Time Warner Cable's Big Subscriber Loss Tilts Power Further Toward Programmers

Company Loses 306,000 Video Subscribers in Third Quarter

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Time Warner Cable lost 306,000 video subscribers in the third quarter, the company said today, as people fled the cable operator during its dispute with CBS and the resulting month-long blackout of the network.

CBS's ad attacking Time Warner Cable during their dispute
CBS's ad attacking Time Warner Cable during their dispute

While analysts were certainly expecting damage from the carriage dispute, and the company still ended the quarter with 11.4 million residential video subscribers, the drop was significantly greater than the consensus predictions of a 183,000-subscriber loss. It was also the biggest quarterly loss of video subscribers in the history of the company.

That's not only bad news for Time Warner Cable, whose quarter was also marred by a loss of broadband customers, but for any pay-TV company looking to take on a programmer.

"Every cable operator now goes to the table knowing that CBS not only won the war, but left Time Warner Cable badly damaged even for having fought the fight," analyst Craig Moffett wrote in a research note. "If you thought the scales were tipping in programmers' favor before, now you know that it is worse than you imagined."

A dispute between Time Warner Cable and Journal Broadcasting Group during the quarter also resulted in certain network affiliates going dark in four markets for about two months.

"We learned that disconnecting a broadcasters has a material impact versus disconnecting a cable network," Nomura analyst Adam Ilkowitz wrote in a research note. "These retrans negotiations are destructive to cable operators."

While traditionally Time Warner Cable may lose video subscribers in a carriage dispute, seeing a meaningful loss of double and triple play customers who also buy internet and phone services changes the game. "The pull through to other services is a sign that bundled customers left for triple plays at Verizon and AT&T, both of which posted solid results," Mr. Ilkowitz wrote.

Aside from Verizon and AT&T, which have a 40% overlap in Time Warner Cable markets, Mr. Ilkowitz also expects DirecTV to benefit.

Comcast this week reported a loss of 129,000 video subscribers in its third quarter, a bit more than it lost in the same period last year.

The results come as Time Warner Cable's agreement with Viacom is set to expire before the end of the year.

Dish Network and Walt Disney/ABC TV Group have been quietly negotiating since their deal expired at the end of September. An extension keeping Disney signals on Dish while they talk has helped the companies avoid the kind of publicity that hurt Time Warner Cable during its fight with CBS.

Despite the plunge in subscribers, Time Warner Cable still saw revenue increase nearly 3% in the quarter to $5.52 billion. Income fell to $532 million, or $1.84 per share, from $808 million, or $2.60 a share, in the year-ago period. If you exclude one-time costs, earning were $1.69 a share, topping analysts' estimates of $1.64 a share.

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