"We should be in the black by year two or three," SkyCable managing director Carlos Tria Jr. said. The two companies signed a master consolidation agreement last month to bundle together their cable assets into a new holding company, Beyond Cable Inc. However, their operations remain independent from each other as they cater to different subscriber markets.
Home Cable, the cable unit of the PLDT group, caters more to the mass market with its affordable price subscription package of P400 a month. On the other hand, the Benpres-owned SkyCable is positioned as a premium cable TV package with more channel offerings at a monthly rate of P550.
Due to their tight financial bind, the former competitors agreed to merge in an effort to spur the development of cable TV in the country, rationalize infrastructure development, lower their programming costs and provide a wider range of programming choices for viewers.
Home Cable president Fritz Server added this would also enable the merged entities to move into more value-added services and introduce new cable TV technology that will enable customers to enjoy richer content and a growing array of convergent services.
Both cable companies have piled up losses from their operations since the peso depreciation in late 1997 as this bloated their dollar-denominated programming costs, which constitute the biggest expense item on their operations.
Unlike the telephony business which enjoys a foreign currency adjustment in their billings, cable operators are not protected against currency fluctuations. The escalating annual rates being charged by some international channels, denominated in US dollars, have made it prohibitive to operate the business. In effect, the cable firms have been absorbing the increased programing costs and were unable to pass it onto customers.
The two firms shell out over P1 billion a year to cover the cost of the programming packages offered by the cable channel providers such as HBO, Cinemax, ESPN, Star Sports, CNBC, CNN, Cartoon Network, MTV, Discovery, and others.
But despite dominating the cable business with the most number of subscribers nationwide, SkyCable and Home Cable are still operating in the red as revenues from their subscriptions cannot compensate for the increase in their programming costs.
Based on current rates charged by the cable channels, the cost of programming amounts to between $8 to $10 per subscriber, or roughly the equivalent of the monthly cable subscriptions charged by Home and Sky.
Since a rate increase in their monthly charges is ruled out due to its negative impact on subscribers, the cable companies are in the process of rationalizing their operations to cut down their programming costs from between 40-50 percent to a more manageable range of 20-30 percent and realize a yearly savings of P400 million in the process.