Analog subscriber losses are catching up to the cable industry. MSO stocks were socked last week after Charter Communications' warning that it would miss its third-quarter numbers due to continued losses in basic subs. In early September Charter told investors it would meet the low end of its guidance of 13.2% to 14.6% revenue growth and 13.7% to 15.9% cash flow growth. Last week's warning indicates that subscriber losses stepped up in September, a worrisome trend heading into the fourth quarter, when subscriber additions historically pick up.

MSO stocks ? many recovering from five-year lows hit in August ? tumbled. Charter fell 28% last week. Comcast, which will have to deal with AT&T Broadband's eroding analog customer base after it completes its acquisition, fell 13%, and Mediacom, also suffering sub losses, fell about 30%. Continued concern over debt levels and certain MSOs' access to cash contributed to the sell off.

Over the longer term, basic subscriber losses will matter less, as MSOs increase penetration of ? and revenue from ? digital, high-speed data and other services. Kagan World Media last week lowered its ten-year forecast for basic subs to 69.4 million in 2012 from 75.8 million. Although fewer subs will decrease basic cable revenue, Kagan expects higher average revenue per subscriber overall, due to higher levels of advanced services.

Charter's sub losses ?are a bigger concern short-term than we had anticipated,? says Russell Solomon, SVP at Moody's Investors Service. He notes that although he is very optimistic about the prospects for digital cable and high-speed data, analog video is still the core of an MSO's business. ?While we expected some subscriber attrition, we want to make sure companies aren't taking their eye off the ball,? he says.

Charter is seeing intense competition from satellite but plans to counter satellite offers with its own ?save? plan, says spokesman Dave Andersen. Rather than advertise marketwide, the package, which will incorporate high-speed data, will be offered only to customers calling to disconnect.

THE NEXT QUESTION:

• When will revenue from advanced services offset decreases in revenue from subscriber losses?
• How critical will basic subscriber erosion become over the next two years?

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