Time Warner Cable Blackout

MSO cuts full-year revenue growth forecast after subscriber losses

The monthlong CBS blackout for Time Warner Cable customers in major markets was a key factor leading to the cable operator’s biggest quarterly loss of video subscribers in its history.

The cable company lost 306,000 residential TV subscribers in the third quarter, much higher than analyst expectations of a decline of 183,000, according to StreetAccount. TW Cable also dropped 24,000 high-speed data and 128,000 voice subscribers on the consumer side, as the cable operator incurred higher-than-expected losses across all three services.

With the subscriber losses, Time Warner Cable revised its revenue forecast for the full year. The MSO now expects full-year revenue to grow 3% to 3.5%, down from its previous forecast of 4% to 5%, CFO Arthur Minson said on the operator’s earnings call.

“The CBS dispute apparently took a much larger toll than anyone would have imagined, and this colored all of the results,” MoffettNathanson analyst Craig Moffett wrote in a research note. “That’s bad news for future programming negotiations, and not just for TWC. Every cable operator now goes to the table knowing that CBS not only won the war, but left TWC badly damaged even for having fought the fight.”

TW Cable president Rob Marcus, set to become CEO at the start of 2014 after Glenn Britt retires, said the programming dispute with CBS as well as a smaller one with Milwaukee-based Journal Broadcast Group elevated video disconnects in the quarter by a few percentage points, and resulted in a 10% increase in double- and triple-play customers dropping video.

While the programming spats “resulted in short-term pain for us… in the end, the deals we reached were still better than where we were,” Marcus said on the earnings call Thursday.

As leverage continues to tip on programmers’ favor over pay-TV distributors, cable mogul John Malone has assertively called for consolidation among operators to cut content costs and gain other synergies. Malone’s Liberty Media holds a 27% stake in Charter Communications, which has sought a merger with Time Warner Cable — but the larger operator has rebuffed those overtures.

Britt, speaking on his last earnings call ahead of his retirement, addressed the issue of consolidation, though he didn’t mention Charter or Liberty: “We are focused on making money for (shareholders), rather than just on some fuzzy notion of industry consolidation,” he said.

Bright spot for TW Cable during Q3 was business services, which grew revenue 20.5% to $594 million. Total revenue for the quarter was $5.52 billion, up 2.9%, and adjusted net income rose 11.6% to $489 million (excluding gains from its sale of SpectrumCo and Clearwire investments last year).

In the CBS fight, more than 3 million TW Cable customers lost access to CBS-owned stations in New York, L.A., Dallas and other markets, and the cable operator dropped Showtime and three other cable nets across the U.S. The networks went off the air Aug. 2; the companies announced an agreement resolving the standoff on Sept. 2.

Time Warner Cable also in the third quarter had an extended retransmission-consent fight with Journal Broadcast Group, affecting TV stations in Milwaukee, Wis., Green Bay/Appleton, Wis., Omaha, Neb., and Palm Springs, Calif. The companies reached a deal after a 58-day blackout.

The cable company said in announcing Q3 results that “subscriber activity in the quarter was negatively impacted by programming disputes with CBS and Journal Communications.”

TW Cable, the second-biggest U.S. cable operator after Comcast, had 11.41 million video, 11.05 million broadband and 4.81 million voice residential customers. The operator added 14,000 business services customers, with 606,000 customer relationships at the end of June.

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