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Time Warner misses estimates

Cable provider cites sports costs, television-subscriber losses

By Edmund Lee Bloomberg News

This article was published August 1, 2014 at 1:53 a.m.

Time Warner Cable Inc., the cable company with plans to merge with Comcast Corp., reported earnings that trailed analysts' estimates as Internet customer gains weren't enough to make up for video subscriber losses.

Second-quarter earnings, excluding some items, rose to $1.89 a share, the New York-based company said Thursday. Analysts estimated $1.90 on average. Costs for sports programming also cut into profit, and a dispute with competitors over rights to Los Angeles Dodgers games led the cable provider to reduce its forecast for the year.

Time Warner Cable lost 152,000 TV customers in a seasonally weak period when college students typically disconnect service for summer vacation. Five analysts surveyed by Bloomberg News predicted a loss of 128,000 TV subscribers on average. The company added 67,000 Internet subscribers, better than the 62,000 average estimate.

The results were "a little bit lackluster," Telsey Advisory Group analyst Tom Eagan said. "Most customer metrics and financial metrics were below our estimates, especially given the strong numbers we've seen over the past couple of quarters," he said over the phone.

Cable and satellite operators are seeing fewer new video customers as more consumers turn to online streaming or TV packages from phone carriers. In turn, the pay-TV industry is looking to acquisitions to get bigger and keep pace with surging broadband growth.

Time Warner Cable, second only to Comcast in U.S. cable subscribers, is awaiting regulatory approval for the merger, a deal the companies have pledged will increase returns for investors. Competitors have taken notice. After the $45.2 billion transaction was announced in February, AT&T Inc. said it would buy satellite-TV service DirecTV for $48.5 billion.

Time Warner shares fell $6.32, or 4.2 percent to close Thursday at $145.10. The stock had gained 12 percent this year through Wednesday.

Net income climbed to $499 million, or $1.76 a share, from $481 million, or $1.64 a share, a year earlier. Sales climbed 3.2 percent to $5.73 billion.

In the segment of Time Warner Cable that includes sports programming, operating costs rose 56 percent from a year earlier mostly from costs for SportsNet LA, a channel controlled by the Dodgers. That, plus higher costs for advertising inventory, reduced profit for that segment by 26 percent to $173 million.

Time Warner Cable agreed last year to pay $8.35 billion for 25 years of Dodger baseball games, becoming the charter distributor of SportsNet LA, with responsibility for advertising and sales to other distributors. Competitors like DirecTV have balked at paying the $4 a month Time Warner Cable has sought for the channel, leading Federal Communications Commission Chairman Tom Wheeler to look into the standoff.

"We are willing to enter into binding arbitration to expeditiously bring Dodgers games to fans," Time Warner Cable CEO Rob Marcus said on a conference call with analysts after the earnings report.

Information for this article was contributed by Caitlin McCabe of Bloomberg News.

Business on 08/01/2014

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