Weekly Pay-TV Notes: Netflix Signs New Content Deal; TWC Announces Strong Q2 Results

The pay-TV industry saw significant activity this week, with Netflix recently signing a content deal with Telecom Italia, which will enable the telecom company to offer Netflix TV series and movies to its clients. On a separate note, Time Warner Cable reported its second quarter earnings Thursday. The company added 172,000 high speed data subscribers but also lost 45,000 pay-TV subscribers during the quarter. Overall revenues increased by 3.5% to $5.93 billion for the quarter, but missed the consensus estimate by $10 million. On that note, we discuss below these developments related to the pay-TV companies over the past few days.

Netflix Signs Content Deal With Telecom Italia

Global streaming giant Netflix (NASDAQ:NFLX) has recently signed a content deal with Telecom Italia. ^[1] The deal will enable the telecom company to offer TV series and movies from Netflix to its clients, including the latest offerings such as Daredevil and Sense8, documentaries and stand-up comedy specials, along with a selection of programs for children. No financial details regarding the deal have been disclosed so far. Both the companies are set to benefit from this collaboration. On one hand, Netflix’s content will help Telecom Italia in attracting more subscribers to its high-speed Internet platform. On the other hand, the deal will help Netflix in gauging the demand for its original content in Italy ahead of the company’s scheduled October launch in the country. (Related – Launching Into Spain, Italy And Portugal Makes Sense For Netflix) The company is in the midst of an aggressive international expansion campaign and plans to provide service in 200 countries by the end of 2016. Netflix is currently available in over 50 countries.

Netflix’s stock gained around 4.6% through the week. We currently have a price estimate of $103 for Netflix. For the year 2015, we estimate revenues of $6.79 billion, compared to consensus estimate of $6.83 billion, and EPS of $0.20, compared to a consensus estimate of $0.24.

High Speed Internet Leads Q2 Growth For TWC

Time Warner Cable (NYSE:TWC) reported its second quarter earnings recently. ^[2] The company added 172,000 high speed data subscribers but also lost 45,000 pay-TV subscribers during the quarter. This result underscores the changing complexion of Time Warner Cable’s (TWC) business. Even though the company made its name in the past selling cable services, it is the high speed Internet segment that is leading the growth charge in recent years. We expect the company’s high-speed Internet business to continue to bring in more customers, while its pay-TV business will likely continue losing customers in the foreseeable future. However, the growth in pay-TV ARPU will compensate for the subscriber losses and keep pay-TV revenues stable in the coming years. (Read in detail – Time Warner Cable Q2 Earnings: High Speed Data Leads Growth, Pay-TV Subscriber Losses Decline)

The company’s overall revenues increased by 3.5% to $5.93 billion for the quarter, but missed the consensus estimate by $10 million. ^[3] The high speed internet segment’s residential revenues increased by 8.5% to $1.74 billion while its business services revenues jumped 18% to $391 million during the quarter. ^[3] Pay-TV revenues stood at $2.51 billion for the quarter, down 1.3% from the prior year quarter. ^[3] The company’s business services segment continued to outperform with 16% revenue gains, driven by growth in the high-speed data and voice segments. We expect this uptrend to continue in the near term due to higher demand for bundled packages, especially for small and medium sized enterprises. Capital Expenditures increased by 15.6%, primarily due to the company’s investments in improving network reliability, upgrading older equipment and expanding its network. ^[3]

Time Warner Cable’s stock declined around 1.3% through the week. We currently have a price estimate of $183 for Time Warner Cable. For the year 2015, we estimate revenues of $23.8 billion, compared to consensus estimate of $23.7 billion, and EPS of $7.38, compared to a consensus estimate of $6.94.

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1. Telecom Italia inks content deal with Netflix, July 29, 2015, Reuters [↩]
2. Time Warner Cable Reports 2015 Second-Quarter Results, July 30, 2015, Time Warner Cable Investor News [↩]
3. Time Warner Cable’s SEC Filings [↩] [↩] [↩] [↩]