Michelle Clancy | 25-08-2013
Time Warner Cable (TWC), the No 2 cable provider in the US with a 15% market share, is facing big trouble in the wake of sustained pay-TV subscriber losses.
In the second quarter it lost subscribers and it stands to lose even more by not innovating, one analyst says, and by the ongoing dispute with CBS which has led to a blackout and disgruntled subscribers.
“The decreasing number of subscribers due to pressure from online video providers and stopping transmission of CBS are headwinds for Time Warner, which is expected to decrease its residential videos segment's revenue 2.5% year-over-year to $10.64 billion in fiscal year 2013,” said Fusion Research in a note. The firm has a “hold” rating on TWC stock.
The pay-TV market is suffering from competition by over-the-top (OTT) competitors and it’s beginning to be measurable, Fusion contends: there has been a 4.6% year-over-year decline in the number of subscribers in TWC's second quarter of 2013, attributable to the influence of Netflix, it said. But unlike other cablecos, TWC has yet to make any substantial moves.
“To compete with online video providers, Time Warner planned to provide online video service to its subscribers by purchasing a stake in online video provider website, Hulu,” Fusion pointed out. “This attempt was unsuccessful because the owners of Hulu refused the selling of the stake on July 25 since the bids didn't meet their expectations.”
TWC’s rivals are doing better. DISH for instance has the Hopper whole-home DVR with commercial-skipping capability. And No 1 US cable MSO Comcast has aggressively addressed churn, notably with the launch of its X1 cloud-based platform, which integrates Comcast's cable TV video content with social media features, interactive apps and Web content. It’s been launched X1 in more than 12 markets of the US so far with total footprint coverage by the end of the year.
Comcast has managed to reduce its subscriber losses and Fusion expects a 4.5% year-over-year increase in pay-TV revenue for the company to reach $21.06 billion this year. “As a result of these measures, only 159,000 subscribers declined in the second quarter compared to a 176,000 subscriber decline in the second quarter of 2012,” Fusion noted. “These attractive features are expected to attract new subscribers.”
Meanwhile, the row with CBS shows no signs of abating. The two are at an impasse over retransmission fees, and CBS has pulled its feeds, resulting in a blackout for three million subscribers. And they’re not happy: a class-action lawsuit is underway in California against the MSO. TWC was paying $0.75-$1 per subscriber to CBS; now, the broadcaster is reportedly seeking $2 per subscriber. It’s unclear how long negotiations will drag on.
CBS has motive to stand its ground, even though the blackout is eating into its revenue. CBS generated revenue of about $250 million last year from retransmission fees, Fusion noted, and it’s expected to lose $400,000 each day due to lack of transmission. That’s not chump change, but it will be a short-term issue for the network. In the long-term, increasing retransmission fees will positively affect CBS’ stock price as its revenue from retrans is expected to have a CAGR of 31.95%, reaching $1 billion over the next four years.
“Although Time Warner's stock price surged in the last six months due to the increase in broadband subscribers, this growth is likely to be off-set by the decline in its pay TV's revenue,” Fusion’s analysis concluded, noting that TWC will see volatile stock fluctuations until it can address its issues.