Earnings from giant Time Warner Cable and the smaller Cablevision told a very specific story about the cable business and about the state of the American consumer. Both lost more video subscribers than expected, but both grew the amount that their average monthly subscriber spends per month. This tells a tale of two types of consumers: the lower end is dropping cable service entirely while higher-end consumers are spending more on a wider variety of pricey products, from DVR, to high speed Internet, to video-on demand.
Bottom line: Cable faces a huge number of competitors — Satellite TV, and now also Verizon FiOS and AT&T's U-Verse service . The business is increasingly all about selling customers the "triple play" of cable, phone and internet.
Time Warner Cable lost 155,000 video subscribers, more than any other quarter, and far more than double the same quarter a year ago, when the economy was in worse shape. On the company's earnings call this morning, CEO Glenn Britt attributed that dip to the weaker economy, high unemployment and housing vacancies. He said they weren't due to people "cutting the cord" to watch video over the Internet—but simply a product of the economy. Certainly there's an argument that those two groups inherently overlap, but Britt says he gets that this is a problem, and the company's working to offer less expensive package options.
But Time Warner Cable shares rose on news that the company's buying back $4 billion in stock — a bigger buyback than many analysts expected. And it's more than compensating for the loss of "basic" subscribers by squeezing more dollars from those at the other end of the spectrum. Higher prices, and higher-tier service for the likes of high-speed Internet access helped TWC grow net income 34 percent over last year on 5 percent higher revenue. Subscribers buying just one of those services just aren't that important any more. Ad revenue, which leapt 22 percent higher on political ads, also helped bolster results.
Cablevision's story is similar: it lost 24,000 video subscribers, more than Wall Street expected. But Cablevision had a harder time than Time Warner Cable adding broadband and digital voice subscribers — numbers on both counts were far less than expected. But again like Time Warner Cable, Cablevision did manage to grow its average revenue per user nearly 6 percent.
Bernstein analyst Craig Moffett asks whether Cablevision is simply a victim of its own success -- its penetration is higher than any other cable operator for every service it offers, so it doesn't have much more room to grow. And if it's losing those lower end subscribers, that could be problematic. Where will it find growth?
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