Time Warner Cable Continues To Bleed Pay-TV Subscribers

Time Warner Cable (NYSE:TWC) will report its Q4 2013 earnings on January 30. The year 2013 appears to be Time Warner Cable’s worst for its pay-TV business, as it continued to lose subscribers. Earlier this month, the company stated that it lost 215,000 pay-TV subscribers during the fourth quarter. However, it added 40,000 broadband subscribers during the same period. ^[1] The company is benefiting from the continued demand for high-speed data services as people opt for high-tier plans. We estimate the broadband revenues to be northward of $6.7 billion for 2013. The company recently completed the acquisition of DukeNet Communications, which will strengthen its business services in the Southeast (See – DukeNet Acquisition Will Bolster Time Warner Cable’s Business Services In The Southeast). Charter Communications recently made a public offer to acquire Time Warner Cable in a deal worth more than $61 billion. However, Time Warner Cable rejected the offer due to the lack of acquisition premium (Read More – Time Warner Cable Rejects Charter’s $61 Billion Bid).

See our complete analysis for Time Warner Cable

Pay-TV Subscriber Trend

For cable companies in the U.S., the past several quarters have been tough as they have been experiencing significant challenges in retaining pay-TV subscribers. Time Warner Cable lost whopping 831,000 pay-TV subscribers in 2013, bringing the subscriber count to 11.5 million. On the other hand, cable giant Comcast (NASDAQ:CMCSA) managed to turnaround its video subscriber losses in the fourth quarter and reported subscriber gain for the first time since 2007. Time Warner Cable is losing more video subscribers amid competition with telcos and the challenge of convincing younger consumers to pay for TV. Also, the rise of alternate video platforms such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) is hurting the cable company. The company’s disputes with channel partners such as CBS have also added to its woes (See – CBS Dispute Weighs Heavy On Time Warner Cable Results, Broadband And Pay-TV Subs Decline). After losing thousands of pay-TV subscribers, Time Warner Cable has now been re-branding itself as a pure broadband player.

Broadband Will Continue To Drive Growth

While the pay-TV business is shrinking for Time Warner Cable, broadband business is fueling growth. We estimate that broadband constitutes roughly 34% of company’s value. During the first three quarters of 2013, the company witnessed 15% jump in broadband revenues amounting to $4.29 billion. ^[2] The broadband business has done well for the company due to rising demand for faster Internet and the decline of DSL Internet connections. Approximately 86.1 million U.S. households at the end of the first half of 2013 had broadband Internet access, translating into a 70% penetration of all American households. ^[3] There is still some room left for broadband to penetrate and this will benefit the cable industry in particular as it accounts for 58% of the U.S. broadband market. Time Warner Cable has been re-branding itself as a major broadband provider and is aggressively penetrating in the commercial business segment.

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1. Time Warner Cable staunched subscriber bleed in Q4, Reuters, Jan 8, 2014 [↩]
2. Time Warner Cable’s SEC Filings [↩]
3. Broadband Internet Penetration Deepens in US; Cable is King, Isuppli, Dec 9, 2013 [↩]