Time Warner announced this morning that it will completely spin off its cable unit, a move that has been widely anticipated since CEO Jeff Bewkes took over the company at the beginning of the year. Combined with the decision to jettison AOL's access business, which Bewkes said this morning will be completed by the end of Q2 08, Time Warner is now on its way to becoming a pure content play.
"We think the content brands that we've got in our networks, in our publishing titles and in some of our AOL stables are very strong and with an operating management that knows how to succeed and compete vigorously in the market and we think we can put fairly reliable strong growth performance into the remaining businesses of Time Warner," Bewkes said when asked about Time Warner's long-term strategy during the company's earnings call today.
Not slated for jettisoning is one of Time Warner's weakest properties, AOL, presumably because of its prospects to someday reap the reward of a flush Internet ad market and, perhaps, its strategic importance as Microsoft angles to make a hostile bid for Yahoo!. Despite AOL's truly weak Q1 08 performance, Bewkes said that AOL's Platform A ad strategy is working and he's optimistic about future growth.
Still, even he hinted at problems at the perpetually ailing unit. "We were not satisfied by the performance of display advertising on our owned and operating inventory," Bewkes said (owned and operated inventory is the most lucrative for AOL.) "We didn’t integrate our Platform A acquisitions fast enough and that created a sales channel problem."
Time Warner's TV networks, led by TNT, CNN and HBO, were the bright spots at the company during the quarter, with revenue rising 10% year-over-year to $2.7 billion and operating incoming advancing from $860 million to $874 million.
Time Warner Cable was also a strong performer during the quarter -- the jettisoning of TWC probably has more to do with Bewkes' programmer background at HBO and his resulting dislike for the capital-intensive, messy business of cable distribution than it does with the inherent growth prospects for cable. For the first time in four quarters, Time Warner Cable post net basic subscriber gains, adding 55,000 customers during the quarter to reach a total of 13.3 million basic subs.
High-speed data, digital and telephony growth continued at decent levels. TWC added 304,000 net new high-speed customers, down 15% from the net adds for Q1 07 but up 46% sequentially. TWC ended the quarter with 7.9 million high-speed customers, representing 30% of homes passed.
Digital service advanced by a net 261,000 new customers during the quarter, a run-rate down 6% year-over-year but up 61% sequentially. At the end of the quarter, Time Warner had 8.2 million digital customers, representing 62% of all basic subscribers.
Digital telephony grew by a net 275,000 subscribers (although Time Warner elminated around 9,000 analog phone customers), a growth rate up 18% year-over-year but down 4% sequentially. By quarter's end TWC had 2.3 million telephony subscribers, representing 13% of homes passed.
Total revenues for TWC grew by 8% year-over-year and 2% sequentially to $4.16 billion. Cash flow advanced by 7% year-over-year to $1.4 billion, while free cash flow soared by 51% to $339 million.
(Download our spreadsheets detailing Time Warner Cable's current and historical financial and operating data here. The download is free although registration is required.)
Cynthia Brumfield at 1:26 PM|Comments(0)
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