Mixed Results at Time Warner


Third-quarter results were mixed at Time Warner Inc., hampered by revenue declines at the film studio and AOL but bolstered by strong revenue and cash-flow growth in cable.

Overall revenue rose 3.7%, to $10.33 billion, and operating income before depreciation and amortization (OIBDA), roughly known as cash flow, rose 9%, to $2.3 billion.

At the film unit, revenue dropped to $2.46 billion from $2.64 billion. Revenue at AOL fell from $2.2 billion to $2.1 billion.

At Time Warner Cable, revenue rose 10% and OIBDA rose 11%.

At the cable networks, revenue rose 10% (to $2 billion) and OIBDA rose 8.8% (to $566 million).

Cable operations lost about 10,000 subscribers in the period, ending with about 10.9 million, second only to Comcast Corp.

Time Warner added digital and high-speed data customers, but growth rates declined.

Digital added 131,000 customers, but the year-over-year growth rate was halved, to 22% in the quarter from 47% in 2002.

High-speed data customers grew by 190,000 subscribers, but year-over-year growth rate was down from 2002 — 41% compared to 70%.

DVR, Vod growth

In a conference call, Time Warner Media & Communications Group chairman Don Logan acknowledged that digital and high-speed data growth would decline gradually. "I don't think they're going to fall off a cliff," he said.

Logan said other services, like digital video recorders and video-on-demand, would help take up the slack.

Time Warner had 250,000 DVRs deployed in the third quarter, up from an estimated 150,000 boxes as of June 30. The MSO had about 750,000 subscription VOD customers at Sept. 30.

Time Warner has already surpassed the 30% penetration milestone for digital, after which growth was expected to flatten. As of Sept. 30, digital penetration was 38%, on pace to reach 40% in the fourth quarter.

High-speed-data approached 17% in the quarter, second to Cablevision Systems Corp.'s 22.8%.

Time Warner chairman and CEO Richard Parsons looked ahead to unwinding 50-50 cable partnerships in Kansas City, Mo., and Houston with Comcast Corp.

"I expect that reasonably soon — let's call that the next quarter or maximum two [quarters] — you will have something to say on the cable partnerships," Parsons said.

Dealing with Comcast's 21% interest in Time Warner Cable would be addressed after the partnerships are unwound.

Sizes Vary

Kansas City Cable Partners has about 306,000 subscribers and Texas Cable Partners has about 1.2 million customers, according to Time Warner's 10-K annual report.

A source familiar with both companies said a likely scenario would see one party take full control of one partnership in exchange for interests in the other.

"This falls back into the old category of cable operators doing system swaps," the source said.

But the disparity in the size of the systems would likely require one party to contribute additional cash or systems.