Time Warner Cable misses estimates as programming costs rise

Written By kolimtiga on Kamis, 29 Januari 2015 | 23.50

Time Warner Cable Inc., which is awaiting regulatory approval to merge with Comcast Corp., missed analysts' profit estimates as TV programming costs rose and the company offered more promotions to lure subscribers.

Fourth-quarter earnings, excluding some items, rose to $2.03 a share, falling short of the $2.09 average of analysts' estimates compiled by Bloomberg. Sales gained 3.8 percent to $5.79 billion, the New York-based company said in a statement. Analysts projected revenue of $5.81 billion.

As the total number of Americans paying for TV declines, Time Warner Cable has focused on offering cheaper bundles of cable, Internet and phone service to keep subscribers and lure new ones. The company has faced rising costs for sports and broadcast channels, while investing in improving its broadband network as younger viewers increasingly watch shows on the Web instead of paying for traditional cable.

"The big drag remains the rate of programming rate increases," Craig Moffett, an analyst at MoffettNathanson LLC, said in a phone interview. Efforts to draw new customers also reduced profit, he said.

"They're focusing more on bringing customers into double and triple play packages, and those often have promotional prices up front," Moffett said.

Programming and content expenses climbed 7.1 percent to $1.3 billion in the quarter, as companies demand higher fees for the right to air their sports and broadcast channels.

Time Warner Cable shares fell 0.4 percent to $138.58 at 10:01 a.m. New York time. The stock was down 8.5 percent this month through yesterday.

The falling number of Americans paying for TV partly inspired Comcast's proposed $45.2 billion takeover of Time Warner Cable. The deal could give the combined companies scale to help invest in their network and combat rising expenses.

While Time Warner Cable reiterated that it expects the deal to close soon, the companies extended the expiration date of their merger agreement by six months to August, according to a regulatory filing Thursday.

The extension is "no surprise" and "purely procedural," according to James Ratcliffe, an analyst at Buckingham Research Group. He said it's very likely that the deal will be completed.

The merger is still under regulatory review. The U.S. Federal Communications Commission and Justice Department have been vetting the deal since it was announced almost a year ago and delayed their decisions several times.

Time Warner Cable said it had its best quarter for subscriber numbers in at least seven years. The company lost 38,000 residential cable customers, while gaining 295,000 residential voice customers and 168,000 residential high-speed Internet clients.

The subscriber performance was better than analysts expected, according to Philip Cusick, an analyst with JPMorgan Chase & Co. In a research note, he said analysts were anticipating a loss of 103,000 cable customers with additions of 30,000 for voice and 93,000 for broadband.

The tradeoff for stronger subscriber growth and retention was that monthly bills didn't rise as much as some analysts expected, partly because of more promotions. The average monthly broadband bill rose to $47.30 a month, while Cusick expected $47.49, and voice revenue of $30.58 was short of Cusick's $31.63 estimate.

"This is actually the first real sign of a turnaround at Time Warner Cable," Moffett said. "The company has been much too reliant on price increases as of late. And now for the first time they're showing real signs of fixing the basic problems and it's showing up in much better subscriber results than in the past."

Moffett said video subscribers may even rise this year.

Time Warner Cable's net income rose to $554 million, or $1.95 a share, from $540 million, or $1.89, a year earlier.

The company said the costs of airing football, basketball and other games are driving its rising expenses. Customers this year have a $2.75 monthly charge added to their bills for sports programming.

Other providers have made similar moves. The charge for broadcast networks on Comcast's monthly bills has gone up to $3.25 from $1.50 in most markets.

The price increases have further pushed viewers online, where there are increasingly cheaper options to access content. In 2013, the number of Americans with cable or satellite subscriptions fell for the first time.

Copyright © 2015, Los Angeles Times

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