IP Democracy: Cable's Still the Star at Time Warner

As the business world awaits more detail on Time Warner’s plan to offer AOL’s services for free (call at 11 — more info. to follow), Time Warner issued its Q2 06 earnings report this morning showing strong profitability and continued strength in its cable division. Net income soared to $1.01 billion, or $.24/share, compared to a loss of $409 million, or $.09/share during the year-ago quarter, when Time Warner took a huge write-down to settle securities litigation stemming from AOL’s accounting practices.

Revenue rose only slightly between the two time periods, ticking up by 1.2% to $10.71 billion in Q2 06 due to weakness at AOL and the publishing division. Filmed revenues were also down due to Time Warner’s relatively weaker slate of titles compared to last year.

AOL continued to be the sty in the media conglomerate’s eye with the unit losing nearly a million (976,000) paid subscribers, dropping to 17.7 million paid U.S. customers by quarter’s end. AOL ad revenues, which Time Warner hopes will skyrocket once the service becomes totally free, did jump 40% year-over-year to $449 million, but that’s still a small fraction of the overall unit’s revenues, not to mention a tiny fraction of Time Warner’s revenues.

The star, as always, was Time Warner Cable, which just closed its acquisition of certain Adelphia properties. All subscription categories for the cable division grew, including basic subscribers, which advanced by 18,000 net new customers.

Time Warner Cable added 230,000 net new high-speed data customers, 234,000 net new digital voice customers and 171,000 digital customers. With the exception of digital voice (Time Warner launched its VoIP offering company-wide and earlier than most operators), quarterly growth was up in each of these subscription services year-over-year. Revenues for the cable group grew 15% year-over-year while cash flow advanced 16%. (See table below for relevant numbers.)

Costs associated with the Adelphia acquisition, related transactions with Comcast (the final unwinding of a Time Warner-Comcast partnership) and the shut-down of the WB Network will nick cash flow growth for the company for 2006. Time Warner now expects cash flow growth to be in the low-double digits. Surprisingly, the expected dismantling of AOL’s paid subscriber business isn’t expected to affect growth in cash flow for the year.

Time Warner Cable Selected Statistics
Subscribers and Penetration	2Q05	3Q05	4Q05	1Q06	2Q06
Homes passed	19.38	19.51	19.63	19.73	19.94
Subscribers	10.91	10.92	10.96	11.04	11.06
Basic penetration	56%	56%	56%	56%	55%
Year-to-year internal sub growth	0.0%	0.2%	0.7%	1.2%	1.4%
Total Customer Relationships	11.70	11.74	11.80	11.94	12.00
Revenue Generating Units	21.09	21.74	22.49	23.44	24.10
Digital Video	2Q05	3Q05	4Q05	1Q06	2Q06
Digital video subs	5.05	5.20	5.40	5.64	5.81
Quarterly net adds	0.14	0.15	0.20	0.24	0.17
Digital subs % of basic subs	46%	48%	49%	51%	53%
High Speed Data - Residential	2Q05	3Q05	4Q05	1Q06	2Q06
HSD subs	4.32	4.56	4.82	5.17	5.40
Quarterly net adds	0.20	0.23	0.27	0.35	0.23
HSD subs % of HP	22%	23%	25%	26%	27%
High Speed Data - Commercial	2Q05	3Q05	4Q05	1Q06	2Q06
HSD Subs.	0.19	0.20	0.21	0.22	0.23
Quarterly net adds	0.01	0.01	0.01	0.01	0.01
Digital Telephone	2Q05	3Q05	4Q05	1Q06	2Q06
Digital Phone Subs.	0.61	0.85	1.10	1.37	1.60
Quarterly net adds	0.24	0.24	0.25	0.27	0.23
% of homes passed	3%	5%	5%	8%	9%
Operating Results	2Q05	3Q05	4Q05	1Q06	2Q06
Total cable revenues	$ 2,357	$ 2,395	$ 2,500	$ 2,580	$ 2,721
OIBDA*	$    891	$    936	$    976	$    932	$ 1,033
OIBDA margin	38%	39%	39%	36%	38%
Avg. mo. revenue/basic sub	$ 84.10	$ 85.79	$ 89.05	$ 91.33	$ 95.63
Avg. mo. cash flow/basic sub	$ 31.79	$ 33.53	$ 34.77	$ 32.99	$ 36.30
*operating income before depreciation and amortization.
Source:  Emerging Media Dynamics, Inc. analysis of company data © 2006.

Posted by Cynthia Brumfield on August 2, 2006 10:07 AM to IP Democracy