Time Warner Cable Scores Solid Q2

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Time Warner Cable Inc., the nation's second-largest cable operator, said its second-quarter income rose 14% due to a strong performance in its Internet and TV businesses, despite no real growth among its 14.7 total subscribers.

Noting its solid performance in the quarter, Time Warner CEO Glenn Britt said: "Despite the tough economic environment, we continue to grow, unlike many other businesses."

The earnings report, the first since the cable company was officially spun-off from Time Warner Inc. in March, beat analysts' expectations and reflects much of the cable industry's health: doing better than other media sectors, particularly broadcasting, but still suffering the pains of a weak ad market and unnerving basic cable-TV subscriber defections.

While Time Warner reported healthy growth in its high-speed Internet service and digital phone service, the cable giant lost 57,000 basic cable-TV subscribers. An expected bump in subscribers from the broadcasters' digital transition won't likely be felt until the third quarter of the year. Said Britt, "The subs came a little later than we thought."

The number of subscribers taking "bundled" packages of TV, Internet and telephony services, or customers who have two or more services, rose slightly to 55.8% of customers from 55.2% in the prior quarter.

Despite the basic-video subscriber loss, video revenue increased 3% on price increases and growth in digital video subscribers. High-speed Internet revenue grew 9%, as voice services rose 19%, on continued subscriber growth.

Excluding spin-off related costs and other one-time items, net income grew 14% to $316 million in the second quarter, while revenue increased 4% ($176 million) over the prior year quarter to $4.47 billion.

Adjusted operating income before depreciation and amortization rose 5% in the second quarter over last year to $1.7 billion. Advertising revenue declined 25% ($59 million) to $174 million due to the recession.

Britt said that the company generated more than $1 billion in free cash flow in the first half of the year, which allowed it to reduce the debt incurred from its March spin-off from Time Warner. First-half free cash flow increased 28% to $1 billion from $806 million in the first half of 2008, due mainly to lower capital expenditures and an increase in cash from operating activities.

Britt said the company is now focused on its "TV Everywhere" project of authenticating cable subscribers to view TV shows online. As programmers begin to test ways to bring in more viewers to its TV shows by offering them online, Time Warner and other cable operators are scrambling to find a way to maintain the current business model.

"We're excited about it," said Britt.

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