By now it’s an official trend: cable operators have hit a growth wall in subscriber gains. Time Warner Cable joins Comcast in experiencing basic video subscriber losses and a slowdown in high-speed Internet subscriber growth during Q2 07, according to the company’s Q2 07 earnings report (PDF), issued this morning.
During the quarter, Time Warner Cable, the nation’s second largest cable company, lost 57,000 basic subscribers. In comparison, the operator added 46,000 net new core video customers during Q1 07 and gained 19,000 net new basic subscribers during the year-ago quarter.
High-speed data growth dropped to only 188,000 net new customers during the quarter, a run rate down 18% year-over-year and 47% sequentially.
Digital TV subscriptions held their own during the quarter as did the company’s digital voice or VoIP service. Digital subscribers grew by a net 184,000, roughly on par with the net 171,000 new digital customers posted during Q2 06. Digital voice customers grew by a net 222,000, almost flat with the net 221,000 net new digital customers during Q1 07 and slightly up from the 212,000 net telephony gains during Q2 06.
These tepid results didn’t have much affect on the financial performance of the Time Warner unit. Revenues advanced 9% year-over-year to $3.8 billion, while cash flow, the key profitability metric in the cable business, also grew by 9% year-over-year, rising to $1.4 billion.
During the analysts call, executives said they’re not happy about the loss of basic subscribers. CFO John Martin said that “we are obviously never happy about losing basic subscribers” but blamed the bulk of the loss on the underperforming systems Time Warner Cable acquired from Adelphia a year ago.
The high-speed data growth slow-down might simply be a reflection of how mature the broadband Internet marketplace is, according to CEO Glenn Britt. “We’re not exactly talking about the early adopters any more,” he said. “We should expect the rate of change should slow down.”
Two other very interesting bits of information revealed in the call: Time Warner Cable is in talks to buy cable operator Insight Communications, which is “pursuing strategic alternatives.” If a deal to buy Insight goes through, TWC would boost its homes passed footprint by around 2.5 million and expand its basic customer reach by around 1.3 million.
The other interesting tidbit: Sprint is pulling out of its joint venture, SpectrumCo, formed when a consortium of cable operators joined hands with the wireless provider to successfully bid on broadband wireless spectrum. “As it went along, they decided they had better use for that capital,” Britt said when explaining why Sprint is pulling out of SpectrumCo.
The cable guys, however, are still uncertain about what they want to do with the broadband spectrum purchased by the consortium. “We are still as a group with the other cable companies…trying to figure out the best use for that spectrum.”
Sprint, however, will stick with its cable partners in jointly offering a mobile voice service, Pivot.
| Time Warner Cable Selected Operational Statistics (in mil., except %) | |||||
| Subscribers and Penetration | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Homes passed | 25.88 | 25.89 | 26.06 | 26.28 | 26.34 |
| Subscribers | 13.51 | 13.43 | 13.40 | 13.45 | 13.39 |
| Basic penetration | 52.2% | 51.8% | 51.4% | 51.2% | 51.0% |
| Total Customer Relationships | 12.00 | 14.59 | 14.57 | 14.69 | 14.68 |
| Revenue Generating Units | 24.10 | 28.85 | 29.53 | 30.44 | 30.89 |
| Digital Video | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Digital video subs | 6.90 | 7.02 | 7.27 | 7.55 | 7.73 |
| Quarterly net adds | 0.17 | 0.14 | 0.25 | 0.28 | 0.18 |
| Digital subs % of basic subs | 51.1% | 52.3% | 54.2% | 56.1% | 58.0% |
| High Speed Data - Residential | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| HSD subs | 6.14 | 6.40 | 6.64 | 7.00 | 7.19 |
| Quarterly net adds | 0.23 | 0.25 | 0.25 | 0.36 | 0.19 |
| HSD subs % of HP | 23.7% | 24.7% | 25.5% | 26.9% | 28.0% |
| High Speed Data - Commercial | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| HSD Subs. | 0.23 | 0.23 | 0.25 | 0.25 | 0.26 |
| Quarterly net adds | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
| Total Telephony | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Total Subs. | 1.60 | 1.77 | 1.97 | 2.19 | 2.41 |
| Quarterly net adds | 0.21 | 0.17 | 0.20 | 0.22 | 0.22 |
| Circuit Switched Acquired | 0.14 | 0.12 | 0.11 | 0.09 | 0.07 |
| Digital Telephone | 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 |
| Digital Phone Subs. | 1.46 | 1.65 | 1.86 | 2.09 | 2.34 |
| Quarterly net adds | 0.21 | 0.19 | 0.21 | 0.23 | 0.24 |
| % of homes passed | 5.6% | 6.4% | 7.1% | 12.0% | 12.0% |
| Source: Emerging Media Dynamics, Inc. analysis of company data © 2007. | |||||
Posted by Cynthia Brumfield at 12:39 PM | Print | Comments (0)
Last quarter, Time Warner touted AOL’s ad growth and the press swallowed the spin uncritically, parroting the company’s falsely positive PR on the ailing unit. I seemingly stood alone in contradicting the rosy take on AOL, noting that all the key metrics for AOL were, in fact, headed in the wrong direction.
Now there can be no doubt: AOL is a big stinker for Time Warner and the strategy to turn the Internet company into a booming ad revenue machine is not working. Time Warner issued its Q2 07 earnings release (PDF) this morning and the numbers for AOL are bad.
Although total page views were up for the first time since the fourth quarter of 2005, ad revenue slipped for the second quarter in a row, dropping by 5% or $27 million sequentially to $522 million. Total revenue for AOL dropped 39% year-over-year and 14% sequentially to $1.2 billion as the company’s strategy to drop paid subscriptions really drove down revenue.
Worse, Time Warner is no longer offering the fig leaf hope that AOL will grow this year. During the company’s analyst call, CEO Dick Parsons said “we’re stepping back from our expectations that AOL will grow its advertising at or above the industry’s growth rate this year.”
Parsons also offered a number of reasons why AOL’s performance has been so disappointing. First, a bunch of ad contracts expired during the quarter. Secondly, AOL implemented a series of upgrades in its advertising systems, which, according to Parsons, slows things down. “These kinds of upgrades often lead to, at the beginning, a slowing of traffic and monetization.” Third, advertiser demand has shifted to third party networks and away from premium display advertising, which eats into AOL’s revenues.
Whatever the case may be, momentum counts in the media business and AOL doesn’t have it. Based on the numbers released today, which seem to solidify a down-bound trend, it looks AOL won’t ever regain momentum.
| AOL Selected Statistics ($ in mil, except per sub.) | |||||
| 2Q06 | 3Q06 | 4Q06 | 1Q07 | 2Q07 | |
| Total U.S. AOL Subs. | 17,664 | 15,198 | 13,183 | 11,999 | 10,928 |
| Net Change | (976) | (2,466) | (2,015) | (1,184) | (1,071) |
| % Change | -5% | -14% | -13% | -9% | -9% |
| Total AOL Ad Revenue* | $ 449 | $ 479 | $ 566 | $ 549 | $ 522 |
| Net Change | $ 57 | $ 30 | $ 87 | $ (17) | $ (27) |
| % Change | 15% | 7% | 18% | -3% | -5% |
| Total AOL Revenue | $ 2,046 | $ 1,983 | $ 1,856 | $ 1,458 | $ 1,253 |
| Net Change | 65 | (63) | (127) | (398) | (205) |
| % Change | 3% | -3% | -6% | -21% | -14% |
| Domestic Ad Revenue (Less TAC) | $ 295 | $ 304 | $ 361 | $ 345 | $ 329 |
| Net Change | $ 20 | $ 9 | $ 57 | $ (16) | $ (16) |
| Avg. Mo. Unique Visitors | 113 | 112 | 111 | 111 | 114 |
| Net Change | 6 | (1) | (1) | - | 3 |
| Ad Revenue Less TAC Per Unit | $ 2.62 | $ 2.71 | $ 3.25 | $ 3.11 | $ 2.89 |
| Total Page Views | 51,665 | 48,692 | 44,383 | 43,959 | 52,080 |
| Net Change | (969) | (2,973) | (4,309) | (424) | 8,121 |
| Monthly Page Views/Unique Visitor | 153 | 145 | 133 | 132 | 152 |
| Net Change | (10) | (8) | (12) | (1) | 20 |
| Domestic Ad Revenue Less TAC Per 1,000 Page View | $ 5.71 | $ 6.24 | $ 8.13 | $ 7.85 | $ 6.32 |
| Net Change | $ 0.48 | $ 0.53 | $ 1.89 | $ (0.28) | $ (1.53) |
| OIBIDA | $ 505 | $ 563 | $ 302 | $ 542 | $ 484 |
| Operating Income** | $ 329 | $ 390 | $ 910 | $ 1,084 | $ 360 |
| **Includes a one-time Q107 $670 million gain from the sale of AOL Germany and lower depreciation ($22 million) and amortization ($11 million) costs. | |||||
| *Includes a one-time $19 million benefit from an accounting change for Q1 07 | |||||
| Source: Emerging Media Dynamics, Inc. analysis of company data. © 2007. | |||||
Posted by Cynthia Brumfield at 10:59 AM | Print | Comments (1)
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