Thursday, November 6, 2008

Time Warner Cable Lowers Forecast

Cable is generally considered to be recession-proof, but Time Warner Cable President and CEO Glenn Britt says its "naïve" to think that way now, and Time Warner Cable is reducing its 2008 earnings outlook. Still, the pattern of loss suggests nothing out of the ordinary. For the most part, it is service upgrades that are slowing, with a single exception.

"As we moved into the fourth quarter, we saw a significant slowdown in subscriber growth compared to last year, particularly for our video and voice services," Britt notes. The operator signed on 124,000 new digital video subs, just under the 128,000 it added a year ago. 

Time Warner Cable also warned that it has seen orders for premium video services, including pay-per-view, video on demand, and digital video recorders slow down. The MSO added 150,000 DVR subs in the period, off from a year-ago gain of 211,000. One would expect to see that, in a downturn. 

On the voice front, the MSO signed on 207,000 subs, 25 percent less than a year ago and about 15 percent lower than analyst expectations. It isn't clear whether this reflects economic conditions or a natural slowing of voice segment growth for an operator with fairly high voice penetration already. 

The MSO lost 31,000 basic video subs, better than the 83,000 basics it lost in the year-ago quarter, ending the quarter with 13.3 million total. Most of the video losses, though, come from the "antenna basic" tier, not the mainstay of a cable operator's video revenue. About 70 percent of the video subscription losses came from the antenna basic package, which runs about $13 per month. 

So far, video behavior is as one would predict for a downturn: less demand for premium services, but stability for basic subscriptions. The sharp increase in antenna basic disconnects, though, is noteworthy. 

Cable voice services are new enough that there isn't a baseline for behavior. Still, slower net addtions would not be unexpected. Had Time Warner reported negative voice growth, that would have been more worrisome. 

Comcast Corp also has reported a sharp fall in basic video subscribers. Comcast's basic video subscribers fell by 147,000 to 24.4 million in the third quarter, a sharper decline than the year-ago period's 56,000 drop. 

CEO Brian Roberts says the issue is not churn or disconnects but a slowing rate of new additions, caused by the weak economy, competition with phone companies and hurricane impact, which reduced new home construction as well as usability of existing housing. 
The hurricane impact accounted for 15,000 of the basic video losses in the quarter.

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