Time Warner Cable profit rises, subscribers slip

Time Warner Cable saw bigger profits on increased revenue during the third quarter of 2010 even as it lost TV subscribers.

The second largest cable operator in the U.S. reported a 34 percent jump in profits for the three-month period. Earnings increased to $360 million, or $1 a share, up from $268 million, or 76 cents a share, during the same quarter a year earlier.

Revenue increased 5.2 percent to $4.73 billion. Analysts polled by Thomson Reuters had predicted earnings of 89 cents on $4.72 billion in revenue.

Just like cable giant Comcast, Time Warner Cable also saw a dip in paid TV subscribers. The company lost 155,000 video subscribers, of which about 46,000 were digital video subscribers.

Meanwhile the company continued to add high-speed broadband customers. In total it added 104,000 new broadband subscribers. And it also added 34,000 new digital phone subscribers.

Despite losses in subscribers, Time Warner Cable managed to increase revenue for video 1.7 percent. Revenue for high-speed broadband increased 10 percent and voice revenue was up almost 7 percent. Revenue from advertising increased 23 percent.

Across the industry, paid TV subscriptions fell for the first time in the second quarter of 2010. And Comcast, the largest cable operator in the U.S., reported a decline in cable TV subscribers in the third quarter. The cable companies are blaming the economy for the dip in subscribers, and they've downplayed the notion that some of these subscribers may be cutting the cord to watch TV exclusively online. Even if customers leave paid TV service for Internet services in high numbers, cable will likely make up for the lost revenue through increases in high-speed broadband subscribers.

Broadband customers are also flocking toward higher-speed premium services. As a result, Time Warner Cable saw the average revenue per user reach $43.31 per month, an increase of 4.7 percent compared to last year.

Separately, Time Warner Cable also announced it plans to buy back $4 billion worth of its own stock.

Coming soon: A lower-cost video service
During the company's conference call with analysts and investors, executives hinted at a new video package designed to address the low end of the market. CEO Glenn Britt said that Time Warner Cabel is readying a scaled-down video package that offers cash-strapped customers more flexibility.

"We recognize there is a segment of our population and economy under economic duress," he said. "And it's important for the broader industry to be responsive to that. So we have sought in our programming negotiations to get more flexibility [to offer lower cost packages.]"

Details of the new tier of service were scant, but Britt said it would cost less than services that are currently offered. On average, Time Warner Cable customers spend about $72 a month on video service.

Britt also noted the changing role of set-top boxes in the cable industry. He said that eventually there would be no need for set-tops as TVs and other consumer electronic devices start to perform the functions currently offered on set-tops.

"Set-top boxes weren't something we really wanted," he said. "The reason we have them is that consumer electronics devices in general aren't capable of displaying all of our services without a set-top box. They aren't two-way capable, can't display a program guide, or unencrypt encrypted services. "

But Britt said that as technology advances and consumer electronic devices such as TVs gain connectivity to the Internet, the set-top box will eventually go away.

"The world we are going toward is one where these devices will be more intelligent and more easily networked," he said. "Eventually, we will see fewer set-tops and more intelligence in the network. And all of this will offer a much better consumer experience."

Update 7:30 a.m. PDT: This story was updated with information from the conference call.