Time Warner Cable will Depend on Broadband for Revenue
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Time Warner Cable (NYSE: TWC) has a huge challenge ahead for themselves. Everything is not rosy in the “Pay T.V. Industry” even though the company again showed itself strong. Time Warner is a company in partial transition from building revenue through a mature Pay TV clientele to a Broadband base. This is how they were recently able to show good numbers.
They have shown steady earnings over the last eight quarters while increasing net income on an average (year over year) of 29.4%. It continued to do well this first quarter of the year just as investors like to see. The company said it earned $382 million, or $1.20 a share, in the latest three months, compared with a profit of $325 million, or 93 cents, in the year-ago period. Revenue rose 6.4% to $5.13 billion as was expected on the street.
These results highlighted how broadband has become the cable operator's main growth business in the face of a mature pay-TV market. First quarter profits rose 18% on increased demand from its residential broadband services. It appears we have a maturing PAY TV market and Time Warner’s strategy to counter slowing growth in its cable TV subscriber base is by increasing its market share of the broadband web connection business is working.
Broadband has been steadily increasing in market share to the point that by 2010 77.3% of the population used it. Eventually this market will mature. It will take some time but for now Time Warner will continue to spend a majority of its new business marketing energies upon new Broadband customers. From here, they can recruit more PAY TV customers.
Time Warner is not the only company that has seen this trend. Comcast (NASDAQ: CMCSA) was losing video subscribers, but has slowed the loss over the past several quarters as it rolls out new products and new ways to access its content. At the same time it has strengthened broadband subscriber growth, with more of its customers opting for double- and triple-play offerings.
We believe the market share is still wide enough that Time Warner should be able to increase its revenue unless TV subscribers just drop off too quickly. Their challenge to to make the PAY TV segment more personal to keep that segment while recruiting more broadband customers. If they can do this, they will continue to move up in value because it will keep investors happy.
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