By Dow Jones Business News, October 31, 2013, 07:05:00 AM EDT
Time Warner Cable Loses Subscribers
Time Warner Cable Inc. lost far more TV customers than expected in the third quarter, and for the first time lost
Internet subscribers, largely due to its month-long dispute with CBS Corp. during the quarter, executives said.
The subscriber losses, also due to continued competition from phone companies, are likely to increase investor
pressure on Time Warner Cable to be more open to merger overtures from Charter Communications Inc. and its 27%
shareholder Liberty Media Corp., investors and analysts said. Time Warner Cable Chief Executive Glenn Britt has so far
rebuffed the overtures, made earlier this year, and he told analysts on a conference call on Thursday that his thinking
was influenced by disastrous mergers of the past, including that of Time Warner Inc. and AOL in 2000.
Mr. Britt noted that "despite widely touted strategic and industry merits," past deals were "very lopsided in favor of
one set of shareholders." He said that "consolidation can be a good thing but the terms really matter" and added that
even the benefits of cable consolidation are "finite." Both Mr. Britt and Mr. Marcus stressed that they will only do a
deal if it's in the interest of their shareholders.
Analysts expected the stock to rise on weaker results, in light of increased deal speculation. Time Warner Cable
shares were up 3.7% mid-morning. Liberty executives have told investors that time is on their side, implying that
continued poor Time Warner Cable results will eventually push the operator to engage in deal talks.
In the third quarter, Time Warner Cable, the second largest cable operator by video subscribers in the U.S., lost
306,000 residential video subscribers, compared to 140,000 a year ago, and shed 24,000 broadband customers, while it
added 85,000 a year ago. The company also lost 128,000 voice customers while it didn't lose any last year.
Time Warner Cable Chief Operating Officer Rob Marcus, who is set to succeed the retiring Mr. Britt as chief executive
at year's end, told analysts on a conference call that that subscriber metrics were "much worse than we planned" due to
blackout disputes with both CBS and Journal Communications Inc. during the quarter. He said the spike in customer
complaints at call centers "interfered" with normal sales operations, ending in fewer new customers being added.
Still, Mr. Marcus defended the decision to go to a blackout with CBS, saying that "we had little choice." Mr. Britt
later said that "we're better off with CBS than we would have been" if not for the fight, but added the deal isn't "
cheap" or "wonderful." The dispute was over fee increases demanded by CBS for renewing Time Warner Cable's right to
carry its programming, including the Showtime premium channel.
Mr. Marcus noted that competition continues to be tough with the phone companies and said that even apart from the
impact of the disputes, he's "not satisfied by the subscriber results generated." Mr. Marcus outlined several plans to
win back customers, including by targeting people who are still buying slower-speed DSL Internet. He also outlined a new
plan to focus on select markets to rapidly take the cable transmission "all-digital" to free up bandwidth space on the
pipe to sell faster speeds of Internet. Those markets, he said, would also be the first places Time Warner Cable will
deploy its improved technology for guides and set top boxes.
Time Warner Cable's profit fell 34.2% to $532 million, or $1.84 a share, from $808 million a year ago, or $2.60 a
share, due to one-time gains in the year-ago quarter including the sales of investments in Clearwire and SpectrumCo
licenses. Excluding those items, per-share earnings increased to $1.69 from $1.41. Revenue grew 2.9% to $5.52 billion,
helped largely by higher fees from broadband customers as well as growth in business services.
Revenue from residential customers rose 0.7% to $4.58 billion, as a 14% rise in high-speed data revenue made up for
drops in video and voice revenue. Video revenue decreased 4.5% due to subscriber losses as well as $15 million in
credits the company had to issue to Showtime subscribers during the blackout. Voice revenue declined 6%. Business
services revenue grew 21%.
Write to Shalini Ramachandran at Shalini.Ramachandran@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.