Time Warner Cable reported profit that trailed analysts' estimates and cut its sales forecast as it continues to lose video subscribers.
Third-quarter earnings, excluding some items, fell to $1.86 a share, compared with analysts' average estimate of $1.90. Time Warner Cable lost 184,000 video customers, and rising costs for sports programming cut into profit. The company lowered its revenue forecast for the year to $22.8 billion, below analysts' estimates.
Time Warner Cable and Comcast are relying more on broadband users for revenue growth as new TV subscribers prove harder to come by. Netflix's streaming service and HBO's upcoming online subscription are going after younger viewers who prefer to watch shows over the Web rather than paying $50 a month or more for traditional cable.
"The numbers were weak," said Jonathan Chaplin, an analyst with New Street Research in New York. "Either management isn't focused on operations in the run-up to the deal, or they aren't good operators."
The falling number of Americans paying for TV is part of the driving force behind Comcast's proposed $45.2 billion takeover of Time Warner Cable. A year ago, Time Warner Cable reported losses of 306,000 customers for video and 24,000 for broadband. In the most recent quarter, the New York-based company added 92,000 high-speed internet subscribers, according to a statement today.
When it comes to over-the-top services from the likes of CBS and HBO, Time Warner Cable CEO Robert Marcus said on a call with Wall Street that he isn't worried.
"We continue to believe that our video value proposition compelling one and especially with the improvements we're making in the guide, the size of the VOD library and the continued improvements in the TWC TV app, we feel like we've got a very strong video offering and were not terribly concerned about others eating into that over-the-top offerings," he said.
Mr. Marcus added the company is "intrigued and we are more than prepared to work of programmers to deliver a better video offering to our customers." He expects such OTT services will also create increased demand for high-speed internet.
The deal with Comcast is at risk of taking longer to complete as regulators resolve disputes over programming contracts. While the Federal Communications Commission last week stopped the clock in its review, Comcast has said it still expects the deal to be completed in early 2015.
Time Warner Cable's net income fell to $499 million, or $1.76 a share, from $532 million, or $1.84, a year earlier. Sales rose 3.6% to $5.71 billion, shy of analysts' average projection of $5.75 billion.
Programming and content expenses climbed 9.6% to $1.3 billion in the quarter because of costs for the SportsNet LA channel that carries Los Angeles Dodgers baseball games. In July, the company had to reduce its full-year profit forecast because it was unable to get rival TV distributors to pay the fees it was asking for the sport network.
Today, the company forecast 2014 revenue of about $22.8 billion, or about 3.1% growth. That's lower than the guidance it gave in July for revenue growth of 3.5% to 4.5% this year, which would have been at least $22.9 billion. Analysts had been expecting 2014 sales of $22.95 billion, according to the average of estimates compiled by Bloomberg.
Time Warner Cable agreed last year to pay $8.35 billion for 25 years of Dodger baseball games, becoming the charter distributor of SportsNet LA, with responsibility for advertising and sales to other distributors. In September, Time Warner Cable ended a season-long blackout and allowed the Dodgers' final games to be carried on a local TV station available on every pay-TV service in Southern California.
~ Bloomberg News with Ad Age~