Time Warner Cable Powers Up Video Base

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Time Warner Cable put up its best quarterly growth in video subscribers in two years, announcing a net addition of 55,000 basic subscribers, which the company attributed to a stepped-up marketing push starting in mid-January.


Analysts had expected TWC lose as many as 32,000 basic video subs. The strong results come as parent Time Warner Inc. officially announced its intentions to spin off the cable company.


“We think this quarter’s results demonstrate that our marketing message is resonating and we’re competing effectively,” Time Warner Cable president and CEO Glenn Britt said on a conference call with analysts.

Britt declined to comment on the spinoff plans except to confirm that TWC is “working hard” to complete an agreement with its parent.


Time Warner Cable total revenue was up 8%, to $4.2 billion. Net income declined 12% year over year, to $242 million, while operating income rose 10% to $636 million.


With the additional net 55,000 basic video subs, Time Warner Cable ended the quarter with 13.3 million. The company also saw solid growth in residential high-speed customers, up by 304,000 subscribers to 7.92 million, and the operator added 289,000 phone customers to hit 3.17 million. Britt said penetration of bundled services reached around 50% in the quarter.


Time Warner Cable boosted marketing spending in Q1 by 28%, or $35 million, to $158 million, compared with the first quarter of 2007.


Britt noted that the company bought more broadcast advertising spots, to reach non-cable subscribers, and introduced a new advertising campaign this week “to debunk competitors’ claims with humor and a little edge.”


As a result of the ads, some specifically targeting Verizon Communications’ FiOS TV service, 85% of the RGUs added in period were in the last two months of Q1, Time Warner Cable chief financial officer Rob Marcus said. 


Verizon, however, has taken exception to the cabler’s aggressive marketing push, filing a false-advertising suit this month against Time Warner Cable. Verizon alleges the cable operator’s TV ads make “blatantly false” statements about its FiOS services in an attempt to dissuade customers from switching.


Verizon has applied for a 12-year video franchise from New York City, a key market for TWC with about 1.3 million subscribers.


Time Warner Cable’s capital spending for Q1 increased 18% year-over-year, to $846 million. Around 75% of the capex spending was variable, Marcus said, with consumer premises equipment -- namely, HD set-tops and HD DVRs -- accounting for much of the increase. The cable company deployed about 500,000 HD boxes in the quarter, he added.


The company’s capex also went toward increasing capacity, including expanding switched digital video. In addition, “in certain limited areas we’re going all-digital,” Britt said.


For example, in its New York City market, Time Warner Cable said it has completed the move to all-digital in Brooklyn and Queens, and it expects to complete the transition in Manhattan by the end of 2008.


Time Warner Cable generated $339 million free cash flow, 51% better than the year-ago period. For the full-year 2008, TWC raised free cash flow expectations -- it projects growth of at least 40% year-over-year compared with previous expectations of 32% growth.


Last week, Time Warner Cable -- along with Comcast and Cox Communications -- ended its participation in the Pivot mobile venture with Sprint Nextel


Britt, responding to a question about TWC’s wireless strategy, said the so-called “quadruple play” opportunity does not look as attractive as a longer-term broadband wireless play.


“We have not seen big demand for the quadruple play to date,” Britt said. “More interesting to me is the notion of broadband wireless and how that might relate to wireline networks. We continue to talk to all sorts of people about whether there’s an opportunity to participate in that.”


TWC, along with Comcast and Bright House Networks, was rumored to be discussing a new joint venture with Sprint to build a nationwide WiMax network.


Meanwhile, in response to an analyst’s question about TWC’s opportunity to gain subs from the digital TV transition in February 2009, noted that 10% to 15% of homes will be affected by the government-mandated shutoff of analog TV signals. But he said TWC expects any subscriber pickup from the DTV switchover to be minimal.


“We do think we will modestly pick up some customers from it but we don’t think it’s a huge thing,” Britt said. “Because quite frankly, multichannel video is a very mature, longstanding product at this point. There is probably nobody in America who has not been offered it several times, so these folks have chosen not to buy it.”

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