Time Warner Cable reported an increase in revenue, said it has a long-term plan to eliminate set-top boxes in favor of gateway-like devices, and is on the verge of a wider rollout of its Promotions on Demand interactive advertising feature. The company also reiterated its support for Canoe Ventures.
Time Warner Cable reported a 4 percent increase in revenue to $4.5 billion, compared with its third quarter a year ago. The company lost basic subscribers but migrated more of its remaining customers into bundles, leading to overall RGU (revenue-generating unit) growth.
Net income was down to $268 million from $301 million a year ago, largely a result of the special dividend that former parent Time Warner Inc. forced TWC to pay to finance its own spin-off.
Capital spending is down from a year ago, the company reported. For the first nine months of 2009, total capex totaled $2.3 billion, an 11 percent decrease compared with the first nine months of 2008. It is now 17 percent of revenue, down from 20 percent in ’08.
Capex for residential was down 16 percent, including lower spending on customer premises equipment, upgrades/rebuilds and line extensions, the company reported. Set-top box spending was down both because of smaller volume and declining product cost.
The company is still doing some spending on DOCSIS 3.0. The company introduced D3 service in New York City during the quarter, and execs said the early feedback was “very positive.” The company plans to continue to roll out D3 infrastructure in other cities, though it declined to name which ones.
Lower residential spending was partially offset by 60 percent higher commercial capital spending. Those expenditures are clearly merited. Commercial revenue was up 15 percent. CEO Glenn Britt characterized the growth in that segment as representing a disproportionate share of the company’s growth during Q3.
Full-year capex will come in well below the $3.3 billion forecast earlier. During the company’s investors’ call, CEO Glenn Britt said the company expects no changes in the immediate future in the level of capital spending.
Long term, CPE spending will see a fundamental shift. Britt said TWC is beginning to work on an architecture that will move set-tops to a single device central in the home. TWC will send one signal to the home, rather than multiple signals as it does today, and this central device will distribute the constituent elements – video, voice, data – to the appropriate end-user devices in the home. Britt said chip companies – which he did not identify – are working on that now. This change in direction, he said, will evolve over the next five or six years.
On the residential services side, the company lost 25,000 basic customers during its third quarter. Basic sub loss is a common phenomenon, and TWC said that rather than go out of its way chasing customers likely to churn, it is focusing instead on high-ARPU customers. To that end, the company is trying to move subscribers into bundles; 56 percent of customers are now in a bundle.
TWC counts “primary service units,” which represent the total of all video, high?speed data and voice subscribers. In its third quarter, that number increased by 109,000 to 26.3 million. Double- and triple-play subscribers increased by 39,000 and 49,000, respectively, and bundled subscribers totaled 8.3 million.
The net add total was significantly weaker than a year ago, the company said, due to the challenging economy and increased competition. High-speed data was a bright spot, however, with 121,000 additions to reach a total of 9.2 million.
TWC COO Landel Hobbs said the expansion of telco video competition continued at a moderate pace. The MSO calculates AT&T and Verizon together passed another 700,000 homes in its footprint. U-verse now has 4.9 million serviceable homes in TWC’s footprint, or about 18 percent of TWC’s homes passed. AT&T has 500,000 subs in TWC’s area. FiOS, meanwhile, has 2.3 million serviceable homes, or 9 percent of TWC’s homes passed. It has higher penetration, however – 500,000 subs in the TWC footprint.
Within its footprint, TWC calculates that it added double the number of new high-speed data subs than AT&T and Verizon, and that it is actually gaining high-speed data share.
On TV Everywhere, Britt said TWC is seeing interest from the content community. Current tests are designed to work out technology. He said the company is optimistic about the service, but as for commercial tests or rollouts, Britt said TWC has no timetable yet.
Britt said TWC remains enthusiastic about VOD, especially given the competitive advantage VOD represents versus satellite competitors. To that end, TWC will be continuing its rollout of its Start Over and Quick Clips products, which he called essentially versions of VOD and versions of network DVR.
Hobbs said TWC systems on the West Coast are “getting good traction” with, and are beginning to roll out, Promotions on Demand. The feature enables a local system to put a bug in a commercial; viewers can click on it and be brought to a VOD ad segment, where they can get a coupon or brochure information.
Canoe Ventures missed a mark earlier this year, pulling back on a promise of delivering an interactive ad system.
Hobbs said Canoe’s success is contingent entirely on its MSO investors rolling out EBIF infrastructure on a footprint-wide basis. He said Canoe continues to make steady progress, and that Canoe will have available by the end of the year what he referred to as a stewardship platform that bridges programmer to agency to MSO.
Regarding TWC’s current advertising revenue, it was down in the third quarter. Britt said TWC sees a glimmer of hope in the advertising segment, however. CFO Rob Marcus identified what that glimmer is: He said the third quarter was the first quarter since Q4 ’08 that ad revenue was “less worse.”
In a written statement, Britt said, “Our business model is resilient, even in a tough economy and in the face of intense competition. We’ve built great assets in our plant and customer relationships that provide a strong foundation for continuing growth. We intend to continue operating the business aggressively, yet prudently, to generate attractive returns for our shareholders.”
TWC SUBSCRIBER METRICS
(in thousands) |
Net |
||
|
6/30/09 |
Change |
9/30/09 |
Video subscribers |
13,048 |
(84) |
12,964 |
Residential high?speed data subscribers |
8,757 |
117 |
8,874 |
Commercial high?speed data subscribers |
289 |
4 |
293 |
Residential Digital Phone subscribers |
4,016 |
62 |
4,078 |
Commercial Digital Phone subscribers |
48 |
10 |
58 |
Primary service units |
26,158 |
109 |
26,267 |
Digital video subscribers |
8,802 |
8 |
8,810 |
Revenue generating units |
34,960 |
117 |
35,077 |
Single play subscribers |
6,483 |
(113) |
6,370 |
Double play subscribers |
4,834 |
39 |
4,873 |
Triple play subscribers |
3,335 |
49 |
3,384 |
Customer relationships |
14,652 |
(25) |
14,627 |
Source: Time Warner Cable