple business cycles. We are highly confident that the same spirit of service, innovation and execution will guide us as we move forward.

We’d now like to turn the call over to our Chief Operating Officer, Tom Rutledge.

Thomas M. Rutledge

Thank you, Jim and good morning. For the third quarter, Telecom revenue grew by 9% versus the prior year quarter and AOCF was essentially flat. We suffered hurricane damage in the third quarter, which caused us $16 million excluding both the impact of Bresnan and the Hurricane. Telecom AOCF declined by 3.9% in the third quarter over the prior year.

In addition to lack housing growth, there were several other factors that have impacted our quarter-over-quarter revenue growth for fiscal year. We had an unusual fourth quarter sub loss last year due to a programming dispute, which led us to take a smaller rate increase in plan to stabilize the customer base over the long-term. And Verizon, you know laterally reduced voice interconnection fees, which were in the revenue line and which we’re litigating.

While our third quarter is seasonally our weakest quarter, we were aided by the launch of new services on the iPod touch and iPhone, which were integrated into our promotions. In addition, one of our competitors had a strike, which hurt their performance. Basic video, data and voice lines all had net changes, which were an improvement not only of last year’s third quarter, but also the second quarter this year.

High-speed data subs increased by 17,000 in the quarter and our voice lines grew by 38,000. Video customers declined by 19,000 in the quarter for the total company. These improvements were accomplished largely by continuing the strategies, which we saw successful within the past. We’ve introduced new triple play package highlighted by our faster high-speed data service, Boost Plus and we’ve marketed heavily throughout our operating areas to reinforce the value of our products and services, and our aggressive win-back strategy continues.

As of September 30, our win back total is more than 45% of customers who once tried files.

In the Bresnan properties, we saw a growth in data and voice customers in the quarter and a slight decline in video subs. Digital penetration is rising as we deploy new and better digital services and at the end of the third quarter, 75% of Bresnan’s basic subscribers were digital. We’re on track to complete a fiber ring, which will interconnect roughly 85% of the Bresnan customer base by the end of this year. Once completed, we’ll be able to essentially manage these geographically diverse systems as one, which will allow us to sell a state-of-the-art Triple Play product across our footprint.

Now, let me address some of the new products and offers available in the metro Cablevision footprint. We’ve recently introduced an offer that includes a new iPod touch primarily for win back situations. Selling for the Triple Play package of video data and voice is now at 74% and roughly half of this selling is for our new Ultimate Triple Play, which includes a new higher priced Boost Plus service and a wireless router. We’ve recently announced an agreement Turner Networks for all of their tuner to go content. In a months time more than a 100,000 customers have registered for this free service.

Our customers have responded extremely well to our iPad, iPod touch and iPhone apps. We currently have 560,000 unique Apple devices using the optimum app. And we continue to enhance our international programing with 19 new international premium channels launched this year, bringing the total number of international premiums 86.

Cable capital spending for the quarter was $195 million including the Bresnan properties. While CPE capital continues to decline our investments in new products and services have been steady. For the quarter, capital as a percent of revenue was 13.1% and year-to-date capital (inaudible) 10.7%. At Optimum Lightpath, business continues to ramp up with revenue growth of 6% in AOCF growth of 17% for the third quarter versus the prior year period.

At Lightpath, the story has been consistent with the continued pursuit of market share this core. As an example, we’ve made great progress in the school sector. In the past year, Lightpath has increased share in the New Jersey Public School District by 26%.

I’d now like to the turn the over to Gregg Seibert for a financial overview.

Gregg G. Seibert

Thank you, Tom. Let be briefly summarize the financial results for the quarter. Total revenue was $1.67 billion from the third quarter represented an increase of 8% over the prior year quarter, almost all of which was due to the addition of Bresnan in this years results.

Total company AOCF of $539 million represented essentially flat growth compared with the prior year period. And if you remove the impact of the Bresnan properties and Hurricane Irene, AOCF would have actually decreased by 4%.

We had a few significant items in the quarter affecting our results including higher programing costs and higher sales in marketing as we continue to aggressively promote our products and services while revenue growth was essentially flat.

Free cash flow from continuing operations for the nine-months ended September 30 was $440 million and that compares with 2010 year-to-date free cash flow of $418 million, an increase of 5%. Free cash flow for the first nine months of 2011 was $1.53 a share and a 11% increase, compared with pro forma free cash per share of $1.38 in the prior year period.

Now, turning to leverage and liquidity. At the end of the third quarter, the company’s consolidated cash position was $189 million. Net debt was $10 billion. At September 30, we had $1.35 billion undrawn and available under the $1.41 billion revolving credit facility at CSC Holdings. In calculating our total company leverage per our indentures, annually AOCF has determined using a method that’s called the latest quarter annualized. There were no exclusions for items such as the $16 million impact of Hurricane Irene. Thus the Hurricane impact translates into a $64 million reduction in AOCF for the purpose of our debt tests. As a result, at September 30, the company’s consolidated leverage ratio was 4.7 times. But healthy impact of the Hurricane, the consolidated ratio would have been approximately 4.5 times, which we considered to be a more representative measure of our total company financial leverage. The CSC Holdings Restricted Group leverage was 3.2 times.

At September 30, Bresnan’s net debt was approximately $1 billion with $75 million undrawn and available on its revolving credit facility. The leverage ratio for the quarter was seven times down from the second quarter ratio with 7.2 times. We expect the Bresnan leverage ratio to improve in upcoming quarters as we’ve reached a more state of operations in marketing.

The Cablevision NOL was $1.6 billion at September 30. We’ve taken advantage of the bonus depreciation provisions in 2010 and 2011, and intend to do so again in 2012, which extends the timing for our NOL utilization.

Turning to Cablevision’s stock repurchase program. In the third quarter, we repurchased approximately 5.4 million shares totaling $93.9 million. This represents approximately 2% of the company’s outstanding shares. From in the inception of the program through the end of September, we have repurchased 27.1 million share and our outstanding Class A shares have decreased from $251 million to $225 million or roughly 10%. At September 30, we had $211 million remaining under our existing repurchase authorization.

Operator, we’re now prepared to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Jason Bazinet of Citi.

Jason Bazinet – Citigroup

Thanks so much. I just had a question regarding the sequential change in EBITDA. I thought in the last quarter there were a number of one-time items related to the Bresnan integration and some other sort of one-time costs. But I thought we were going to sort of go away. So can you just spend a little bit of time sort of daisy chaining this through sort of the 2Q to 3Q expenses, as we can try and you know do better job I guess, going forward?

James L. Dolan

Well, Jason, I don't know that we had one-time items for Bresnan last quarter. I think what was discussed on the conference call was the termination of an interconnection agreement at Bresnan with the third-party provider and indeed, we did take that in-house this past quarter. Now that resulted in a margin improvement at Bresnan where we picked up, well let’s call it roughly 2.7%, 2.8% in the Bresnan margin. And in terms of Cablevision, I don't recall any sort of one-time start of costs or other issues that went away this quarter. As I mentioned in my commentary, certainly we had higher programing costs, I can’t get in obviously to the detail on the individual contracts, but you can imagine which ones are flowing through this year as a result of various retransmission, consent processes or negotiations, and we had some increases in network management costs, increases in sales, tele marketing costs and increases in our overall product marketing cost. That’s what resulted in the compression of margins this quarter.

Jason Bazinet – Citigroup

Okay. Can I just ask one follow-up there. I guess, because you guys are sort of maybe two years ahead of the rest of the industry there is sort of growing concern among the investor community about sort of a whole industry going to ex-growth. I mean, do you think that’s a fair characterization sort of we have seen pick EBITDA or do you think that’s in this characterization? Thanks.

Gregg G. Seibert

I think there are definitely cyclical pressure on the business as there are in a lot of businesses. But over the long-term I think the business still has a lot of growth in it, and in the areas where we thought there would be growth there is continued opportunity to sell a Triple Play package to residential customers who don’t buy it today. There is still a considerable amount of satellite penetration in our footprint which we think is an inferior product at its core and ultimately gives us a path to additional residential growth. The business opportunity for continued penetration of telecommunication services and the business environment continues.

Even that area is challenged although we’re growing rapidly in terms of share, you still have a lot of pressure in the business universe in terms of growth there as well because of the cyclical situation. And you have the opportunity to continue to shift advertising share on through the Cable platform, through the interactive platform. So I think all of those growth drivers still exist in the business and you have a situation currently where you have pretty slow housing growth virtually no housing growth and actual reduction in house hold formation, people are moving in with each other, so it’s a cyclically challenging time, but the ultimate drivers I think is growing the business.

Jason Bazinet – Citigroup

Thank you very much.

Operator

You next question comes from Phil Cusick of JPMorgan.

Phil Cusick – JPMorgan

Hi. Thanks guys. I wonder if you can talk a little bit about how you’re thinking about fourth quarter, you talked specifically about Verizon having some challenges in the third quarter. As they get more aggressive as they’ve talked about doing in the fourth quarter. Do you expect sort of the typical seasonal rebound here or should we tamper that a little bit? Thanks.

Gregg G. Seibert

Well, I don’t want to give you a prediction on the fourth quarter. We’re talking about the third quarter today, but you know in terms of Verizon’s behavior they were challenged in the third quarter, they were also very aggressive in the second quarter, which I think was done in anticipation of their third quarter situation. So when you look at it over the whole year, their performance is fairly consistent with prior years.

Phil Cusick – JPMorgan

Okay. Thank you.

Operator

Your next question comes from Doug Mitchelson of Deutsche Bank.

Douglas Mitchelson – Deutsche Bank

Thanks so much. Couple questions I guess, for Tom. You said you instituted a small rate increase and plan to enhance consumer value. I think was sort of the point.

Thomas Rutledge

Yes.

Douglas Mitchelson – Deutsche Bank

Are you essentially pricing to the lowest common denominator in your footprint given the economic cyclicality. Any thoughts as to whether you hope to increase revenue event in by segmenting more aggressively.

Thomas Rutledge

Phil we’ve said – we have a variety of product offers and we have a variety of customers who choose different packages, so we do that through our selling and retention process all the time. But you know we had a challenge in the fourth quarter of last year with a very confrontational situation where the World Series was taken off our cable system and as that unfolded and we lost customers, we thought that we should take a less aggressive stance toward a normalized rate increase than we had in the past. And so we took a smaller rate increase, we then implemented a Boost plus strategy where we began to sell in customers at a higher rate but we were doing that transactionally.

And that continues in half of our Triple Play selling now is this new Boost product which has a $10 higher revenue component in it than the previous Triple Play promotional product. So we are moving the subscriber base but moving it transactionally.

Douglas Mitchelson – Deutsche Bank

Yeah, that’s helpful. I misunderstood your comments as relating to a new rate increase, not the pace of last year’s rate increase, so that’s helpful. When you indicated Verizon unilaterally producing connect fees any chance you can give us a sense of what the revenue impact was for the quarter from that?

Thomas M. Rutledge

Approximately $4 million.

Douglas Mitchelson – Deutsche Bank

$4 million. And then lastly for Gregg, I don’t know if you have this handy, but do you have 4Q’10 free cash flow or 2010 total your – free cash flow, so we can get a sense of where you might be headed for the full year. I’m not sure we can take the $53 and just extrapolate it to $2 for the full year right.

Gregg G. Seibert

I’m sorry Doug, what are you looking for, you are looking for last year’s free cash flow numbers for the fourth quarter?

Douglas Mitchelson – Deutsche Bank

Yeah in any basis that you’re currently affording rights to $1.53 year-to-date but obviously that’s with AMCX now in discontinued.

Gregg G. Seibert

You know I don’t have them handy, in terms of the 2010 numbers, you will actually be able to see shortly pro forma’s for all of the AMC full financials removing AMC from all of Cablevision which will be filed at some point in the next date or so. Still lot more detail from that.

Douglas Mitchelson – Deutsche Bank

And that will include full-year 2010?

Patricia Armstrong

It will include the first three quarters of 2010 restated

Gregg G. Seibert

Okay. The first three quarters of 2010 restated.

Douglas Mitchelson – Deutsche Bank

Okay. I don’t know Gregg if you want to make any comment about 4Q 2011 free cash flow trend throughout that we’ve seen year-to-date should it’s taking the pace of the year so far and extrapolate into the full year or something that’s fair to do?

Gregg G. Seibert

It’s a nice try Doug. But as you know we don’t give our guidance.

Douglas Mitchelson – Deutsche Bank

All right thank you gentleman.

Operator

Your next question comes from Craig Moffett of Bernstein.

Craig Moffett – Sanford Bernstein

Hi, thank you. Tom, I’ll go back to the conversation you and I had a while back about, sort of how you can think about reinventing the business a little bit to try to get out of the way of the programming cost increases, I mean as you thought through that, I mean is there anyway that that you think you can sort of reposition the business so that you’re not still (inaudible) to the relentless price increases from your video suppliers?

Thomas M. Rutledge

Well, as you know we had filed a request to have the FCC help us in retransmission consent fight, which has a lot of impact on the overall programming cost and it actually gets monetized by programming companies in a variety of ways. it’s in the retrans be itself, it is also in the launch of additional channels and the rates associated with them. And after our last fight with FOX over the retransmission consent during the World Series last year, Congress got involved and then the FCC actually put out a proposed, a notice of proposed rulemaking and that process is going on. So we are seeking regulatory relief, regulatory changes that would make that less impactful to our business, and we continue to pursue that.

Craig Moffett – Sanford Bernstein

Are there any other, as you think about the cable network sort of thing, you’ve talked about some comments that are more receptive to à la carte for example than the rest of the industry. Is there anything internationally due to make progress on that front, or is that more just voicing your interest in the concept but it’s practically hard to get there?

Thomas M. Rutledge

Obviously programmers choose to sell their content the way they do, and it is a great distribution model, and it’s very attractive for content companies to sell to 100 million homes and the cable business has been built on that and it’s a great business model. My comments were in terms of Netflix and in terms of it being a pay-service and being on television. But I don’t expect that the business model that we currently have is about to collapse.

Craig Moffett – Sanford Bernstein

All right. Thank you.

Operator

Your next question comes from Jessica Reif Cohen of Bank of America.

Jessica Reif Cohen – Bank of America/Merrill Lynch

Thanks, I have a couple of questions. I guess for Gregg or Tom; on the cost side I mean the programming, if we can see from the previous questions, I mean you know which is going away and I'm just curious do you expect to take something away from maybe other lesser programmers; and can you talk us a little bit about what’s going on in marketing cost, kind of what the outlook is, it can be lumpy but are you at a new permanently higher level?

Gregg G. Seibert

Well, the answer to your second question is no, it is lumpy and we have some new product offers and some new marketing campaigns that we wanted to run and they just happen to be in the third quarter. So I wouldn’t say that there is a new cost of marketing or some new uptick that is permanent.

With regard to programming; yeah, it is an issue and it is an expensive part of our business, it is the single biggest cost item we have. And the fact that retransmission consent became necessary from the eyes of broadcasters, particularly after the ’08 recession, has been flowing through our business, and there was a large step up. I think that the overall rate of programming going forward will moderate to some extent naturally. But right now we are observing the collapse of the broadcast industry business model.

Jessica Reif Cohen – Bank of America/Merrill Lynch

Okay. And then just two small ones; I know you said Tom that the price increase is lower than in previous years (inaudible), but you did have in the New York system a sequential ARPU decline. Is that all advertising or that something else?

Thomas M. Rutledge

Mostly advertising and it’s mostly the change in political advertising. Our actual advertising is in political result.

Jessica Reif Cohen – Bank of America/Merrill Lynch

And then, just wondering if you can say how much of it’s up. And then, the last question I have is, Jim mentioned in his opening comments strategic acquisitions; I am just wondering if you could give us some color on what you would be thinking about?

Thomas M. Rutledge

At this point Jessica, we don’t comment on specific acquisitions. There is nothing on the radar screen. We certainly would look if given an opportunity to do things like potentially add a little bit to light path in our market but those tend to be relatively smaller acquisitions. At this point, we are focused on operating the business; we are not focused on getting bigger at this point in time.

Jessica Reif Cohen – Bank of America/Merrill Lynch

Thank you.

Operator

Your next question comes from James Ratcliffe of Barclays.

James Ratcliffe – Barclays Capital

Good morning thanks for taking the questions. A couple if I could; first of all, in terms of buyback slowing in the quarter versus prior quarters, is this a sort of run rate we should looking out or was that really driven by desire to keep leverage, certain level given the Hurricane influenced EBITDA. Secondly; you’ve got the swap expiring next year, any thoughts on how you planned to handle that, or knew what the impacts of that could be? And third; Thomas, I understand I think if you said, understand correctly that you think that occupied homes might actually be declining in your footprint? Thanks.

Thomas M. Rutledge

Let me take the, we’ll take the easy question first which is the share repurchase. One of the reasons I pointed out in my comments that we had retired 2% of the outstanding shares this quarter, if you go back and look at that history here over five quarter period, we’ve retired roughly 10% of our Class A shares. So the way I’ve been looking at the program and I think we’ve been thinking about it, has been trying to just over time make a significant reduction in the number of outstanding shares, so I don’t, it’s also hard to look at last quarter or any particular quarter and declare to be more or less than prior quarter’s because while the absolute dollars change a lot there has been, you know AMC spend is taking place and so the dollars that we had to allocate to repurchase in the past reflected the AMC; AOCF also.

You know the constraint that we face right now is our leverage; you know we’re at approximately 4.5 times after backing out the impact of Hurricane Irene. And you know even with that numbers would be up around our normal target range, we’re comfortable with that leverage level. We have $200 million of remaining repurchase authorization from our Board and we expect to continue to be opportunistic in looking at repurchases, but one thing that we’re not at this point in time prepared to do is to ramp up our leverage to buyback additional stock, we are at the upper end of that range. And I think we’ve been pretty consistent of wanting to stay in that type of the leverage range.

On the swap side; yes, we have a substantial portion of our interest rate swaps coming off around June 30 of next year. The impact of that is roughly $50 million the year at current interest rates. We haven't made any determination at this point in time now, how much of that we're going to continue to allow to flow if any, or have we made any decision that we’re going to go out and reswap. We continuously look at our capital structure. We've been very focused on extending maturities and as we get closer to the swaps coming off, we'll certainly make decisions as to where we want to be.

James L. Dolan

And James, the last question about occupied homes declining; I think the answer is yes, if you measure housing starts. And then look at success data and vacancy rates and our experience confirms that people are – there are actually occupied dwellings to-date than there was a year ago?

James Ratcliffe – Barclays Capital

Do you think your penetration of sort of addressable market in terms occupied homes is declining as it is from a video basis of total homes, or you think you’re reasonably stable on that front?

James L. Dolan

Reasonably stable, I think.

James Ratcliffe – Barclays Capital

Great. Thank you.

Operator

Your next question comes from Ben Swinburne of Morgan Stanley.

Benjamin Swinburne – Morgan Stanley

Thank you, good morning. Just going back to Verizon, I was wondering if you could talk about whether you had above average, sounds like you had above average marketing spend this quarter to take advantage of maybe their work stoppage; and in the fourth quarter are they changing their pricing one way or the other and I know they have been more aggressive all year but I don’t know if you’ve seen any changes in Q4 so far on how they are behaving; and then one more follow up.

Thomas M. Rutledge

Actually our strategies for marketing were in place before we knew about their strike situation and we had nothing to do with it. It’s coincidence. Their second quarter pricing was very aggressive, the most aggressive we have seen, and it is more aggressive then their current fourth quarter pricing.

Benjamin Swinburne – Morgan Stanley

Okay. So they’d become bit backup a little bit.

Thomas M. Rutledge

They are still very aggressive.

Benjamin Swinburne – Morgan Stanley

Yeah, understood.

Thomas M. Rutledge

Buy otherwise.

Benjamin Swinburne – Morgan Stanley

They are still not requiring any contract or anything like that.

Thomas M. Rutledge

That is right.

Benjamin Swinburne – Morgan Stanley

And then just on the commercial side, obviously we can see the light path numbers but we have seen pretty good number out of the “SME” business from Time Warner Cable and I think expectations are pretty high for the Comcast in shorter. You guys like your residential business, I think were ahead of the industry and growing that business. But could you just spend maybe a second on how that business is growing now, it sort of buried I think in your Cable segment but any sense of revenue growth or market share or outlook that you could help us out with.

Thomas M. Rutledge

Our current advertising is that more people chose us than Verizon for their business services. So we think we have the majority of the share now in the small business marketplace. And we see continuous share opportunities particularly as we move up market into the mid market and are still major portions of the mid market available to us in terms of share growth.

Benjamin Swinburne – Morgan Stanley

Right, okay thanks a lot.

Operator

Your next question comes from Marci Ryvicker of Wells Fargo.

Unidentified Analyst

All right. This is actually [Stefan Beason] on for Marci. I just had two questions. First do you expect any Hurricane expenses to rollover to Q4 at all or is that all done?

Gregg G. Seibert

Minimal.

Thomas M. Rutledge

Minimal.

Unidentified Analyst

Minimal. Okay and then the second question relating to Bresnan when that ring is actually done you guys can offer more bundled services and I had a stuff could you believe that those markets are kind of do they really want those services obviously do you think so because you are building out. But can you kind of estimate us to what kind of penetration you could expect relative to the core New York business?

Gregg G. Seibert

Yes, well if you look year-over-year we’ve taken the selling rate of the Triple Play in the Bresnan property from 19% to 50% and that’s without the completion yet of the ring and without the full deployment of all the video product that we want to be fully HD competitive with Satellite.

So we think that there is significant upside opportunity in those markets that’s why we purchased those assets. We think that win or full deployment is completed that will have a superior product to all of our competitors in that footprint and that will be able to continue growth and get we don’t have to make equal Eastern market share to make that thing an attractive investment but we’re rapidly moving up the curve.

Unidentified Analyst

Great thanks a lot.

Operator

Your next question comes from David Joyce of Miller Tabak & Company.

David Joyce – Miller Tabak & Co.

Thank you. I just wondering if you could please update on your thinking for wireless strategy given that you’ve got some increasing exposure to iPad apps and what have you?

Thomas M. Rutledge

While we’ve been building out a WiFi network and we’ve had continuous subscriber utilization increases in that network and we continue to deploy products, we now have more than 0.5 million devices out there that can use WiFi and watch our full cable television service in the home.

And we’re deploying a new Boost product with higher speed broadbands, which includes a more sophisticated wireless router as part of that package. 70% of our customer base that subscribes to high-speed data, which is 92% of our video base has a wireless router in their home.

So we think WiFi is a major strategic part of our business. We think that we can continue to take advantage of that. We think our video product today as a result of WiFi is a superior product to our competitors – all of our competitors, and we think that our data service is enhanced by the WiFi outside the home, and we continue to try to build value for our customers and take market share. Our broadband share remains at about 75% and notwithstanding the competition in this marketplace and this is a more aggressive market, but we have a better broadband product in our competitors and part of that is our WiFi strategy.

David Joyce – Miller Tabak & Co.

Thanks. And if I could attack on to that capital expenditure question with the flooding in Thailand, do you see any disruption to many components in the next few quarters, would it be how disruptive to your provisioning or build outs?

Thomas M. Rutledge

Have to admit no body has come to me with that crisis. I’m not aware.

David Joyce – Miller Tabak & Co.

All right. Thank you.

Thomas M. Rutledge

It hasn’t shown up in my radar.

Operator

Your next question comes from Tom Eagan of Collins Stewart.

Thomas Eagan – Collins Stewart

Great, thank you very much. Tom, you’re talking about that building value for your customers by not charging them for any this new features; could you give us a sense of what’s you’ve seen in terms of any reduction churn, whether it would be on video or data or on price or on voice; and then I have a follow up. Thanks.

Thomas M. Rutledge

Well, as we said earlier we are in a very competitive environment, it’s also challenged by a cyclical downturn in housing. But in light of all of that we are holding our customer base fairly well, we are actually charging for some of the enhancements. As I said, we are marketing our way in with Boost Plus; half of our Triple Play acquisitions are taking that product that does cost more. And so our churn on an annual basis is flat year-over-year and in light of the situation economically we think that that’s pretty decent.

Thomas Eagan – Collins Stewart

Right. Okay. Then you know across the sector we’ve seen a slowing in the phone ads in the home I guess this quarter; could you share with us what you are seeing in your systems. And for example; are you seeing any increase in the wireless substitution. Any plans of thinking about to change whether it’s marketing or the pricing. Thanks.

Thomas M. Rutledge

Our Triple Play continues to go up, so we priced the phone service appropriately and to some extent that has to be targeted wireless substitution of wireline phones in our market place.

Thomas Eagan – Collins Stewart

Great. Thank you.

Patricia Armstrong

Operator, we will take one more question.

Operator

Your final question comes from Bryan Kraft of Evercore Partners.

Bryan Kraft – Evercore Partners

Hi, thank you. Can you quantify the revenue impact from credits for service outages and also from software advertising during Hurricane Irene and the aftermath, and also the political advertising in last year's third quarter. And then, also I don't know if you can give us a sense as to how much higher marketing was in the third quarter either in dollars or is it percentage of revenue relative to say what a normal run rate would be? Thank you.

Thomas M. Rutledge

Credits were actually fairly immaterial. And I don’t have the other information that you asked, I am sorry.

Bryan Kraft – Evercore Partners

I guess, maybe I could follow-up; I mean it’s kind of related to your previous question about, has there been a permanent structural change in the margins structure at Cablevision, because of higher spending on marketing and program, I mean while it may have been higher than normal, is there going forward maybe a higher percentage of revenue that’s going to be allocated toward marketing or is it more or less going to revert back to where we were before the third quarter?

Thomas M. Rutledge

Our margin is a percentage of revenue and our revenue growth was low for the reasons that I explained earlier. And the programming and other operating cost increases were consistent with prior periods and not that unusual. But coupled with a low revenue growth environment, the margins declined. And I explained what, I thought the factors driving our revenue change this year was the going numbers, the rate increase, the Verizon reduction.

Bryan Kraft – Evercore Partners

Okay, thanks.

Patricia Armstrong

Thank you all for joining us today. That concludes our call.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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Source: Cablevision Systems' CEO Discusses Q3 2011 Results - Earnings Call Transcript
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