Data drives TWC's Q1 profit; iPad update, new navigation

Thu, 04/28/2011 - 8:20am
Mike Robuck

Time Warner Data? While it's not likely that the nation's second-largest cable operator will change its name anytime soon, high-speed data helped drive Time Warner Cable's first-quarter net income to a 52 percent increase.

Time Warner Cable added 189,000 data customers to end the first quarter just shy of 10 million subscribers, at 9.6 million. Rob Marcus, Time Warner Cable's president, chief operating officer and acting chief financial officer, said on this morning's earnings call that subscribers were opting for the company's higher-speed data tiers, which included the addition of 136,000 new Turbo customers and 9,000 wideband subscribers.

"I'm particularly pleased with the performance of our high-speed data product," said Time Warner Cable CEO Glenn Britt. "Both product mix and ARPU growth trends continue to be very favorable, and since quarter-end, we have crossed the 10 million subscriber threshold. High-speed data is quickly becoming the anchor product in the eyes of our customers."

In the fourth quarter, Time Warner Cable added 5,000 wideband subscribers; Marcus attributed some of the latest DOCSIS 3.0 tier additions to inclusion in the company's high-end Signature Home tier that launched in December. Marcus said 16 percent of the company's residential data subscribers are signed up for Turbo or wideband tiers.

Time Warner's data increases were also driven by the company's efforts to market the service separately from its triple-play bundle. On a size-adjusted basis, Marcus said Time Warner Cable added more subscribers than both AT&T and Verizon.

On the video side of the ledger, Time Warner Cable lost 65,000 residential subscribers, which Marcus said primarily comprised lower-end, analog, single-play customers. The basic subscriber losses were partially offset by increases in digital and bundled video subscribers, new subscribers to its Spanish-language tier, and DVR service revenues.

Marcus said video subscriptions picked up last month, but unemployment and house vacancy rates remained high across the company's footprint.

Time Warner Cable added 84,000 digital voice customers in the quarter, a 6 percent year-over-year increase, for a total of about 4.6 million voice subscribers.

Subscription revenues grew 5 percent year-over-year to $4.6 billion, driven by a 3.5 percent increase in residential subscription revenues and a 23 percent increase in commercial subscription revenues. Advertising revenues increased 14 percent to $197 million.

(in millions; unaudited) First Quarter
  2011 2010 Change
Subscription revenues:
Video $ 2,767 $ 2,740 1.0%
High-speed data   1,328   1,193 11.3%
Voice   535   493 8.5%
Total subscription revenues $ 4,630 $ 4,426 4.6%
Advertising revenues   197   173 13.9%
Total revenues $ 4,827 $ 4,599 5.0%

For the quarter, Time Warner Cable's revenue increased 5 percent to $4.83 billion, while net income rose 52 percent to $325 million, or 93 cents per share.

iPad update, new navigation for STBs
Last month, Time Warner Cable introduced its iPad app, which met with resistance from some programmers in general, and Viacom in particular.

Britt said this morning that over the course of the next month or so, Time Warner Cable would release an updated version of its iPad app that would include remote control functionality and the ability to remotely program DVRs.

"This is a really exciting time in our business," he said. "New technology is making it possible to provide a better video experience to our customers. One that gives them more control. Nowhere is this more evident than in our iPad app, which we launched last month to overwhelming positive consumer reviews. In its first month, 360,000 iPad users have downloaded the app. It started with 30 linear channels simulcast over our cable network, and we now have more than 70 channels. By year-end we plan to add all of the linear cable channels, as well as broadcast channels, in several of our biggest cities, and a lot of on-demand content.

"I want to emphasize that our iPad app is not a one-off product. Rather, we are investing in a development process and a development team that will introduce new capabilities to our customers in rapid succession."

He also said the iPad app was a precursor to more video being delivered over IP.

"The consumer electronics industry is embracing the idea of devices, such as smart TVs with built-in intelligence and two-way communications capability, all built in IP standards," Britt said. "The technology that we're using to simulcast video to iPads will eventually feed all of these devices. And over time, this may lead to a world without set-tops, which we think could enable a much better consumer experience."

Britt said Time Warner Cable isn't ignoring its traditional video environment in the short term as it continues to build and develop around MPEG and analog standards.

"Later this year, we're planning to launch a new navigation application, which will be hosted in our network instead of in our set-tops, providing a much more intuitive and graphically rich search environment for the millions of customers using our set-top boxes," he said.

A tale of two tiers
At the opposite end of Time Warner Cable's high-end Signature Home tier is Time Warner Cable's cost-conscious TV Essentials tier that was rolled out late last year.

Marcus said that TV Essentials, which includes fewer premium channels at a lower monthly price point, has only launched in two markets to date, "but it appears to be effective as a targeted acquisition and retention tool among customer segments, and as an upgrade offer for basic only customers."

Time Warner Cable is in the process of evaluating how to expand the deployment of TV Essentials across its footprint.

TV Essentials and Signature Home are both part of Time Warner Cable's segmentation strategy.

As for Signature Home, Marcus said roughly 10,000 residential subscribers are paying an average of $210 a month for the service. In the first quarter, 70 percent of the new Signature Home subscribers were existing triple-play customers who were paying an average of $20 more per month to upgrade to Signature Home.

"We think we've struck a cord here with the high-end customer, and we're excited about the prospects," said Marcus.


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